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Tips for trading in a car with negative equity

July 7, 2017 | Tips & Info

When you trade in a car at a dealership, chances are you will get money back on it that you can use toward a new car. However, this typically happens if you actually own the car and have no loan payments still left on it. Otherwise, the balance you owe on your car could create negative equity when you try to trade it in at the dealership. It depends on how much the car is worth versus how much you still owe on it.

Top 4 Tips

The following are 4 great tips for trading in a car that has negative equity on it. These tips will help you get the best deal on a new car while you’re still dealing with the negative equity on your old car.

  1. Transfer the Balance – One way to deal with negative equity on a trade-in is to transfer that equity to the loan of your new car. So, for example, if you have $2,000 of negative equity on your trade-in and you want to take a new loan out for $15,000 to purchase a new car, you can move the equity over to the new loan and owe $17,000 instead. Please note, though, that not all auto lenders will allow you to do this. But if the option is available, then take it if you can’t pay it off any other way.
  2. Market Value Research – Check the market value of your car before you trade it in. You may find that it is worth more than you currently owe on it. If that is the case, you may be able to wipe out the loan balance altogether if the market value is higher than it. As a result, you can use the positive difference toward the purchase of a new car.
  3. Pay Off Loan First – You may find it better to pay off the loan of your current car before trading it in for a new one. You can do this a couple of ways. You could make bigger payments on your car loan each month to pay it off quicker or you can take out a separate loan with a lower interest rate and use that to pay off your car loan.
  4. Pay Off Negative Equity First – Usually, you will find the auto loan amount is more than the negative equity amount. If you don’t have the means of paying off the entire auto loan first, then just worry about paying off the negative equity first. For example, if the market value of your car is $8,000 and you currently owe $6,000, this means your negative equity is $2,000. So, just pay off that $2,000 and you will break even when you trade it in at the dealership.

Read also: 5 Tips to Submit Your Car Accident Insurance Claim

Remember that the market value of your car will decrease as more time goes by. So, as you’re making payments toward your loan, please take into account the decreasing market value as well.

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