Can you trade in a financed car?
Of course yes. I can trade in a financed car. This is quite simple as it is very common when you want to buy a new car but you are still paying debt on the old car. Dealers won’t actually find this surprising as they know that is what many buyers do.
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However as this is possible, there are many situations to consider when you want to trade in a financed car and it mostly depends on you personally. To assist you in deciding if trading in a financed car is the right thing, here are things you should look into.
When you trade in a financed car, what happens?
When you want to trade in a financed car, most of the processes are all taken care of by the dealer and it is usually forthright and simple.
For an example, if a dealer is willing to give you a trade in amount of $7,000 on your car that you are still owing maybe $5,000, the dealer would actually collect the car back from you and help you pay off the $5,000 you are owing on the car, the remaining money which is the $2,000 is the one that gets added to the new car you want to purchase from the car dealer. With the same example above, let us assume that you want to buy TOYOTA CAMRY for amount of $22,000, the $2,000 you have left for yourself on the car you traded in would be deducted from this new car price which leaves you with the payment of $20,000.
It is from this you would have to decide if you had still take a loan or pay some of the money to reduce the car finance. What you should know is that, there will be much of paperwork and all these would happen at the finance department but you should make it a point of duty to understand everything and details in the paper before signing it.
What happens if you are upside down on the financed car?
Being upside down on a financed car means that the worth of the car is lesser than the amount you owed on it and this really creates a lot of problem for buyers that want to trade in a financed car. In this, when you trade in the car, and the amount you sold the car out is not up to what you owe on the car, the remaining money will be rolled off to your next new car you want to buy. For example, if you are owing $5,000 on a car and the dealer want to pay help you trade in the car at the amount of $4,000. After the car has been sold, the dealer would pay off the $4,000 and this means you are still owing $1,000 on the old vehicle.
With the same example above, if you still now want to buy new car, maybe worth of $13,000, the dealer will roll off the balance to the new car which means you would be paying $14,000. The advantage of this is that you have a new car but the disadvantage is that you still paying for the car that is no more your own even when the dealer has sold the car out to another buyer. You would be financing two cars at the same time, the one that is yours and the one that is no more your own. You can decide to pay off the loan on the old car by borrowing money from any bank and face the financing on the new car alone or you pay off the debt on the old car from your pocket and pay some of the money on the new car leaving you to finance less on the car.
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The problem with this kind of deal is usually that the buyer always be in a bad cycle in which they climb from one upside down loan to another upside down loan. This means that the remaining money owed on the previous cars keep on climbing to the next car. Most borrower want to trade in no matter what they owe on the previous car but the amount owed on the previous car depends on the type and value of the next car to be bought.