Consumer Car Buying Advice Blog

Using your trade in as a down payment on no credit auto loans will usually only work if you have equity in it

Car loans with bad credit

Unless it’s paid off or you’re well into your current loan it could be difficult trading in your current car for a problem credit auto loan.

We should know this due to the nineteen years we’ve been associated with bad credit car sales here at Auto Credit Express – where we are glad to explain why tote the note dealers won’t improve credit scores.

Our website also clarifies the problem credit auto loan process so applicants can avoid the issues that can develop into repossession.

Appraising your trade in

Equity is the difference between a vehicle’s value and what, if any, is owed on it.

During the appraisal process, the dealer assigns a value to your car. Customers are often surprised that their car isn’t worth as much as they thought it would be. This is because the NADA and Kelley Blue Book values consumers have access to should only be thought of as a guide.

Actual auction values that are available only to dealers are usually more accurate. In addition, the dealer might also have to replace items, recondition and detail it – all costs that reduce a car’s trade in value.

Trade equity

The next step is to determine its trade equity. If your car is paid off, the entire appraised value is equity. If the appraised value is more than what you owe, the difference is positive equity or, simply, equity. If the appraised value is less than what is owed then the difference is known as negative equity.

Negative equity

Since most bad credit lenders require a down payment, you’ll need enough trade equity to at least match it. If the equity amount isn’t enough, the difference can be made up in cash.

But if you have a negative equity trade, you’ll need to come up with cash for the down payment plus enough extra to cover the negative equity to meet the down payment requirements.

Even if the lender allows you to trade in a car with negative equity without covering the balance owed – which usually doesn’t happen – the situation isn’t be good, because you end up paying for your old car and your new car. With the high interest rates of no credit auto loans this becomes very expensive.

Should you do it?

Should you ever do a negative equity trade? Possibly, but only do it if it will save you money. There are two situations in which it might.

1.    Your current car is out of warranty and essential repairs will cost more than you’ll spend on the increased expenses of a new loan

2.    Your current vehicle costs a lot more to drive (say 10 mpg versus 30 mpg on the new car) and the added expense of the loan is offset by savings in fuel or even insurance costs.

If neither situation exists, you will be paying for two cars at the same time – not a good thing.

The Bottom Line

Trading in your current car if it’s paid off or you have equity will help reduce the interest expenses of a bad credit auto loan.

But if you have negative equity it only makes sense to trade it in if you’re trying to avoid costly repairs or if you can offset the increased expense with a savings in fuel and/or insurance costs.

At Auto Credit Express we help people with bad credit find a dealer that can give them their best chance at approved auto loans.

So if you’re serious about getting your car credit back on track, you can begin the process by filling out our online car loans bad credit application now.

Tags: Bad Credit, bad credit auto loans, negative equity

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