It’s time for a new car, but you’re faced with the dilemma of bad credit. What do you do in this type of situation? Is it better to sell or trade in your current vehicle? There are many things to take into consideration. If you decide to trade in your car, Auto Credit Express has some important things for you to think about.
Handling negative equity
First things first: equity. When you have negative equity or are “upside down” you owe more money on a loan than the car is worth. This may sound challenging, but many people end up being upside down, and some don’t even realize it until it’s time to get a new car.
In this situation, you have three options:
- Cover the equity on your own – Pay the difference between your loan balance and your car’s trade-in value out of pocket
- Roll the negative equity into a new loan – This can be difficult with bad credit, and expensive, but it is sometimes possible
- Wait on purchasing a car – Wait until you are no longer underwater, or your loan is paid off
If you choose to roll over the negative equity into a new loan, the good thing is that there are some lenders willing to work with you on this. The downside of doing this is that you’re financing the negative equity on top of the new car loan and your options for vehicles may become limited. Make sure you research the value of your current vehicle (we recommend Kelley Blue Book (KBB) or NADA Used Car Guide) before visiting any dealers.
When the time comes to get your vehicle appraised, we recommend that you visit at least two dealers (the bigger, the better). If there's one in your area, you should also take your trade in to a Carmax store. Like new car dealers, Carmax will appraise your trade in for free and, on top of that, it will also buy your trade for its appraised value even if you don't buy a car from them (although this will only work if there is no negative equity involved, you plan on covering the negative equity out of pocket, or you're buying a vehicle from them).
If you’re struggling with trading in a car and you're unable to come up with the difference between what you owe on your loan and what your vehicle is worth, rolling that negative equity into a new loan isn’t going to be your best option.
On the other hand, if you’re looking for help and are ready to go through the trade in process, let Auto Credit Express help. Take the first step by submitting an auto loan request form online to get started today.