There are many reasons to trade in your vehicle before it’s paid off. Maybe you’re looking for something cheaper or more fuel-efficient. Or perhaps your family has grown, and you need something bigger. Whatever the situation, you might wonder if you can trade in your vehicle while you still owe money.
The good news is that it is possible and common. Here’s what you need to know about how to trade in your car that isn’t paid off, where you can make the trade, and what to consider before you do.
Can You Trade In A Car That Is Not Paid Off?
Trading in a car that isn’t paid off is possible.
Say you bought a car four years ago with a five-year loan. This means you still have one year of payments left. Even though you still owe money, you can trade in your car for a new one. This is known as a financed trade.
If you have positive equity on your car – which means it’s worth more than you owe on your loan – the trade is easy. When you trade it in, the dealership will use the money to pay off your balance, and anything left over goes to your new car.
For example, if your car is worth $15,000 and you owe $5,000, the dealership will pay off your remaining $5,000 loan with the money from the trade, and $10,000 will go to your new purchase.
Can You Trade In A Car With Negative Equity?
While it’s still possible to trade in a car with negative equity, it adds an extra step. Negative equity is when your car is worth less than what you owe.
For example, if you owe $15,000 on your loan but your car is only worth $10,000, you have $5,000 in negative equity.
In this case, you have a few options. You can come up with $5,000 to pay off your remaining balance and avoid adding to your debt. Alternatively, when you purchase a new car, the dealer can roll your remaining loan into the car loan.
So, if you were to take out a new $40,000 loan, the dealer would add the remaining $5,000 for a total of $45,000.
A final option is waiting to trade in your vehicle until you no longer have negative equity. This way, you aren’t adding to your debt load.
How To Trade In A Car That Is Not Paid Off?
If you’re ready to trade in your car for something new, consider the following steps:
- Determine how much you owe. You don’t want to make any decisions until you know your numbers. Call your lender and ask them how much you have left on your car loan.
- Find out your car trade-in value. Next, you want to estimate the value of your vehicle. Having an idea of what your car is worth can help you in negotiations with dealerships. You can refer to resources like Canadian Black Book and Kelley Blue Book to get started.
- Gather your documents. Trading in your vehicle and taking on a new loan will require a few necessary documents. You’ll need your vehicle registration, driver’s license, and personal identification. Your lender will also want to see proof of income in the form of a bank statement or pay stub.
- Negotiate a trade-in car deal. To find the best deal, collect multiple offers from different dealerships. Now that you’ve done your research and know what your car is worth, don’t shy away from negotiating.
Where Can You Trade In A Financed Car?
Most car dealerships will accept financed trade-ins. One of the major benefits of going to a dealership is that it will handle all aspects of the trade, including the paperwork. This can simplify the entire process for you.
Is There A Penalty For Trading In Your Financed Car?
Your lender might charge a prepayment penalty if you pay off your loan before the end of the loan term. Before you start the trade-in process, contact your lender or refer to your loan agreement to see if there is a prepayment penalty and how big it is. If there is one, run your numbers to see if a trade-in makes financial sense.
Can You Trade In A Financed Car For A Cheaper Car?
If your car payments are too much to handle or you want to downsize, it’s possible to trade your vehicle in for a more affordable option.
The dealership will use the money you earn from your trade to pay off your loan balance, and the remaining money can go towards a new car.
Can You Trade In A Financed Car For A More Expensive Car?
If you have your eye on a nicer, newer, more luxurious ride, it’s possible to trade your financed vehicle in for something more expensive.
Dealerships might allow you to roll your negative equity into a new loan. But just because you can doesn’t mean you should. You’ll want to run your numbers to ensure you can handle the additional debt. Waiting until you no longer have negative equity can prevent taking on more debt.
Can You Sell Your Car If It Isn’t Paid Off
Yes, it is possible to sell your car if it isn’t paid off. But, you don’t technically own your car until your loan is paid off. So, you’ll have to pay your debts before transferring the car title (proof of ownership) to the buyer.
One option is to take on a personal loan and use the money to pay off your car loan balance. Once your debt is paid, you’ll have the car title and are free to sell it to whoever you choose.
Selling privately allows you to make more money by cutting out the middleman. However, you also have to take on all of the paperwork, including the car title and bill of sale.
Will You Trade In Your Financed Vehicle?
Yes, it’s possible to trade in your vehicle if it’s not paid off. But, before you do, ensure you understand what you’re getting into. If you have positive equity in your vehicle, a trade-in is pretty straightforward. Things get more complicated when you have negative equity. While you can still trade in your vehicle, you’ll either have to come up with the money to pay off your remaining balance or roll it into a new loan. This means taking on more debt. You’ll have to assess your finances and figure out what makes the most sense for you.
