Trading a Car in With Finance Owing: What Are Your Options?

Trading a Car in With Finance Owing: What Are Your Options?

Taking out a car loan means you are fully aware of your responsibilities. That includes paying back the borrowed amount in full, plus the interest and other charges. But let’s say that you have gotten an irresistible deal from a dealer. You just cannot say “no” to that once-in-a-lifetime deal, so you have decided to get that new car. Obviously, it does not make financial sense to take out another loan.

If you’re currently paying for a car loan, you could encounter a need to change cars. It could be due to an excellent sales deal, as mentioned above, or perhaps other reasons like your circumstances have changed. Therefore, your goal now is to reduce your payments by downgrading to a more affordable vehicle.

But is it possible for you to get out of the loan contract that you signed? The short answer is no. This agreement is legally binding, which means you have a legal obligation to fully repay the loan. The good news is that there is a way for you to get a better price for the car that you wish to buy, which is by trading it in.

Trade-ins allow you to sell or trade your old car even with finance owing. Basically, you have two options:

  1. Trade the car to a dealership
  2. Sell it to a private buyer

Trading in a car that’s not paid off requires bringing certain documents to the dealership, such as:

  • Your driver’s licence
  • Loan information
  • Vehicle registration
  • Proof of insurance
  • Trade-in value printout

But it’s not always easy. Trading in a car that you currently drive can be a trap you should avoid, especially if you are not familiar with the process. If you have a secured loan and fail to pay it back, you are at the risk of losing your car. And if that vehicle is less than the amount you owe, you still have some payments to make. In most cases, you cannot go ahead and sell the car if you have a secured loan without the lender’s permission.

If you plan to trade in the car, you should talk to the dealer about your loan and be straightforward regarding the amount you still need to pay. This process is the Achilles’ heel of buying a car. 

Unfortunately, it’s tough to find a dealer in Australia that will readily give you the total value of the used car. But the trick lies in understanding the procedure involved and figuring out how to maximise the trade-in value. That’s when you will get a better deal.

Trading in your car means that the value of your current car will be deducted from the price of the new vehicle. Your aim, of course, is to get the highest amount or deduction possible. However, dealers will most likely give you a low value so that they can resell the car at the best price for them. It’s essential to know, though, that you can negotiate both the trade-in value and the car price. And you can do so separately.

car dealer paperwork

How to Trade in Your Car When You Owe Money on It

Since you have a loan with the car, you need to proceed with caution. Make sure that you’re in control of the transaction – not the dealer. Trading in a car you still have a pending loan on can mean either of these two:

  1. You have positive equity, which means that the vehicle is worth more than the amount you currently owe.
  2. You have negative equity where the car is worth less than your loan.

You’re in good shape if you have positive equity, which is like having money on your old car to purchase a new one. On the other hand, you’re underwater on your car loan if you have negative equity. That means you need to pay the difference between the trade-in value and the remaining balance of your loan. You have three options in dealing with this situation. You pay the dealer with cash, you get another loan, or you refinance your current loan.

The process can be daunting if you don’t know what you’re doing. Many people are not aware that they can negotiate the trade-in value and the new car’s price with the dealer. And to afford the purchase, it also means that you probably need a new loan. Getting a good deal means that you get a reasonable interest rate on your new car loan. At the same time, you should be offered a fair price for the car and the trade-in value.

So, before you head to the dealership, use our car loan calculator to get an estimate on the numbers you need. You’ll also see what your monthly car payment will become after a successful trade-in transaction. The next step is to make sure that you have contacted your car loan lender and enquire about your payoff amount. It could be more than the remaining balance of the loan.

Finally, you should know the price of your car by looking at pricing guides. Compare the values you have, which are the payoff amount and the current trade-in value of your vehicle. Now, you can either talk to your lender to upgrade your car loan or look elsewhere. Your lender may be willing to offer a quick way for you to get out of the loan. Make sure that you explain why you want to pay out the remaining balance, which may be to sell the car.

Another option is refinancing, which allows you to take out a new loan so you can pay off your other outstanding loans. By refinancing, it’s essential to look for a loan with a lower interest rate. At Loans Unlimited, we can help you find the best financing option if you’re planning to trade in your car. Speak to our loan experts so you can get a personalised assessment that will facilitate the trade-in, whether you’re looking to refinance or get a new car loan.