How to Trade In a Car with Negative Equity

Having a car with negative equity means you owe more on the loan than it would be worth at if sold today. In reality, there are a large number of car owners with negative equity at any given moment. The value of a car decreases dramatically as it is driven. It is advisable to take a short term loan and pay it off in full before seeking a trade in. However, if this is not possible, then you will have to trade the car in with negative equity.

Know the Value of Your Car

The most important factor of your trade in is the value of your car currently. While the dealer will quote you a price at the trade in, you will want to do independent research in order to protect your interest. One method is to shop the car around at various used car dealers. It is also helpful to know the Kelly Blue Book and National Auto Dealers Association prices. The new dealer is more likely to use the NADA value than the KBB value, but you can use both to argue for a higher trade in.

Have your Loan Information On Hand

Your new car dealer will be contacting your current lender to settle the loan. You will need to have your loan information on hand at the time you are trading in the car. It is best to have a quote for paying off the loan with you at the time you visit your new dealer. In the least, know your account number and lender's full information.

Be Prepared with Extra Cash

Since you have negative equity in your car, you are going to be the one responsible for settling the difference at the trade in. When the dealer purchases your car from you, the cash can be used to balance out a portion of the loan, and hopefully this portion will be large. The remaining sum will need to be handed either directly to the original lender or to your new dealer. This does not count as part of the down payment for your new car. This means you need to have a large amount of cash on hand at the time you go to purchase your new car to cover both the new down payment and the previous debt settlement.

Settle the Debt Prior to Trade In

One option to consider as an alternative is to privately settle the debt before going to your new dealer with the trade in. You can do this by paying off the entire pay off quote with cash you have saved. The lender will charge you a prepayment or settlement fee that will be included in the quote. If you do not have all the cash needed to pay off the loan and make a down payment on a new car, you can settle your existing loan through a personal loan. You will have to pay interest on the funds, but this allows you to continue paying off the previous loan at the same time you are paying off the loan on your new car.


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