How to Trade in a Financed Car

By Angela Monroe - November 13, 2018

Understanding the process

If you’re thinking of trading in your car when you still have credit owing, it’s worth getting expert advice to find out the best way to go about things.

It’s fairly common to trade in your car when you still have a loan on it, but it’s really useful to understand the process and how it works so you can make sure you get the best deal.

If you need help understanding your options, we can help you with bad credit car loans.

What are the different types of equity?

When trading in a car that you still owe money on, you’ll either be in a situation where you have positive equity or negative equity. We’ll mainly discuss negative equity, but it’s useful to know the difference.

Positive Equity is when your car is worth more than the amount that you still owe on your loan. You can then apply the difference (the positive equity) to the price of your new car.

Negative Equity is when your car is worth less than what you still owe on your loan. This means you will be required to pay the difference between your balance and the trade in value when it comes to purchasing your next car.

What are the steps to trade in a financed car?

If you decide to go ahead with a trade in for a car that’s not paid off, you’ll need to have the following available to take into a dealership:

  • Loan information– this needs to be completely accurate and include the full amount left to pay off as well as the account number on the loan.
  • Driver’s license – you’ll need to show this as proof of identification.
  • Vehicle registration.
  • All sets of vehicle keys and any remote locking devices.
  • Proof of insurance for your vehicle.
  • A print out of your trade in value (if applicable).

If you have negative equity, you’ll need to be able to pay the dealership the difference (not accounted for by the trade in credit), so it’s important that you’ve budgeted for this amount and don’t default on the payment.

Some dealerships may offer you the option of rolling on your negative equity into the loan for your next car, but this means you’ll be paying a larger amount and higher interest costs.

After going ahead with a trade in, the final step will be for you to receive documentation that the loan is settled.

IF you are unsure about any of these steps, get in touch with us for advice.

When is the best time to trade in a financed car?

If there’s any way that you can wait to trade in your car until you have paid off your loan, you will be making life much easier for yourself. Postponing buying a new car until you have positive equity could be a good move, so consider whether there’s any way that you can do this.

We understand that this may not be possible, so if you are going ahead with trading in your car with negative equity, you can aim to do it at a time that suits you so that you won’t have the stress of repayments hanging over you. Trading in for a smaller or cheaper car can help to reduce the emotional and financial stress for you.

You could also consider whether it might be a good time to sell your car rather than trading it in. Often a private sale could generate cash for you which you can then use to buy a smaller or cheaper car and help your overall credit.

How can you protect your credit?

If you have bad credit, it’s really important to do everything to protect yourself and start improving your credit rating.

Think very carefully before entering into any more bad credit car loans. If you can postpone trading in your car until you have paid it off, you’ll have a blank slate for your next loan. However, if you do need to trade in a financed car, make sure that you go for a cheaper model and don’t get into a situation where you can’t make repayments.

Budget carefully. It’s not good trading in your car and hoping for the best. You need to do the sums and work out exactly what you can afford to repay each month and how you’re going to cover any outgoing costs.

Finding a lender who understands your situation and has experience helping people with bad credit car loans. Find out how we can help you trade in your car and consider your options for bad credit car loans.

Angela Monroe
Angela Monroe is the Community Manager at The Positive Group, specialising in giving people the information that they need when they need it, and putting you on the path to a fair financial future. She has 8 years of experience in helping Australians find the right finance solutions, and regularly contributes articles to empower Australians with the knowledge they need to become financially healthy.

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