At some point, you may want to trade in your vehicle. You may desire a new car out of preference, or maybe you need a different vehicle to fit your changing lifestyle (new job, child, etc.). You may even need to replace your vehicle because you can no longer afford its astronomical monthly payments.
Whatever the case, before you exchange your vehicle, there’s one important thing you must know: whether your car has positive or negative equity.
Your vehicle has positive equity when it’s worth more than what you still owe on it. For example, say your vehicle is $10,000, and you owe $5,000 on it. Your vehicle has negative equity when it’s worth less than what you still owe on it (if your vehicle is $10,000 and you still owe $15,000 on it).
Regardless of whether your vehicle has positive or negative equity, you can still trade it in. However, there are specific steps to ensure you get the most out of your trade-in.
First things first
Before trading in, it’s advised to pay your car off entirely if possible. This is a good idea if you’re not in desperate need of a new vehicle but want to trade it in for preferential reasons. To pay it off quicker, try to pay more than the monthly requirement.
If your vehicle has negative equity, you can also pay off the difference to turn it into positive equity. When you trade in your vehicle with positive equity, it minimizes the loan amount and payments on your new vehicle.
However, if you’re in dire need of a new vehicle, you can roll over your negative equity amount into a new loan. Note that this will increase your new loan amount and may raise your monthly payment, but it is still a practical possibility if paying your car off is not a feasible option for you.
If you decide to roll the amount into your new loan, consider these steps.
Ask how the dealer will handle negative equity
Some dealerships will pay off the balance of your loan if you trade in with them. Other times, they will roll over the negative equity balance into your new loan.
If the dealership offers to pay off the negative equity, the amount should not be in your new loan. Discuss this with your dealership and make sure you understand how they will pay off the negative equity. Ensure that is reflected in their contract before signing it.
Negotiate trade-in price
This will require some research, but before trading, call your auto loan lender and ask for the payoff price. Check the current trade in value for your vehicle, and use this information to negotiate a deal with your dealership.
A reliable resource to keep in mind
It’s always best to exchange a vehicle that’s fully paid off or with positive equity, but if circumstances call for you to trade in a vehicle with negative equity, go for a dealership that’s experienced and works with all credit types, such as Mike Duman Auto Superstore.
In business for over 40 years, we’re dedicated to matching you with a quality vehicle within your income. We offer trade-in appraisals that quickly deliver a value for your vehicle. From there, we’ll connect you with a quality, reliable vehicle that fits your trade-in value as well as your lifestyle needs.