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3 min read Published April 18 2022.
Written by Kellye Guinan. Written by Personal and Business Finance Contributor
Kellye Guinan is a freelance editor and writer who has more than five years ‘ experience within personal financial matters. She’s also a full-time employee at her local library, where she assists people in her community get information about financial literacy, in addition to other subjects.
Edited by Rhys Subitch Edited by Auto loans editor
Rhys has been editing and writing for Bankrate since the end of 2021. They are passionate about helping readers gain confidence to take control of their finances through providing precise, well-researched and reliable information that breaks down otherwise complex topics into manageable bites.
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If you still owe money on your vehicle There are a few steps you should take before selling it. Be careful, however because negative equity can have a significant impact on your financial situation. It’s an option, but it could mean paying more than you’re actually required to. How do you pay off your car before trading it in In nearly every case, it’s best to pay off or pay off your before selling the vehicle or trading it in. The most important thing to consider is whether you have negative or positive equity on your loan. With negative equity, you will want to pay off your auto loan before you trade into your vehicle. Possible equity A positive equity in an auto loan signifies that you are owed less on the car than it is worth. If, for instance, you’ve got $10,000 remaining on your loan however your car will be worth $15,000. you’re left with $5,000 of positive equity. If you choose to sell your vehicle then the equity you have can go toward your next vehicle as a down payment, reducing the amount you need to take out. Negative equity Negative equity can be described as the reverse. If you still need to pay back $10,000 on your loan, but your vehicle is only worth $8000, you’ll end up with negative equity of $2,000. This is what financial advice columnists call ” .” This is an unwise situation to find yourself in. If you trade in your car, you will be required to pay for the remaining out of your pocket. In addition, breaking even is essential as it stops the possibility of rolling negative equity into a new loan and the cost of the vehicle you’re not driving. What is the best way to sell or trade in a car you still owe money on People trade in and sell cars with liens frequently. Dealers might advertise paying off your car when they upgrade it to brand new model. But is more complex than simply switching from one car to another. Check out the value of your vehicle on websites such as Edmunds and Kelley Blue Book. Look at vehicles with the same model and check out average selling prices within the same area. Calculate your budget for your next car and how much you owe on your current one. If you owe more than what you’ll get through trading it in, consider alternative options. Find maintenance records and other documents. This can help boost the value of your car as a trade-in since it can prove that it’s been taken well. Compare trade-in offers from dealerships so you don’t have to visit one location. Many people use the phrase “trade-in,” but really, you’re selling your car. It is possible to search for various quotes to find the most competitive price. Be sure to get everything written , especially if a dealership assures you that they will pay off the loan. Be sure to have an official copy of the deal. You’re still responsible for paying the balance of your loan and you must follow up and make sure that your lender is paid after you have traded in your car. Alternatives to trading in an automobile If you’re in default on your loan and you want to trade it in, this isn’t the best option. Instead, you should consider selling your car to an individual buyer and paying the loan down or refinancing the loan at a lower interest rate. Utilizing a private buyer, as opposed to an auto dealer, could assist you with more. However, you’ll have to pay off your lender and then transfer the title on your own. This is something the dealership typically handles on your behalf, therefore it can be an additional hassle. In the end, paying down the loan may not be an option for all. However, if your loan payment isn’t breaking the bank, set aside some extra money to break even. So, trading your car in will not involve the transfer of any remaining loan balance into your new car loan. Finally, try to . Do not extend the loan term in an attempt to lower your payment — this increases the chance that you’ll end up in the red. Instead, reduce the total amount that you need to pay. If you’re not over the limit on your loan and you aren’t in a position to trade in your car to get cheaper alternatives could be the ideal solution. If you have negative equity, try refinancing your loan instead. It could allow you to lower the interest rate so you pay less overall. But, most importantly, don’t transfer your current loan into another one. Work with your lender or get rid of your car, or look for an alternative option for avoiding taking on additional debt if you can ease the situation. Learn more
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Written by a Personal and Business finance contributor
Kellye Guinan is a freelance editor and writer with over five years of experience in personal financial matters. She also works full-time as a employee at her local library, helping people in her community get information about financial literacy, among other topics.
The edit was done by Rhys Subitch Edited by Auto loans editor
Rhys has been editing and writing for Bankrate since the end of 2021. They are passionate about helping readers gain the confidence to take control of their finances by providing concise, well-studied and well-documented information that breaks down otherwise complicated topics into bite-sized pieces.
Auto loans editor
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