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How Soon Can You Trade In a Financed Car?
Most drivers will trade in a car at some point or another. Many people wait a few years for each new vehicle purchase, but how soon is too soon to trade? Keep reading for details on how quickly you can trade in a financed car, including best practices for your budget and long-term goals.
How Does Financing Work?
The loan terms of every finance contract vary, but the basic principles are the same. Your bank or financial institution covers the cost to pay the dealer or private seller for your vehicle. In turn, you repay the lender in monthly installments. These payments include the purchase amount and interest, which is what the lender charges for the privilege of borrowing the money.
When Can You Trade?
You can technically trade in your financed car anytime after signing the paperwork and driving off the lot. It may be more difficult to process a trade-in before the finance department files all the paperwork and the bank has established your new account. Once you’ve made your first payment, trading in can be treated like any routine transaction. However, we don’t advise trading before at least partially paying down the loan balance.
Trade-In Best Practices
Most dealers are willing to work with buyers trading in a financed car. The transaction counts as a sale which ultimately benefits their bottom line. It’s always up to you as the consumer to research your car’s market value and decide if trading is a smart move for your budget.
If you bought your car new, it’s usually best to wait at least a year before trading. Contrary to what the name suggests, a trade is not necessarily a one-to-one swap, even if you opt for a vehicle in a similar class and price range. Know your car’s fair-market value before going to the dealer. That way, you’ll better understand how much it’s worth compared to how much they offer towards a new purchase.
Knowing how much you owe on your current auto loan is just as important. Your financial institution can tell you what the payoff amount is. Hopefully, the car’s value will be greater than what you owe at trade-in time. Trading a car should offset the cost of another vehicle. A trade-in should not increase how much you pay for your new ride.
Vehicle Equity
When talking about homes or property, the term “equity” refers to the value placed on an asset beyond the amount owed on it. If your vehicle’s value exceeds what you owe, you have built positive equity in the purchase. If your car is worth less than the amount remaining on your loan, you have “negative equity.” It’s also known as being “upside-down.”
Financial experts advise against trading in a vehicle when you owe more than it is worth. Some dealers might encourage you to roll the negative equity into a loan for a different car. However, a transaction like that will undoubtedly put you in a similar, if not tighter, bind. In that situation, you will immediately find yourself owing more money than the new car is worth, in addition to the negative equity amount from the old vehicle Tags: Auto Loans, autocheck, bad credit, car dealership, carfax, carmax, certified used cars, down payment assistance, no down payment, used cars, westlake financial