One option to explore if you can no longer afford your car payment, or want to free up money in your budget, is trading in your car for a vehicle with a lower monthly payment.

Trading in Your Car and Your Equity Situation

trade-in, buy a carThings can happen over the course of an auto loan that may make you want to trade in your car for a more affordable option. Maybe your income situation has changed, you're expecting a child, or perhaps unexpected expenses like medical bills popped up. Whatever the reason, now you need to trade down into a less expensive vehicle.

Often, people in this situation assume this process will be complicated if they still owe money on the car, but that's not what you need to focus on. The key here is whether or not you have equity in the vehicle.

Simply put, equity is the difference between what your car is worth and how much you owe on the loan. If your loan balance is $8,000, but your vehicle is worth $9,000, you have $1,000 of equity in the car that you can apply toward your next vehicle, allowing you to lower your future payments. The same goes if you're trading in a car that's paid off – whatever the dealer's willing to give you for your trade-in can go toward your next purchase.

However, if the opposite is true and you owe more on your car than what it's worth, you're facing negative equity.

Trading in a Car with Negative Equity

It's harder to trade down for lower payments when you have a lot of negative equity – you may not even be able to trade at all depending on the amount and your credit situation. This is because the difference between what you owe on your loan and what your trade-in is worth will not disappear. You either have to cover it out of pocket or, if you're allowed to, roll the balance into your next loan.

Rolling negative equity into a new loan is a dangerous financial practice. Any balance you move over will be added to your new loan, which means increased monthly payments and that you'll pay interest on it. Even if you were to trade down into a less expensive vehicle, your payments may not be lower depending on the amount of negative equity you roll over.

The Right Plan of Attack for Lower Payments

If you're trying to trade in your car for another vehicle with lower monthly payments, step one is to figure out your equity situation. You can do this by contacting your lender to get your loan payoff amount. Then, you can research what you may be able to get for your trade-in using online resources or getting appraisals from several different dealerships.

If negative equity isn't an issue, the next step is finding a vehicle to finance that will result in smaller payments. A good tip financial experts use: make sure all of your car-related expenses take up no more than 15-20 percent of your monthly income. This tip can help you identify a price range that comfortably fits into your budget.

Help With Subprime Auto Loans

If you're trying to lower your car payments by trading down into another loan, the last thing you need is your credit keeping you from making it happen. Auto Credit Express is here to get you connected to a dealership that can help.

Our cost- and obligation-free service will match you with a dealer in your area that's equipped to assist consumers facing tough credit situations. Get the process started by filling out our secure auto loan request form today.