Humble often want to know, “Can you trade in a financed car?” The answer is yes! However, keep in mind that trading your car in does not mean that you're no longer obligated to pay the remaining loan balance; you will still have to pay that remaining amount.
Trading in a car generally helps you reduce how much you'll need to borrow when buying another vehicle, but if you have a balance on your current auto loan, you may be encouraged to roll your existing balance into a new loan, which will increase your total loan costs and the interest you'll pay over the life of your ...
When your car is worth more than what's owed, you have positive equity. If you owe $6,000 on your car and its trade-in value is $8,000, you have $2,000 in positive equity that can be put toward the purchase of another car.
You might want to delay your trade-in if: Your loan is fairly new: Cars depreciate as soon as they leave the dealership. If you recently took out a loan, you might still be upside down, where you owe more than the car is worth. In this case, it's best to wait until the loan balance is lower before you trade in the car.
You can trade in your car to a dealership if you still owe on it, but it has to be paid off in the process, either with trade equity or out of pocket. Trading in a car you still owe on can be a costly decision if you have negative equity.
So, you can find out the value of your car and sell it to the dealer without thinking about your credit. If you are selling or trading in your car for another model, though, and are planning on financing, the inquiry process can impact your score. However, the vehicle trade-in itself carries no weight.
How Much Negative Equity Is Too Much on a Car? The maximum negative equity that can be transferred to your new car is around 125% . It means your loan value should not be more than 125% of your car's actual worth. If it is more than 125% then your next car's loan would not be approved.
Your credit score won't impact the trade-in value of your car, but it will affect the interest rate you're able to get on the next vehicle you buy.
Ask for a Voluntary Repossession
Voluntary repossession allows you to return a car you financed without being subject to the full repossession process. This could spare you some credit score damage, though a voluntary repo could still be reported to the credit bureaus.
When you trade in a car with negative equity, the equity will likely roll into your new vehicle loan. Here's an example… If your current vehicle has $10,000 in negative equity and your new car costs $20,000, you will take out a $30,000 loan from the lender.
Refinancing the loan or selling the vehicle are two of the most commonly used ways to deal with negative equity. You may also consider trading in your vehicle for a different car, though that can lead to additional auto loan debt if you're rolling the original loan balance over.
But what if you owe more than the car is worth? That's called “negative equity,” and the dealer's promises to pay off your loan may be misleading. Learn how negative equity works and how to deal with it.
One thing to keep in mind is that there is no maximum amount you can finance when it comes to negative equity.
The best mileage range to trade in a car is often between 30-40,000 miles or between two and three years old, before your new car warranties expire. You're more likely to receive a higher trade-in appraisal when it has fewer miles on it and more of its warranty left .
If you have negative equity or are upside down on your loan, a trade-in can be more challenging. This means that you owe more on the vehicle than it is worth, and you will have to pay the remaining loan balance after the trade-in value is assessed.
There's no set time period for when you can trade in a car after you begin financing, but there are a few general rules to follow. You can trade a financed car at any point, but you may want to consider waiting a year or more.
You can sell your car to get rid of it without hurting your credit. This is easiest if the value of your car is close to or above the balance of your loan. You could also transfer your current loan to another person if they're approved for financing and agree to take it over.
One reason many people consider voluntary repossession is to protect their credit score. Unfortunately, giving your car to your lender is unlikely to protect your credit. Many lenders consider a voluntary repossession the same as an involuntary repossession, leading to a negative mark on your credit report.
Voluntary repossession can have a significant negative impact on your credit score. This record will stay on your credit report for seven years, potentially making it harder for you to get approved for new credit during this period.
If you're downsizing and your trade-in is worth more than the new car, the dealership will give you a check for the balance. If money is owed to you, be sure to get the exact amount in writing.
Most used auto loans go to borrowers with minimum credit scores of at least 675. For new auto loans, most borrowers have scores of around 730. The minimum credit score needed for a new car may be around 600, but those with excellent credit often get lower rates and lower monthly payments.
Buying a car with bad credit is possible with credit scores as low as 500. Having a high down payment, getting a good deal on the car and having a cosigner can all improve your likelihood of being approved.
Selling a financed car to a private buyer or dealership likely won't hurt your credit. However, if you have negative equity, you might need to refinance your auto loan or take out a personal loan to cover the difference between your car's value and what's left on your loan.
Trading in a car with negative equity can be beneficial if you can find a vehicle that is less expensive and fits into your budget. However, you need to be careful, as you could go into greater debt and more negative equity.
Take Out a Loan to Cover the Negative Equity: Another possible way to get out of an upside-down car loan is to sell the vehicle, then take out another loan to cover the negative equity.