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Best Way To Trade In A Car With Negative Equity – If you have a car loan and you owe more than the current value of your car, that is negative equity. This can make trading in your car financially difficult. Options should be carefully considered when deciding how to handle the trade-in, such as continuing to pay off the loan to gain positive equity in the car or converting the negative equity into a new car loan. Some methods may cost you more than others.
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Best Way To Trade In A Car With Negative Equity
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When you consider that a new car can lose 20% or more of its value within the first year, it’s easy to see how you could end up owing more than your car is worth.
If the amount owed on your auto loan is more than the value of the car, you have a negative balance. This is also known as surrendering your car loan.
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When trading in a car with negative equity, you have many options, but they can be expensive, and some will cost you a lot of money out of pocket.
Let’s take a look at how to determine if you have negative equity along with the value of your car and your possible trade-in options.
If you’re sure you’ve been turned down for your auto loan and are considering trading in your car, it’s important to assess how much negative equity you have. There is some basic information you need to know:
Third-party auto sites like Kelley Blue Book and Edmunds offer tools to help you estimate your car’s trade-in value. You’ll need to enter the car’s year, make, model, and the number of miles on its odometer.
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Contacting your lender is an easy way to find out how much you owe on your car loan. You can usually check your payment amount by phone or by logging into your account on the lender’s website. Your loan repayment amount may differ from your current loan balance because it includes interest up to the date the loan is paid off, as well as any unpaid fees.
If the amount owed on the car loan is more than the appraised value of the car, the difference between the two is negative equity. For example, if you owe $9,000 on your auto loan and the appraised value of your car is $6,000, you currently have $3,000 of negative equity.
When trading in a car with negative equity, you have two main options: postpone the trade until you can reverse your debt, or go ahead with the trade and pay off the negative equity.
Postponing business is generally a better option financially. But this only works if you can wait to get a new car. You can stop trading until you have enough money to pay off the loan, or you can make additional payments on the loan in a short period of time.
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In addition, paying only the principal or paying more than the monthly minimum can help pay off the loan faster and reduce negative equity. But before you do, make sure your loan terms don’t include prepayment penalties. These are fees that some lenders charge borrowers who pay off their loans earlier than expected.
If you need a new car sooner rather than later, you will have to pay off the negative equity one way or another. There are many ways to do this.
To eliminate the negative equity in your auto loan, you can pay it off immediately. For example, if you pay $12,000 on your car and the dealer offers a $10,000 trade-in, you’ll make the Lander $2,000 difference. Again, make sure your loan terms don’t include prepayment penalties.
If you don’t have enough cash in the bank to pay off your negative balance, a car dealer will let you roll your negative balance into a new car loan. Let’s say you owe $15,000 on your auto loan, but your dealer is only offering $13,000 toward your auto loan. The $2,000 difference goes toward a new car loan. This can be convenient because it doesn’t require you to pay for your negative equity out of pocket.
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But going this route means borrowing more than your new car is worth on your next loan, which increases the risk of a credit crunch. A larger loan amount also means you may pay more in interest. Make sure you don’t need to make payments on both loans and that you are familiar with all the terms of the new loan.
Another caveat: According to the Federal Trade Commission, some dealers may promise to pay off your old car loan as part of a trade-in, but actually transfer your balance to the new car loan or deduct it from the down payment. . Taking any action may increase the cost of the loan. Please review the purchase agreement carefully before signing.
If flipping is your only option, consider buying a car a year or two older than new. A used car has a lower value due to depreciation, which means you don’t have to borrow as much.
Remember, shopping at a car dealership isn’t your only option. You can sell your car to a private buyer. This is an option based on the terms of your loan and check with your lender first to see if additional steps, if any, are required to complete the sale.
Is It Better To Trade In Or Sell Your Car?
This option has one big advantage: you’ll get more money if you sell your car privately than at a dealership. Dealers usually do not offer more than wholesale. With a private buyer, you can usually sell the car for a higher price, which will help offset your negative equity.
The downside to selling to a private party is that it can take more work and time than an agency. This often involves gathering documentation such as ownership and maintenance records, posting advertisements for the vehicle, screening potential buyers, and conducting test drives.
If you’re not comfortable paying negative equity up front when you take out your car loan, it’s best to avoid a trade-in if possible.
But if you need a new car soon and negative equity is your only option, buy a used car and get as little credit as possible.
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Double-check that the loan term and monthly payment amount are within your budget. As the loan term increases, the risk of negative equity increases as the value of the car continues to decline. You may also pay more interest over the life of the loan. Whichever option you consider, make sure you do your homework to choose the best solution for you.
About the Author: Warren Clark is an author whose work has been published by Edmunds.com and the New York Daily News. He enjoys providing readers with information that will make their lives happier and more fulfilling. Warren holds a BA… Read more. Trading in your car is a real process; This will help you save a lot of money when buying a new car. Also, through careful research, you can get the best deal on your next car. If you’re looking to sell your car because it’s not running smoothly, or you’re looking to upgrade, trading in is the best option. Take advantage of the opportunity to set up a business by doing the following
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