When you’re ready to trade in your old clunker and get a new car, there are a few important things that you should consider. If you have positive equity, then trading in a car that has an existing loan attached to it could be profitable. But if your debt is greater than the value of that vehicle or even close to it (meaning there’s negative equity), don’t do anything hasty! Here are some things for consideration before making any decisions:
How to Trade-in a Car That is Not Paid Off
You may be able to trade in your car for a new one even if you’re still making payments on it. But it’s important to know the difference between positive and negative equity before you get in over your head financially. The amount of equity should be considered beforehand, this will help determine how much money was owed at purchase and what that means going forward when trading or buying another vehicle. If you need help figuring out how to trade-in a car that is not paid off, consider the following:
Consider Your Equity
- Positive Equity – Bottom line, positive equity means that your car is worth more than you owe. And of course, this is a good thing and will assist you in buying a new car. The dealership will apply any equity you have towards the purchase of a new vehicle, which will determine the amount of money you need to finance.
- Negative Equity – Negative equity means you owe more on the loan than your car is worth. But don’t beat yourself up about that, you’re far from alone. According to Edmunds, the share of new car sales with a trade-in involving negative equity hit 44%, and the average amount reached $5,571. That is an all-time high! But just because you have negative equity in your existing vehicle doesn’t mean you don’t have options. Here are some things you may want to consider if you decide to move forward with purchasing a new vehicle.
- Roll the Negative Equity Into a New Loan – This seems to be a popular option for those that are upside down on their existing vehicle, but it isn’t without its drawbacks. Consider this, if you have a car loan for $20k and roll the negative equity into your new purchase it will increase that amount by about 3%. So instead of owing 20K on one vehicle, you’ll end up paying 24K in interest over the new car’s lifespan. This may leave you financially vulnerable.
- Pay The Difference – If you are fortunate enough to have the cash on hand at the time of purchase, you can opt to pay what’s owed on the old vehicle and then get a new car with just enough room to afford an even lower interest rate than before. Dealerships are likely to work with you on pushing through a sale rather than turning you away. Remember to negotiate.
- Wait it Out – Sometimes waiting is the key to saving yourself money and potential debt. If you hold off on buying a new car, you’ll have time to pay the existing loan off entirely or at least pay enough so you’re no longer upside down on your current loan. This remains the best option in the long run.
Are You Shopping for a New Car This Winter?
Do you need help figuring out how to trade-in a car that is not paid off? If you’re looking for an affordable, high-quality pre-owned vehicle, Hawthorne Auto Square can help. We have numerous sedans, trucks, and SUVs suited for winter travel. We can get you approved for financing in minutes and offer numerous payment options. To learn more and set up an appointment with us, call 866-707-7664 today.