How Can You Trade a Financed Car?

How Can You Trade a Financed Car?

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Though you may still be making payments on a relatively new car you've purchased, maybe you want to get behind the wheel of something else. 

It could be the newest makes and models are so alluring, you're willing to accept any financial penalty you'll incur if you have to trade in your current car. Or maybe your needs as a driver have changed, and you need something like an SUV that can tow a boat or a trailer

But when you're currently making payments on a car loan, trading in your vehicle isn't as simple as handing over the keys and receiving a sum of money toward your next purchase.

When you're in the middle of financing a car, certain financial elements affect how much money you'll pocket when trading in and even whether you'll get any at all. 

Knowing the details to pay attention to when trading in a vehicle you still owe can save you time and money. Let's explore what to pay attention to when trading in a financed car.

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How does trading in a car work?

Trading in a car offers you a convenient option when purchasing something new. Instead of going through the hassle of selling your vehicle, you hand over the keys to the seller, who gives you a sum of money toward your next vehicle.

With all of the time and energy needed to place an ad, take pictures, field calls from prospective buyers, and complete the transaction, selling your used car lacks the ease of trading it.

By the time you complete the lengthy process of selling your car to a private party, the vehicle you want might be sold already. And what if there’s little interest from the buying public in the particular make and model you’re advertising, and it takes weeks, then months to find a buyer?

Sometimes trading in a vehicle makes more sense. Rather than answering phone calls and numerous questions, trading in lets you receive a nice sum towards your next vehicle in a fraction of the time. 

Though trade-in values at dealerships tend to be less than selling to a private party, when you sell or trade in with Shift, this isn’t the case. No matter whether you’re selling or trading in a sports car or a pickup truck, Shift uses the same fair pricing algorithm, so you get the most money towards your next vehicle. And when you’ve decided on a used vehicle from Shift’s wide selection, you’ll receive an upfront, no-haggle price based on the same pricing algorithm. 

Trading in a car with a loan

But when you're trading in a financed car, the process is less straightforward, and you'll need to pay attention to additional details. 

First, you'll need to take into account depreciation. During the first year of ownership, new cars depreciate at the fastest rate, losing around 20 percent of their original value. After that, depreciation evens off and occurs at a more gradual pace. So even if you're ready to trade in your new vehicle that's less than a year old, it makes more financial sense to get past the first year of ownership before doing so. 

And when you trade in a car with a loan, you might not get much money in return, depending on how many payments you've made. That's because, upon trade-in, the seller agrees to take over the remaining loan balance.

If you've been paying off your financed car for several years, you'll probably get a nice sum to put towards a new vehicle. But if you've owned your financed car for a short period, and the remaining balance exceeds the vehicle's value, you won't receive any cash to put towards your new purchase. 

You'll also want to perform research on current market pricing before trading in a financed car. Resources like Kelley Blue Book, NADA, and Edmunds are all excellent tools to find just what your vehicle's worth. These sources of information arm you with the latest figures so you can get the most money for your trade-in. 

When trading in a financed car, it can also pay off to check with several sellers and see which one gives you the best offer. Keeping the trade-in transaction separate from your new vehicle purchase is essential, so the seller doesn't increase pricing to compensate for an excellent trade-in figure. 

With all of the time-consuming details related to trading in a car you still own on, wouldn't it be nice to deal with someone you trust? Shift takes the hassle out of trading in your vehicle and gets you behind the wheel of something new in no time. With Shift, you can trade in your car, and they'll help you complete the paperwork in less than two hours. And Shift's website has a large selection of fully inspected vehicles located across the country that are ready to go. The website is user-friendly, and you'll be able to find various makes and models to suit your needs and budget. 

2020 Mercedes-Benz GLB 250 (from $40,350)

2020 Mercedes-Benz GLB 250 (from $40,350)
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Positive equity versus negative equity

When computing how much money you'll get when trading in a car you still owe on, it all comes down to equity. With positive equity, you'll be getting a nice chunk of cash toward your new purchase. But with negative equity, you won't get anything, and you may even lose money if your loan is underwater.

Positive equity means the car you're currently financing is worth more than the remaining loan amount. Just like it sounds, positive equity is a good thing, and you'll be able to apply the equity you've built up toward your next car.

However, negative equity refers to your financed vehicle being worth less than the amount remaining on your loan. This situation is referred to as being upside down on a loan and is an undesirable financial position, whether you plan to trade in or not. Since a seller takes over your loan when you're trading in a financed car, they can't offer you anything in return for a vehicle with negative equity. So if you find yourself with an upside loan, you may want to reconsider trading in your car.

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Trading in a financed car in summary

Trading in a car is an uncomplicated way to put money toward purchasing your next vehicle. But when you're trading in a vehicle with a loan, the process is more complex. 

If you're considering trading in a car you still owe on, taking things into account like equity, depreciation, and the true worth of your vehicle can all help you make the best decision. 

Trading in or selling your used car can be a hassle. Why not let someone you trust take care of the details? All you'll have to do is enter the make, model, year, and mileage on Shift's easy-to-use website, and you'll instantly receive a purchase offer that's valid for seven days. 

Shift also offers best-in-industry service contracts, so you can be sure your next vehicle will be running smooth, mile after mile. 

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Shift Editorial Team