What you need to know when trading in a vehicle when you finance with car loans with bad credit
What you need to know
Our business is to match up our credit challenged customers, who have filled out our bad credit auto loan application, with dealers in our nationwide network that can help them get this kind of a loan. By doing this, applicants at Auto Credit Express can not only reestablish their car credit, they can also raise their credit scores.
Unlike tote the note dealers, the bad credit car loans our dealers use originate with lenders that will report your payment history to the credit bureaus. This means that by making all your payments on time, you can raise your FICO scores and reestablish your auto credit at the same time.
We also provide our applicants with much of the information they need since a poor decision could result in trapping them in a loan they can't afford which could end up in repossession. Once this happens, the only remaining choice for most buyers is a Tote the Note, We Finance Everyone car dealer.
As with anything else, the key to a successful second chance car loan is focusing on the basics. In this case, this means being aware of lender requirements for an equity down payment on the loan including equity in your trade in vehicle.
Trade equity is the difference between what your car is worth and how much you owe on it. Car dealers determine the value of your current vehicle by using a number of different sources. NADA and Kelley Blue Book values are the most well known, while Black Book values and auction reports are the most accurate ways dealers can determine what your car might be worth to them. In addition to this information, the dealer will also physically inspect the car as well as take it for a test drive. After taking all these things into consideration, the dealer then determines a trade in value for your car.
Many customers are surprised that their car isn't worth as much as they thought it would be. NADA and Kelley Blue values that most consumers have access to should be thought of as only a guide. Auction values, available online only to dealers, are more up-to-date. They are also more geographically accurate, since book values cover an entire region while auctions are local. In addition, the dealer may have to replace tires and pay for reconditioning and detailing your trade in. Those costs will also lower your car's value.
The meaning of trade equity
Once the value of your trade has been determined, you need to know if you have equity in the vehicle. If your car is paid off and you own it free and clear, the entire value of the trade is considered to be your equity. If you still owe money on your car and the trade value is more than what you owe, than the difference would be your equity. If you owe money on your car and the trade value is less than what you owe, then you have no equity or, as it is sometimes called, negative equity. Other terms for negative equity situations are “upside down” or “in the ditch”.
Trading in your vehicle
If you have trade equity or you have enough money to cover your negative equity (plus a down payment if you need a bad credit car loan), then it makes sense to trade in your car. If, however, you trade in a car with negative equity on a new loan without covering the equity difference, you will end up paying finance charges on not one, but two cars. When you are dealing with a bad credit auto loan with the associated high interest rates, this can be expensive in terms of the amount of interest you end up paying – not to mention the fact that it makes qualifying for this type of loan that much more difficult.
When to do a negative equity trade in
You should contemplate a negative equity trade only if it will save you money. That being said, there are two scenarios where a negative equity trade can actually save you money: The first instance involves a vehicle that is out of warranty and necessary repairs will cost you more than you spend on the difference in interest expenses on the new loan. The second example would be a savings in actual operating expenses. For example, if you are trading in a vehicle that gets 10 miles per gallon on a vehicle that gets 25 miles per gallon, the difference in interest expense may be offset by the savings in fuel costs.
If neither of these situations exists, then you are essentially paying for two cars at the same time. If you are looking at the high interest rates associated with auto loans for bad credit, this is not a good financial decision.
Trading in your current car if it is paid off or you have equity in it will help reduce the amount of interest that you will pay on your new loan. If you are “upside down” in your current vehicle, trading in your car only makes sense if you are avoiding costly repairs down the road or if you can offset the increased interest expenses with savings in fuel and/or auto insurance.
Auto Credit Express can help you
Here at Auto Credit Express, we specialize in placing customers with bad credit with dealers that can help them. Our affiliate dealers are knowledgeable and will treat you with the same high respect that they treat every customer that walks through their doors. If you have any questions that our web site can't answer, feel free to call us at the toll free number listed there.
So if you are serious about getting your credit back on track, why not begin a new chapter in your life by filling out our bad credit car loan application.