In today’s advanced world, individuals want to be updated with the latest versions, even of a vehicle. In such scenarios, car trading becomes a convenient way to obtain financial aid and purchase a more efficient model.
Trading a car allows you to put your vehicle’s value towards your next one, making it a good deal. But here comes a big question: “Can You Trade in a Car That’s on Finance?” which confuses individuals from taking the right step. This blog will help you know whether you can trade an on-finance car and its possible risks.
Understanding the Car “On-Finance”
In global regions, including the US, “On-Finance” cars refer to vehicles purchased through a loan or financial agreement, without buying them at once. As vehicles are expensive, financing allows buyers to spread the cost over 36 to 72 months. According to the sources, this is a common approach many US people consider, as it serves as a convenient way to ride your dream car while paying in small amounts.
Upon financing a car, a lender, like a bank or dealership’s finance department, pays the full cost of the vehicle on your behalf. Your role will be to pay the amount in monthly installments, including the principal amount and interest, to the lender. Until you complete full EMIs, the lender will still hold its ownership, meaning you don’t have it legally.
It is to be understood that even though you ride the car every day, if it is purchased through EMI, the lender owns the financial ownership claims. Trading in a financed vehicle is possible and involves a few additional steps, requiring you or the dealership to settle the remaining loan amount to transfer the car’s ownership.
If you want to trade in your on-financed car, you must understand its mechanics before proceeding.
How Does Financed Car Trading Work?
Understanding how these on-financed car trading works helps you to be secure on all sides, especially from financial troubles. Trading a vehicle with an active loan indicates that you’re seeking a dealership’s help to pay the remaining amount as part of your loan.
In such a case, the dealership will assess your car’s worth according to the current market value, followed by comparing it with the remaining loan balance. If your car’s value is more than your remaining loan amount, it means you have positive equity. That amount will then be considered for the down payment of your new vehicle. For instance, if your car’s current value is $20,000 and you owe $15,000, it will make a positive equity of $5,000.
In contrast, if your vehicle has a lesser value than the remaining balance, you’ll have negative equity. This situation still allows you to obtain a new car, letting you pay the remaining balance on your own.
If everything goes fine, the remaining transaction will continue as usual, allowing you to select your vehicle and balance its financing.
Also Read: Chevy 0 Percent APR Over Six Years, Is It Smart For You?
Vital Factors To Know: Trading In Your Financed Vehicle
Trading a financed car is a double-edged sword and can turn into a smart move. If you strategically understand the car trading process and make the decision, it could turn out to be beneficial for you. However, before reaching any conclusion, you must check whether it aligns with your financial goals and situations.
Firstly, you must calculate the amount you still owe on your ongoing loan. Act accordingly while keeping your dealership informed about these details to serve you a better trade-in offer. Check the trade-in value of your vehicle through popular platforms like Edmunds and Kelley Blue Book, and check whether you are subject to positive or negative equity.
Having positive equity will allow you a straightforward and financially beneficial process. If you have upside-down/ negative equity on your loan, it may result in extended monthly payments and interest.
After doing all these, you must keep an eye on the EMI schedule, including the interest rates of your new vehicle. Strategically researching the best offers, like competitive interest rates and conditions of the new loan, will prevent you from falling into a never-ending or long-term loan debt.
It is not new that credit score affects loan offers, and so it does in trading in financed vehicles. If you have a good credit score, it can unlock better options. A lower figure indicates that you might need to reconsider trading in again until financial issues improve.
Some loan debts come with prepayment or early termination rates. Before you close your loan early, check your loan agreement correctly. Trading timing and the current vehicle’s market value can significantly affect its worth. Remember, a luxury brand car can profit you while trading in.
Last but not least, you must work with a reputable dealership to help you throughout and reach a better verdict for trading in your vehicle. Please remember to ask for numbers in writing so that you can closely understand your expenses on getting a new car versus settling the earlier loan.
Common Mistakes to Avoid During On-Finance Car Trading
On-finance trading can be a convenient process, but it can lead to mistakes if you are not careful enough. It is noticed that many buyers, in excitement, proceed with the upgrading process without understanding the process completely. Below are some common pitfalls that you should avoid while trading an on-finance vehicle.
- One of the significant mistakes is relying on an estimated value, without knowing the actual payoff amount to the ledger. A correct figure will help the dealer to analyze positive and negative equity.
- Many buyers overlook new loans’ terms and total cost as they seem severely invested in analyzing monthly installments.
- Presenting your vehicle in bad condition can reduce its value even more since dealerships might cut-off the repairing costs, leaving you with a lesser amount than expected.
- Don’t stick to a single offer; you must consider shopping around and check websites for a better selling price of your vehicle.
- Don’t fall for verbal promises, especially in car sales; ensure that you have everything written about your new loan in the agreement to protect yourself from potential scams.
Also Read: Give Your Ride A Stylish Makeover With Top Bronco Decal Picks
The Final Words
The process of selling on-financed vehicles is straightforward, requiring individuals to act smartly and avoid fraud. It is suggested to look for the best offers while understanding their loan repayment structures and terms.
A good credit score and positive equity can help you to get your dream car even if you already have an on-financed car. While it is clear that you can still trade your vehicle that’s on finance, you have to be cautious at every step.
FAQs
Does On-Finance Car Trading Affect the Credit Score?
According to the sourcres your credit score can be influenced if you choose to trade in your vehicle. However, the impact depends on the process handling and is usually minimal. The dealership usually agrees to pay off the remaining amount when you trade in your financed car. Thus, your job is to ensure that you avoid adding new debt and analyze whether your dealer pays your loan well.
Is Early Trading a Good Financial Strategy?
Trading in your vehicle while being in the early phase of the financial term can be a good approach if done correctly. Whether you should proceed with early trading depends on several factors, including ongoing loan status, the vehicle’s current condition and value, and your preferences. From a financial perspective, it is better to avoid this until you have a positive equity or have paid most of your debt.
Is Trading a Car with Negative Equity Possible?
Yes, it is possible to trade a financed car even if you have negative equity. Holding a negative equity value is common in the US market and is not a matter of sadness. However, you must bridge the gap between what you have and your car’s updated value to trade in your vehicle without any strain. It is better to evaluate all on-trade options and then consider what fits best for you.
Which to Choose For an On-Financed Vehicle: Private Selling or Trade It in?
If you have a vehicle still on finance, deciding whether to sell it privately or trade it in at a dealership can be challenging. Trading in will benefit you with the best-ever convenience and speed, while private selling can give returns with a higher payout and ensures greater control over the actual price. Both options are viable, but choosing the best remains a personal choice as it depends on many factors.
