Trading in your car while still having an outstanding loan can be a tricky situation, but it is possible to navigate with the right information. If you owe money on your car but want to upgrade, there are a few key steps you can take to make the process smoother.
Understand the Loan Balance
Before you visit a dealership, it’s essential to know how much you still owe on your car loan. This balance is important because it determines whether you’ll have positive or negative equity in your vehicle. You can check your loan balance by contacting your lender or checking your monthly loan statement.
Determine Your Car’s Value
To understand how much you can expect for your trade-in, research your car’s current value. Online tools like Kelley Blue Book, Edmunds, or Autotrader can give you an estimate based on your car’s make, model, year, mileage, and condition. Compare this value with your loan balance to see if you have equity or if you owe more than your car is worth.
Positive Equity vs. Negative Equity
If your car is worth more than what you owe on the loan, you have positive equity. This means the dealership will pay off your loan and give you the difference as a down payment for your next vehicle. However, if you owe more than the car’s value, this is known as negative equity. In this case, you will need to pay the difference, or the dealer may add it to your new loan.
Contact Your Lender
If you have negative equity, it’s a good idea to contact your lender to discuss your options. Some lenders may allow you to roll the remaining loan balance into your new car loan, though this can increase your monthly payments. Be sure to fully understand the terms before agreeing to this.
Visit Multiple Dealerships
Getting offers from several dealerships can give you a better idea of how much your car is worth and what options are available for your loan balance. A higher trade-in offer can help reduce the amount of negative equity you carry over to your next vehicle.
Consider Paying Off the Loan
If you have the financial means, paying off the remaining loan balance before trading in your car may be the best option. This allows you to avoid rolling over negative equity and gives you more flexibility when negotiating your next vehicle purchase.
Review the New Loan Terms
If you do decide to roll over any remaining balance into your new car loan, make sure you carefully review the loan terms. Ensure that the monthly payments fit your budget and that you’re not paying more interest due to the added balance.
In conclusion, trading in a car with an outstanding loan requires understanding your loan balance and your car’s value. Whether you have positive or negative equity, planning ahead can help you make an informed decision and ensure that you’re in control of the situation.