How to Trade in Your Car When You Owe Money on It – NerdWallet

Yes, you can trade in a car with a loanword. But proceed with caution and make certain you — not the dealer — control the transaction. If you ’ re trade in a car you still owe money on, you ’ re looking at one of these two situations :

  • You have positive fairness. If your car is worth more than the amount you owe on your lend, you ’ re in estimable shape. This difference is called positive equity and it ’ s like having money that you can apply toward the leverage of a new car .
  • You have negative equity. If your car is worth less than what you however owe, you have a negative equity cable car besides known as being “ inverted ” or “ subaqueous ” on your car loanword. When deal in a car with minus equity, you ’ ll have to pay the difference between the loanword libra and the trade-in value. You can pay it with cash, another loan or — and this is n’t recommend — rolling what you owe into a new car loan.

We ’ ll usher you how to handle each of these situations. But first gear, a little background.

How trading in a car works

When you trade in your cable car to a franchise, its value is subtracted from the price of the newfangled car. When you trade in a cable car with a loanword, the trader takes over the loan and pays it off. The trader is besides supposed to handle the paperwork, such as the transplant of the title, which establishes legal ownership of the vehicle. To trade in a cable car that ’ s not paid off, bring the take after items to the franchise :

  • Loan information, including return measure and report act .
  • Driver ’ mho license .
  • Vehicle registration .
  • Your fomite keys and any remotes .
  • proof of insurance .
  • A printout of your trade-in value .

It ’ sulfur important to keep in mind that both the price of the newfangled cable car and the value of the trade-in are highly assignable. To get an overall commodity deal, you ’ ll indigence to get a good pastime rate on your new loanword and a fair monetary value for both the trade-in and the new car. Before you go to the franchise, use a cable car lend calculator to estimate these numbers and see what your modern monthly cable car payment will be.

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Payoff amount and trade-in price

If you plan to trade in a car you still owe money on, foremost contact your car loan lender and ask for your wages come ( which could be slenderly higher than your remaining libra ).

Price your car. Look up the current trade-in value of your car on a pricing guide. You can use on-line price guides like Kelley Blue Book and Edmunds. Compare values. Subtract the payoff sum from your cable car ’ s stream trade-in measure. Though the final examination trade-in price is negotiable, you ’ ll now have a sense of whether you have positive or negative equity in your current fomite.

Trading in a car with positive equity

Say you owe $ 5,000 on your cable car, and it ’ s deserving $ 7,000 as a trade-in. You nowadays have $ 2,000 of fairness you can apply immediately to the purchase of your future car. This fairness is deducted from the negociate price of the raw cable car. In accession to any equity applied to the new car leverage, you can make a down payment to reduce the overall balance of the loanword. But you ’ ll need to provide finance — cash or an car loanword — for the remaining leverage monetary value of the car. The value of the trade-in will be listed in the compress for your new car. Make sure you are given the full agreed-upon amount you negotiated. The best means to ensure that you get a effective price for your trade-in and on your newfangled car is to negotiate each one individually. Refer to the prices listed in the on-line guides during your negotiations.

Trading in a car with negative equity

If you ’ re inverted on your car lend, it ’ second truly better to postpone your new car purchase and trade-in until you pay off the lend — or at least until you have positive fairness. But if you ’ ra struggling to make car payments, trading in your fomite can provide relief by allowing you to downsize to a less expensive car or even an cheap used car. In such a lawsuit, you ’ ll need to give the dealer your trade-in, plus the total of the negative equity. Say you owe $ 10,000 on a car with a trade-in rate of $ 9,000. rather of being on the hook for the whole $ 10,000, the trade-in accredit will cover most of the lend and you ’ ll pay the dealer the $ 1,000 remainder. beware : the principal will much happily suggest rolling the damaging fairness into the lend for your future car. Though convenient, this is inexpedient because it will immediately make you inverted in the new loan. It besides means that you ’ re creating a larger lend total and paying more interest. however, if you need a car but preceptor ’ t have the money to pay off the damaging fairness and are having trouble keeping up with your current cable car payments, it might be worth the risk. This can be the case if your fresh lend — from either an autonomous lender or the dealer — has a lower interest rate. If you decide to downsize by purchasing a cheaper car, your payments may become more accomplishable even if you roll the remaining debt into the newfangled car loanword. As you set up your new loan, invalidate extending your lend term for more than 60 months for a new car or 36 months for a use one. besides, know that you would likely get a better price selling your cable car privately than trading it in.

Final steps

once you ’ re done negotiating your cable car deal, along with the trade in, review the compress carefully to make certain all the terms you agreed on are in writing. Double-check the numbers with your own calculator. then, a few weeks after you ’ ve completed the conduct, check that your loanword is paid off. The lender should besides send documentation in the chain mail that the loanword is settled .

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