Trading in your old car to use as a down payment on your next auto loan can help you get approved if you have bad credit, as well as save money because it lowers the amount you're financing. But if you’ve been driving a vehicle that isn’t in your name, it’s a little harder than trading in a car in your own name – but you can do it! Here’s what you need to know.
Trading In Someone Else’s Car
While you may be the primary driver and even the one insuring the vehicle, if your name isn’t on the title, you’re not the legal owner. You can’t sell a car that isn’t in your name without the owner or their permission.
There are a few different ways to prepare to trade in a vehicle that isn’t in your name, and it depends on whether or not the car is paid off.
If there's still a lienholder on the title, they’re a few things that need to be taken care of before heading to the dealership. If the vehicle is paid off, the process becomes easier.
We go through the steps you and the car’s owner need to take to get that vehicle traded in.
Is There a Loan Balance on the Car?
Whether or not you’re the one making payments on the car, if the “real” owner of the vehicle still has a loan out on it, you need to contact the lender before anything can happen. If you’re trading it in, the owner can simply sign the title over to the dealer and put it toward your next car.
Generally, the process goes like this:
- Contact the lender – The owner can’t sell or trade in the vehicle until the loan is paid off, and the lien is removed from the title. To sell or trade in a car with a loan balance, the owner has to contact the lender to get the process started.
- Request a payoff quote – The owner needs to request a payoff quote, or payoff letter, from the lender. This states the loan balance, and typically includes 10 days of interest charges (to allow time for the payment to reach the lender).
- Determine trade-in value – After getting the payoff amount, you can head to the dealership. The dealer appraises the vehicle and offers a trade-in value. Since there’s a balance owed on the loan, anything over the payoff (equity) can be used as a down payment toward your next car. If the appraisal is less than the payoff, the difference needs to be paid to the lender to remove the lien.
- Pay the lender – A payoff check is sent to the lender. From there, the lender removes the lien from the title, and sends a release of lien letter, allowing the vehicle to be sold and the title transferred. If you live in a title-holding state, the state holds the title. Once the lien is removed, the title can be transferred to the new owner. If you’re in a non-title-holding state (only nine states are), the lender mails the release of lien letter to the person listed on the title.
- Transfer the title to dealer – The owner can then transfer the title over to the dealership with the lien removed and any equity can go toward your next car.
The process takes a few steps, but trade-ins are very common. Your lender and dealer are likely familiar with the process, but it helps if you know what to prepare for and where to start.
Auto Credit Express Tips: Since the vehicle was registered in someone else’s name, you typically need to pay for new license plates and to register your next car. Also, after the owner requests the payoff, they aren’t obligated to pay the vehicle off. If you or the owner decides to not trade in the car, simply keep making payments like normal.
If the Car Is Paid Off …
If the vehicle is paid off, the process becomes significantly easier. You can do one of two things to trade someone else’s car into a dealer:
- Bring the owner – Have the owner come with you to the dealership to sign the title over and put the value toward your next vehicle.
- Owner sells the car to you – The owner can fill out a bill of sale with you and sign the title over to you. You can then go to your DMV or Secretary of State and request a new title with your name, and once that is complete, you can bring the title to the dealer and trade in the vehicle.
Your choice is going to depend on how well you know the owner of the car, while bringing them to the dealership certainly saves time. Be sure to ask nicely, since the paperwork process takes a while!
Other Paperwork and Finding a Dealership
States vary in their requirements when it comes to selling or trading in a vehicle. And whether or not your state is a title-holding state could mean it may take more time to complete the required paperwork.
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. Again, your dealer is likely familiar with this process and can walk you through it.
One more thing to keep in mind: some subprime lenders only allow you to trade in a car as all or part of a down payment that’s been in your name for a set period of time.
If you’re looking for a dealership to trade in a vehicle, we want to help with that. At Auto Credit Express, we help bad credit borrowers find dealers with special finance departments that work with subprime lenders. These lenders finance borrowers with less than perfect credit scores.
To get connected to a dealership near you, simply fill out our auto loan request form, and we’ll get to work!