What happens if you trade in a car under finance?

So, you’ve found yourself in a difficult situation. You’re interested in getting a new car but still making payments for your current one. The good news is you can trade in a car that’s still under finance. However, you may have to jump through a few more hoops for a successful new car purchase.

Your car loan won’t just disappear after buying a new car. One way or another, you must resolve the remaining balance on your existing car finance. The key is assessing your options to find the perfect solution.

How do I trade in my car that is still under finance?

There are various ways you can go about trading in your car with a loan. The best course of action depends on your current loan and your car’s trade-in value.

Car financed through a dealership

You may be able to transfer your existing loan’s balance to your new car’s loan. The trade-in value of your new vehicle could roll over towards your next car finance. In some cases, the trade-in value could be enough to cover the remaining loan balance.

Car financed through a lender

It’s possible to use the money you get from trading in your car to pay off your existing car loan or minimise the balance. You may have to pay extra fees for early payments or termination. Always check the terms and conditions of your car loan before deciding.

If you have an unsecured car loan, your lender may let you continue to pay off your old loan after trading in your vehicle. The drawback to this is that you’ll be making two loan payments; one for your traded-in vehicle and the other for your new car.

For a secured car loan, most lenders will require the balance of the loan to be paid in full before releasing security over the vehicle. You cannot trade in your car with your lender still holding security over the vehicle.

Quick overview of the car trade-in process with a loan

Here’s what you can expect when trading in your car under finance:

• Step 1: Figure out your car’s trade-in value. Do your research and see how much cars with similar makes and models sell for. Get a trade-in quote directly from the lender.
• Step 2: Find a car that fits your budget. Use a car repayment calculator to help you determine a price range.
• Step 3: Collect all the important documents and bring them to the dealership. This includes information about your existing loan such as your loan account number, remaining balance, and the like.
• Step 4: See if the trade-in value of your car can cover the outstanding balance on your loan. Some dealerships may pay for the outstanding amount by contacting the lender directly and handling all the ownership transfer paperwork.
• Step 5: Find a good car loan for your new vehicle. Compare your loan options to find one that fits your needs. Once all that is done, you can finalise your car purchase!

Some steps may differ depending on your situation. It’s best to talk to your lender and dealership to figure out your best course of action.

Tips when trading in your car under finance

There are ways you can make the whole trade-in process easier. Follow these tips and tricks to make your car-buying journey a breeze:

Be upfront about your situation

You don’t need to keep the status of your car loan a secret. It’s more helpful and productive if you’re honest about it with the dealership. This allows the dealership to make arrangements with the lender and settle the outstanding loan balance if possible.

Understand the risks

Taking out a new car loan could increase your monthly payments. This happens when the trade-in value of your car isn’t enough to cover the remaining loan balance. You could also get negative equity for your vehicle which occurs when you owe more than what your car is worth. This will make trading in your car more difficult.

Talk to your lender

Contact your lender and ask about any fees you may have to pay. Some loans have early termination fees that you have to factor into your budget. Discuss your options with your lender to see if it’s the right time to buy a new car.

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