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How to Trade in a Financed Car - YouTube
Channel: Bumper
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hey folks andy here so you have a car
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that you want to trade into the dealer
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but there's a catch it's financed and
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you're not done making payments
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are you stuck with your old car until
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you paid off what if you owe
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more than the car is actually worth if
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you're wondering if you can trade in or
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sell a finance car
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the short answer is yes of course there
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are a few important tips and trade
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secrets you'll want to follow
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if you want to pursue this option there
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also may be some instances where you
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would be better off
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not trading in the car we're gonna take
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a look at best practices
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and by the end of this video you'll be
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better informed as to whether trading in
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a finance car
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is right for you
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[Music]
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the idea of a trade-in is to swap your
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vehicle for another
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the new one is paid in full by the
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trade-in value of your old car
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or the money can be put towards a higher
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priced vehicle
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the vehicle can also be sold right to
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the dealer even if you may still owe
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money on the payment plan
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if you still have payments left on your
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car but want to sell it
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a trade-in may be a more attractive
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offer especially if you still need to
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drive a vehicle
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essentially the dealership is purchasing
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the trade-in car
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and applying the payout to the new
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vehicle and the buyer is responsible for
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the remainder of the vehicle's cost
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determining when to trade in a finance
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car all comes down to how long your loan
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agreement is
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because you're financing the price of
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the car and the taxes that come with it
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it's possible for you to be in negative
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equity if you walk away from a long-term
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loan
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early you're free to trade in a car at
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any point in the loan
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but the remaining balance will determine
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whether you'll have positive
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or negative equity in simple terms
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positive equity means you owe
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less on the car than it's worth on the
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market so negative equity means you
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still owe more
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than the car is worth on the market and
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are on the hook for the remainder of the
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money owed on the payment
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plan ideally you want to have positive
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equity when you trade in a financed car
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you can build positive equity by making
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extra payments along the way
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or by ensuring you're far enough along
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in payments on a car that holds its
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residual value well
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if you owe much less than the vehicle is
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worth you can either
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pocket the cash or put it towards a new
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vehicle loan
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negative equity is a much less desirable
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situation to be in
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but it tends to be the case for most
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people most cars lose
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value the moment they leave the lot so
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it's a likely scenario that unless you
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make extra payments or your vehicle
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holds its value
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exceptionally well a trade-in can still
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work here but
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you just need to be aware of where you
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are in the loan and how much is left
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this might not be an issue for those in
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a more financially stable
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situation but if the reason for the
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trade-in is to put a stop to monthly
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payments
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knowing how much is potentially left on
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the loan is extremely important and
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could make or break the trade-in process
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this means you the seller need to ensure
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that you can still
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pay off the remainder of the loan while
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the process may differ from a dealership
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to dealership
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you are essentially left with the loan
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to pay back to the bank even without the
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vehicle being attached to it
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another important point to remember when
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it comes to negative equity is how new
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the loan is
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often there are penalties for requesting
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a loan break or closure through a
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dealership
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this may be a simple payment of a
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percentage of the total left
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or it could be more severe like a fee do
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for each remaining month on the term of
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the loan
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the bank wants to ensure they don't miss
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out on the interest income from those
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remaining months
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this will vary by financial institution
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and depends on the initial terms agreed
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upon
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when purchasing the vehicle let's run
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through some examples
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to keep it simple we're gonna ignore
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things like fees taxes and the interests
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isn't that nice
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say your car is worth ten thousand
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dollars right now and you still owe 5000
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from the original loan
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that means you have positive equity you
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could trade in your car for a different
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vehicle worth the same amount 10 000
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and pay off what you owe at the time of
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trading you now have a ten thousand
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dollar car that you paid five thousand
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up front for
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and you're done with monthly payments
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now for negative equity
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let's say you have that same 10 000 car
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but you still owe 12 000 on the loan
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you could trade in the car for cash and
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use that money to pay off most of the
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loan
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but you're still gonna owe two thousand
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dollars to the bank not
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ideal but owing two thousand is better
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than twelve thousand
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deciding whether or not trading in a
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finance card is right for you is
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personal
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but it depends on more than just the
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status of your loan it's important to
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remember a number of factors
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trading in a finance car may be a good
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fit for you
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if your vehicle has high ownership costs
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it's easier to take out a loan without
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realizing the long-term costs associated
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not just with the bank from gas prices
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to maintenance fees
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some vehicles cost more than others to
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run
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maybe you can no longer afford such a
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large loan even if you are in a negative
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activity situation sometimes
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bringing your finance car back to the
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dealer is the smarter financial decision
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sometimes dealers offer incentives at
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the end of their financial year to clear
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out stock
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you might be able to trade in your
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finance car for something you may not
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have thought you could afford before
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with a lower loan rate and reduced
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prices
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even if the vehicles are comparable a
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trade-in could essentially amount to
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refinancing if the
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rates are lower saving you money over
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time
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finally if you have positive equity this
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is a good option for you you stand to
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make some money in this case
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or at least save money in the future
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depending on the value your trade-in
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could even be enough to fully cover the
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cost of a new vehicle
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so that's a win on the flip side the
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following situations may be reasons to
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hold on to your car
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for longer if your loan is fairly new
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there may be penalties that make the
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transaction
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an improved financial decision make sure
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you know before you go
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even if you are far along in your loan
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agreement you could have
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negative equity if your car has a low
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residual value
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research is key here how much of the gap
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you can stand to cover
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depends on your personal financial
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situation even if your vehicle typically
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holds its resale value
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the condition of the car when you bring
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it back to the dealership will determine
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the value of the trade-in
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every repair the dealer must make is
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money out of their profits
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and likewise money out of your pocket if
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your car has been in an accident
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a trade-in might be riskier if your loan
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is almost paid off
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and your car has low ownership costs and
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is healthy and maintained
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your monthly costs will be reduced to
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gas and the occasional checkup
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unless you really need or want a new car
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and are in a strong financial position
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to do so
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you'll save money by getting more
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mileage out of your current vehicle
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i know not the sexiest option but it is
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practical
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okay so you decided to go for it now
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what while trading in a finance car
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might seem complicated and overwhelming
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it doesn't have to be
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here's how to navigate the process
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you'll need your vehicle's registration
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all past work statements from the garage
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if any was done
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as well as the title to the vehicle even
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if you're bringing your vehicle back to
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the same dealership you bought it from
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make sure you bring your own loan
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paperwork don't rely on them
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also remember your license proof of
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insurance and all keys and key fobs
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get ready to pause for our checklist
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an obvious but extremely important step
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when trading in your finance car
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is knowing how much you owe you can
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speak to the financial department of the
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dealership where you purchased your car
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and they can also tell you your exact
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loan rate how many months you have left
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and the total remaining balance you
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might be able to find this information
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in your online account
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as well dealerships are also trying to
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make money
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and if they see you owe quite a bit on
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your trade-in they're going to want to
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roll that into a new loan for you
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since this could result in a much larger
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loan for the new vehicle
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you'll want to first speak to a
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financial advisor at the institutional
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link to your old car loan for options
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bring those options to the table when
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you speak to the dealership
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about your trade-in do your research
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certain cars
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hold their residual value more than
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others jd power and associates put
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together an annual list with top resale
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value vehicles that you can check out
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you can also head over to bumper.com and
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enter your vin number to try and get a
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fair estimate of your car's value
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armed with this knowledge you may be
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able to negotiate a better deal on your
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trade-in
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finally if you find yourself with a lot
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of negative equity
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putting it towards another loan may not
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be a great solution
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especially for those in tight financial
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situations your best bet
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may be to stick it out with your current
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vehicle until you're in a better
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financial position to finance a new one
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we'd love to hear from you have any
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questions about trade-ins that we didn't
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cover in the video
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drop them in the comments and don't
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forget to click that like button
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and subscribe to our channel or head to
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bumper.com for more guides and how-to's
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you
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