Trading in your old car as a down payment lowers the amount you're financing on your next auto loan. And, a lower loan amount could help you qualify for a car loan if you have bad credit. But what if the car you're driving isn't in your name? Here's what you need to know about trading in a car that's not in your name.
You Can't Trade in Someone Else's Car
If you're not the owner of a car, you can't trade in the vehicle. And, if your name isn't on the car's title, even if you're the primary driver, you're not the owner of the car. However, the owner can trade in the car themselves, or sell you the vehicle you've been driving. Once you own it, it's yours to do with as you please.
In order to buy the vehicle you're driving from the owner, you have to go through a private sale. You'll have to prove you purchased the vehicle in order to get your name on the title at your local Secretary of State office or DMV. For this, you likely need a bill of sale. But, if the person whose name is on the title has a loan out on the vehicle, then they're technically not the owner yet, either, and you can't initiate a sale.
If there's still a loan on the car, the lender is listed as the lienholder on the title and you can't do anything with the vehicle until the loan is paid in full. Once the vehicle is paid off, the owner is sent a release of lien letter, and/or the title. Then, they can sell you the car and you can go about doing what you need to do to get another vehicle.
Once You Own the Car
As the owner of a fully paid-off car, you can trade it in as all or part of your down payment on another vehicle. But, as a bad credit borrower, you may face some stipulations, such as length of ownership. So, be sure to get all the details before heading to the dealership.
The trade-in process is pretty simple when you get down to it. Just bring the car to the dealer for an appraisal, and since you don't owe anything on the car, the whole amount of value can be used to offset the cost of your next auto loan.
States vary in their requirements when it comes to selling or trading a vehicle. Additional documents also have to be completed, depending on your state, such as an odometer disclosure and bill of sale. Some states include these on the title, as well. Your dealer is likely familiar with this process and can walk you through it.
Auto Credit Express Tip: Be sure to shop around for the dealership that's offering the best deal on your next car, as well as one that's offering a decent amount for your trade. If you rate shop within 14 days, all hard inquiries on your credit count as just one.