Trade-in equity can help you meet or exceed a down payment requirement, which is often a part of vehicle financing when your credit score is less than stellar. Right now, used car values are high, so it may be the time to turn your vehicle into a decent down payment.
Trade-Ins and Down Payments: A Heavenly Match
One of the most common questions we get related to bad credit auto loans is, “How much of a down payment do I need?”
Consumers are correct in assuming that they’ll need money down for a loan. Nearly every bad credit lender requires a down payment when your credit score isn’t ideal. Most subprime (or bad credit) lenders require at least $1,000 or 10% of the vehicle’s selling price.
However, you don’t need to meet this requirement in cash alone, because trade-in equity can be used to help satisfy this requirement as well.
When you trade-in a vehicle, you can choose to pocket the proceeds or put it toward your next car’s selling price. If you still have a loan on the trade-in, then any money left after paying it off (equity) can be put toward your next vehicle purchase.
To see what your car may be worth, visit some valuation sites such as Black Book, Kelley Blue Book, or NADAguides. While the values offered by these sites are just estimates, they can give you an idea of what a dealer may pay for your vehicle. Then, you can take this amount and apply it toward the down payment requirement on your next auto loan.
Trade-Ins Values Hitting Record Highs
If you have a car that you’ve been itching to trade-in for an upgrade, now could be the time. Since there’s a lack of new-car stock, used vehicles are high in demand.
It’s no secret that the pandemic messed up some things production-wise. There’s a real global chip shortage going on (unlike the infamous toilet paper shortage), which is slowing down the production of brand new cars and other electronics.
Autoweek pointed out other contributing factors to the rising price of new and used cars is the lack of repossessions, and rental companies not selling their rentals, because they can’t buy new stock.
This is great news for sellers, and for you if you’re looking to trade in your old ride for something else. Dealers need stock, and if you’ve got a decent used car, then it could be your ticket to qualifying for a bad credit auto loan (provided you meet a subprime lender’s other requirements!).
Preparing to Trade-In
Before you settle on where to trade in your vehicle, call around to get multiple offers. We recommend calling or visiting at least three dealerships and making a point to get an estimate from a franchised dealer for your vehicle’s make, since they may be willing to make a higher offer for your car.
Other tips to increase the value of your trade-in include:
- Do some light repairs – This can include replacing brake pads, buffing out small scratches, removing stains from the interior, and ensuring proper tire pressure. These are small, inexpensive things you can do to give a dealership a good impression of your vehicle, and possibly get a higher offer out of it.
- Bring your service records – If you’ve regularly maintained your car with oil changes and required maintenance, bringing in those records could give you an edge in negotiating your trade-in offer.
- Come prepared with values – If you have no idea what your vehicle is going for in the current market, you’ve got no leg to stand on with a dealer during negotiations. Bring some trade-in values to the table to increase your chances of getting a fair offer.
If dealerships are interested in purchasing your vehicle, it’s time to choose which one you want to work with. However, if you have poor credit, you may need to go with a special finance dealership that’s signed up with subprime lenders. These lenders often work with borrowers who have credit challenges, such as bankruptcy, no credit, and bad credit.
Make a Move!
When you’re in need of a car loan and you’ve got a trade-in with equity, you’re in a good position. Putting cash down on your next vehicle can increase your approval odds, decrease your interest charges, and land you a lower monthly car payment. Whether you satisfy your down payment requirement with cash or trade-in equity is neither here nor there – both can get the job done.
If you’re in need of dealership connections as a bad credit borrower, then look to us at Auto Credit Express. Over the last two decades, we’ve created a coast-to-coast network of dealers that are signed up with subprime lenders. Get matched to a dealership in your local area after completing our free auto loan request form. There’s never a fee or obligation, so get started today on your path to a car loan with us!