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3 min read . Published April 18, 2022
Written by Kellye Guinan. Written by Personal and Business Finance Contributor
Kellye Guinan is a freelance editor and writer with more than five years ‘ experience within personal financial matters. She is also a full-time employee at her local library where she helps people in her community get information about financial literacy, as well as other subjects.
Editor: Rhys Subitch Edited by Auto loans editor
Rhys has been editing and writing for Bankrate since the end of 2021. They are dedicated to helping readers gain the confidence to take control of their finances through providing concise, well-studied data that reduces otherwise complex subjects into digestible pieces.
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If you still owe money on your vehicle There are a few steps you should take before trading it in. But be cautious because negative equity can be a major impact on your finances. It’s an option but it can mean paying a lot more money than you’re required to. When to pay off your car before trading it in In nearly all instances, it’s better to make a payment or pay off your before selling it or trading it in. The main concern is whether you have negative or positive equity on your loan. If you have negative equity it is important to pay off your auto loan before trading into your vehicle. Possible equity On an auto loan signifies that you are owed less on the vehicle than the value of it. For example, if you’re left with $10,000 on your loan, but your vehicle has a value of $15,000 then you have $5,000 in positive equity. If you choose to sell your car, the positive equity can go toward your next vehicle as a down payment, reducing the amount you need to take out. Negative equity Negative equity can be described as the opposite. If you still owe $10,000 on your loan however your car is worth only $8000, you’ll end up with negative equity of $2,000. This is what columnists in the field of financial advice call ” .” This is an unwise situation to find yourself in. If you sell your car, you will need to cover the remainder out of pocket. In addition, breaking even is essential because it keeps you from rolling negative equity into the new loan and the cost of a car you are not driving. How do you trade or sell an automobile that you owe money on People trade with and sell vehicles that are backed by liens frequently. In fact, dealerships may claim to pay off your car when upgrading to new model. It’s not as simple as simply switching from one car to another. Check out the value of your vehicle on sites like Edmunds as well as Kelley Blue Book. Check out cars that have the same model and check out average selling prices within the same area. Determine your budget for your next car and how much you owe on your current one. If you’re owed more than you’re likely to receive by trading it in, consider alternative options. Gather maintenance records as well as other documentation. This may help increase the value of your car as a trade-in since it can prove that it’s been taken well. Check out trade-in deals from dealerships and don’t need to go to one place. Everyone may use the word “trade-in,” but really it’s selling your vehicle. You are able to shop for different quotes to get the best deal. Get everything in writing and especially if the dealer assures you that they will pay off the loan. Be sure you have an official copy of the deal. It’s still your responsibility to pay the balance of your loan and you must follow up and make sure that your lender is paid once you trade in your car. Alternatives to trading in the car If you’re in the red on your loan and you want to trade it in, this is not the most effective option. Instead, consider selling your vehicle to an individual buyer and making down the loan down or refinancing the loan at a lower interest rate. A private buyer, as opposed to an auto dealer, could aid you in getting more. But, you’ll need to handle paying back your lender and transfer the title yourself. This is something the dealership typically handles on your behalf, therefore it may be an added hassle. In the end, paying down the loan may not be an option for everyone. But if your payments aren’t currently costing you a lot, consider setting aside some money to make it even. This way, trading your vehicle in won’t require taking any of the remaining loan balance onto your new auto loan. Finally, try to . Do not extend the loan period in order to lower your payment -which increases the risk that you’ll be upside-down. Instead, cut down on the total amount that you need to pay. Next steps Provided you aren’t over the limit on your loan swapping your car to get an option that is less costly could be the best option. If you do have negative equity, try refinancing it instead. It might enable you to lower your interest rate so you pay less in total. But, most importantly, don’t transfer your current loan into a new loan. In collaboration with your lender to sell your car or find an alternative to avoid taking on additional debt if you can help to pay it. Find out more
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Written by Personal and business finance Contributor
Kellye Guinan is a freelance editor and writer with more than 5 years experience working in the field of personal finance. She also works full-time as a worker at her local library where she helps people in her community get information about financial literacy, among other subjects.
The edit was done by Rhys Subitch Edited by Auto loans editor
Rhys has been writing and editing for Bankrate from late 2021. They are passionate about helping readers gain the confidence to manage their finances by providing precise, well-studied data that breaks otherwise complex topics into manageable bites.
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