Is it better to pay off a vehicle or trade it in?

Asked by: Alexane Runte  |  Last update: July 23, 2022
Score: 4.9/5 (14 votes)

If you still owe money on your auto loan, there are extra steps you need to take before making the trade. When you take out an auto loan, the car is used as collateral until all the money has been repaid. In most cases, it's in your best interest to pay off your car loan before you trade in your car.

Is it smart to trade in a car that is paid off?

Trading in a vehicle that's paid off is a great way to put some money toward your next car purchase. Trade-ins are very common, and they often help bad credit borrowers meet auto loan eligibility requirements.

How long should you keep a car before trading it in?

If the vehicle is new, you should ideally wait until at least year three of ownership to trade it in to a dealership, as this is when depreciation normally slows down. If it's used, it already went through the big drop in depreciation and you can usually trade it in after a year or so.

Is trading in a vehicle worth it?

A key benefit of trading in your vehicle is that it could end up requiring less work on your part. The process generally involves heading to one or more dealerships to get estimates, choosing where you want to trade in your car, and closing the deal at the dealership by completing sales paperwork.

Does trading in a financed car hurt your credit?

Your car loan doesn't disappear if you trade in your car. However, the trade-in value of your car becomes credit towards your loan. This credit might cover the whole balance. If it doesn't, your dealer will roll over your loan, combining the deficit with the amount owing on your new car.

Should I Pay Off My Car or Sell It?

18 related questions found

How much does your credit score increase after paying off a car?

Once you pay off a car loan, you may actually see a small drop in your credit score. However, it's normally temporary if your credit history is in decent shape – it bounces back eventually. The reason your credit score takes a temporary hit in points is that you ended an active credit account.

How does a trade in work when you still owe?

When you trade in a vehicle you still owe money on, the dealer takes over the loan and pays it off on your behalf. They also typically handle the process of transferring the title.

Should I trade in my car before I pay it off?

When you take out an auto loan, the car is used as collateral until all the money has been repaid. In most cases, it's in your best interest to pay off your car loan before you trade in your car.

What should you not do when trading in a car?

Common mistake #1:
  1. Not having any idea of your car's trade-in value.
  2. Trying to make your car “showroom ready.”
  3. Overestimating your car's worth.
  4. Not mentioning your plans to trade-in up front.
  5. Not getting more than one offer for your trade-in.

At what mileage should I trade in my car?

Third milestone: Under 100,000 miles

Because depreciation is constant, it's best to sell or trade in your vehicle before it hits the 100,000-mile mark. At this point, you won't get nearly as much for it because dealers generally see these cars as wholesale-only vehicles to be sold at auction.

How do you trade in a car that is not paid off?

Trading in a vehicle that you still owe money on means you will need to roll over the old loan into the new, combining the amount you're financing with the existing balance. In this case, you'll essentially be paying two loans at once, instantly putting you upside down with owing more than the car is worth.

What happens when you trade in a paid off car?

They'll pay off the remaining loan balance on your trade-in and obtain the car's title directly from the lender. If you have any positive equity in the vehicle, it will be used as a down payment toward your new lease or purchase. You can even trade your vehicle into a dealership if you have negative equity.

How long should you keep your car?

Automotive Averages. In general, however, people don't really keep their cars forever. Research by R.L. Polk says that the average age of a modern vehicle is 11.4 years, while the average length of time drivers keep a new vehicle is 71.4 months — around 6 years.

How do I get the most out of my car trade-in?

6 ways to boost car trade-in value
  1. Do your homework. The first step before trading in your car is to do some research to find its current trade-in value. ...
  2. Take care of known mechanical problems. ...
  3. Shop around for trade-in value. ...
  4. Negotiate trade-in value separately. ...
  5. Make sure that your car looks its best. ...
  6. Time your trade-in.

How do you trade-in a financed car?

When trading in a car with negative equity, you'll have to pay the difference between the loan balance and the trade-in value. You can pay it with cash, another loan or — and this isn't recommended — rolling what you owe into a new car loan.

Should I change my car every 3 years?

As most new car warranties cover you for 36 months or a certain number of miles, should you buy a new car every three years, or should you leave it longer? It's a good idea to buy a new car every three years if you always want to have the peace of mind of being consistently covered by a full manufacturer warranty.

Can I trade in a financed car for a cheaper one?

If your trade-in is financed and you have equity, the dealer will pay the remainder of the loan and subtract the equity from the price of the less expensive car. If the equity of your trade-in exceeds the price of the car your trading for, the dealer will cut you a check for the difference.

How do you trade in a car with positive equity?

If your car is worth more than you owe, you have positive equity. As the name implies, positive equity is a good thing. When you trade in your vehicle, the dealer may apply any equity you have toward the purchase of the new vehicle. This reduces the amount you need to finance.

Does paying off your car lower your insurance?

No, paying off your car doesn't reduce your insurance rates, but it does give you more control over the type and amount of coverage you have, which can help you save money on your insurance rates.

What is the best month to purchase a car?

What Is the Best Month to Buy a Car? In addition to certain times of the week or holidays, some months are better to buy or lease new vehicles or purchase used cars than other months. In general, May, October, November, and December are the best months to visit the car dealership.

Is it better to keep a car until it dies?

The less you rotate cars the better. I personally would not recommend rotating more than every 5 years. Drive your car until that thing is dead and no longer safe…or at least needs a new transmission or some other huge amount of repair that is not worth the money you put into it if fixed.

What cars have the longest lifespan?

Keep reading to learn about ten cars with the longest life spans!
  • 8 8. Honda Odyssey. ...
  • 7 7. Lincoln Navigator. ...
  • 6 6. Honda Civic. ...
  • 5 5. Chevrolet Suburban. ...
  • 4 4. GMC Yukon XL. ...
  • 3 3. Ford Taurus. ...
  • 2 2. Toyota 4Runner. ...
  • 1 1. Chevrolet Impala.

Can you swap your car finance to another car?

While you can't swap a finance agreement from one car to another, there may still be the option to change your car if you have finance outstanding. To do so, you could pay off the remaining balance, then sell your car and buy a new one. Or you could part-exchange through your dealership.

At what mileage do cars depreciate the most?

Edmunds' analysis reveals that vehicle values decline only incrementally between 100,000 and 150,000 miles, and the rate of depreciation is similar to the decline that occurs between 50,000 and 100,000 miles. "After about the first 40,000 miles, vehicles depreciate at a slow and steady pace.

What car holds its value best?

  • Honda: 52.5 Percent Retained Value. ...
  • Chevrolet: 52.5 Percent Retained Value. ...
  • Dodge: 53.3 Percent Retained Value. ...
  • GMC: 54.6 Percent Retained Value. ...
  • Ford: 55.1 Percent Retained Value. ...
  • Subaru: 57.0 Percent Retained Value. ...
  • Ram: 58.1 Percent Retained Value. ...
  • Jeep: 58.4 Percent Retained Value.