Trading in with Negative Equity
If your trade-in has negative equity, you may be able to roll over the difference into the new loan. But not all lenders are willing to do this, so make sure you ask beforehand. If you’re allowed to roll over the negative equity, know that it won’t magically go away – you’re still responsible for paying the original loan off on top of the new one. You can determine if you have negative equity by subtracting the amount you owe on the loan from your car’s appraised value.
Pros and Cons of Trading in Your Car
If you find that you don’t have negative equity and are thinking about trading your vehicle in, consider the pros and cons of the trade-in process at a dealership.
- The dealer takes care of it – All the paperwork and title work is done at the dealership. You’ll be able to negotiate and pick out a new car while you’re there, as well.
- Easy and fast – When you sell it privately, you have to go through the selling process of advertising your car, and searching for a potential buyer could take months. At a dealership, your trade-in is taken care of immediately.
- You can apply the trade-in to the new loan – If your trade-in has equity, you can apply it as a down payment on your new car. This will help lower the overall cost of your new loan, making it more affordable.
- Your car may be worth less – Your vehicle’s appraised value could be lower than the its actual cash value. While this is common, you can typically still try to negotiate with the dealer to get more money for your trade-in.
- Limited to where you can buy a car – If you’re trading in your car to that dealership, you’ll typically – but not always – have to buy your next vehicle from that dealer. So, make sure that dealership has the car you want before negotiating a trade-in price.
The Bottom Line
Trading in your car won’t do you much, or any, harm. The only time you may need to worry is if you have negative equity and are insistent on trading it in. If you’re ready for a new vehicle, but worry your bad credit will get in the way, let Auto Credit Express help.
We connect consumers to local special finance dealers that know how to work with challenging credit situations. To get started today, simply fill out our secure and free online auto loan request form.