Can You Trade in Your Car Before it’s Paid Off?

Still owe on your current auto loan but want to upgrade to a newer or bigger car? It’s very common for people to trade in their vehicles without paying off their auto loan.

However, before you do this, there are some factors you should consider, because doing so could cause your payments to increase significantly.

Know Your Vehicle’s Equity

If you financed your car, you’ll want to know whether you have negative equity or positive equity on it. To find out, you’ll need to learn:

• The market value of your car
• The payoff amount of your auto loan

Trading in a Car with Positive Equity

If you owe less than your vehicle is worth, you have positive equity – which puts you in a strong financial position when it comes to trading in your vehicle. So when you do decide to trade it in, your equity will cover the payoff amount and also provide you with the funds needed for a down payment on your next vehicle purchase.

For example, say you owe $7,000 on your car and it’s worth $10,000. You now have $3,000 of equity.

Trading in a Car with Negative Equity

If you owe more than your vehicle is worth, you have negative equity. For example, say you owe $7,000 on a car with a trade-in value of $6,000, you’d be responsible to cover the $1,000 difference.

If you’re in this scenario, you may want to wait to trade in your vehicle until you have paid more of your loan. However, another option is to roll your current auto loan into a new one. Although many people do this, you should understand the risks. You will owe more than your new car is worth, your payments may be higher, and you could put yourself thousands of dollars in debt if you continue to roll car loan into car loan.

A good tip to help ensure you get a good deal when trading in your vehicle is to negotiate your trade-in value and the new car cost separately. Then, be sure to carefully check the contract to ensure your trade-in value is the amount that was agreed upon.

Trading in a Car for Lower Payments vs. Refinancing Your Car

If you’re looking to trade in your car for lower payments, you may want to consider refinancing instead. Refinancing your auto loan can provide you with lower rates, lower payments, and/or shorter payback periods.

The auto refinancing process is relatively simple, especially when you work with an experienced lender like People’s Community Federal Credit Union. If you’re interested in refinancing your auto loan from another lender, bring us your loan and we’ll give you a bonus: we’ll pay it off and match the lender’s current rate to as low as 2.99% APR*.

* Annual Percentage Rate. Offer applies to loans 12 months or longer. If loan is paid off in less than 12 months, cash bonus must be refunded. Not available for refinancing PCCU loans.

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