Automobile companies are launching newer car models every day. Many times, it might so happen that you would want to switch your car for a newer and more expensive one.
In that case, you can undoubtedly think about trading in your car. The dealer will certainly provide you with a discount on the new car when trading in your car.
The problem arises when your current car’s value is less than the outstanding amount of your car. It is known as having negative equity in your car.
Fortunately, there are ways in which you can trade in a car with negative equity. Today, we will help you out with the same.
How To Trade In A Car With Negative Equity?
The 4 options you have to trade in a car with negative equity are postponing the trade-in, paying the negative equity amount, rolling over the amount into a new loan, or negotiating with the dealer. There are 4 options in total. Not only that, there is an alternative as well. We will highlight the alternative as well.
Option 1: Postpone It
You might think, how can postponing the trade in help?
Every month when you are paying your car payments, you pay off the interest and the principal amount. As the principal amount reduces, the payoff amount will decrease.
In a few months, the payoff amount can reduce to below the car’s trade in value.
We are assuming that the negative equity is minimal. In most cases, if you have been paying off your car payments in a timely fashion, the negative equity is minimal. If you’re suffering from such a scenario, this option of postponing the trade-in will certainly help you out.
This option poses a few risks. These include:
1. Price increase of new car
By the time you have positive equity, or you break even on your current car, the price of the new car increases. If that happens, you will have to shell out more money to buy that new car.
2. Accelerated depreciation
It might also happen that your current car might suffer from accelerated depreciation.
The accelerated depreciation usually happens when there is an accident, or the company discontinues manufacturing that particular model of the car.
If these risks don’t apply to you or you are ok with these risks, you can undoubtedly postpone your trade-in. Once you postpone your trade-in and pay off your car payments for the next few months, having positive equity indeed becomes possible.
After you have positive equity in your car, it will become easier for you to trade in for a newer car.
Option 2: Pay The Negative Equity Amount
In many cases, waiting it out is not an option. Not only that, postponing your trade in has certain risks. If you do not want to deal with all those risks, this option is suitable for you.
For example, if the negative equity amount is $1000 or $2000, you can certainly pay it off. After the payoff, you can easily trade in your car.
Also, the dealer may prefer that as well. That is because the dealer will not have to negotiate with the lender. The dealer will have to opt for any special financing for your new car.
When you’re paying off the negative equity amount, it will be easier for the dealer to provide you with financing for the newer car.
There is, however, a limitation to this option as well. If you cannot pay off the negative equity, this option certainly does not work out.
As stated in the example above, if the negative equity is $1000 or $2000, of course, you can pay it off. However, if you have an expensive car that you own currently or if the negative equity amount is on the higher side, paying it off is undoubtedly tricky. If you put it on the credit card, you might have to pay high interest as well.
Thus, if you can pay off the negative equity amount, it is the best solution you have. Not only that, it is one of the quickest solutions which you can opt for.
Option 3: Roll-Over The Amount Into a New Loan
If, for some reason, the above 2 options are not suitable for you, there is a 3rd option as well.
The 3rd option involves rolling over the negative equity amount into a new loan. The dealer might help you with rolling over the amount into the new loan.
You need to keep in mind that before any lender approves the same, they will run a credit check on you. If you haven’t defaulted on your car payments previously, can you roll over the amount into a new loan?
Doing so will mean that the car payments for your newer car increase. Already, since you’re opting for a more expensive car, the car payments will be on the higher side. If you add your negative equity amount to that car loan, the car payments will increase further.
Only when you’re ready to pay this higher amount every month should you opt for rolling over the negative equity.
This is undoubtedly an option that can allow you to trade in a car with negative equity.
Option 4: Negotiate With The Dealer
Have you considered the option that the dealer might not have provided you with the best deal?
While valuing your current car, the dealer might have undercut you. Instead of directly believing the dealer, it is an excellent idea to negotiate with the dealer. However, negotiating with the dealer is not that easy.
Today, we will share a handful of options that will allow you to negotiate with the dealer.
1. Get a competing quotation
Many car owners make the mistake of negotiating with the car dealer without any leverage. Instead of doing so, you have to get a quotation from a competing car dealership.
The more quotations you get, the easier it will be for you to negotiate with the car dealer. You have to shortlist the quotes which offer a higher trade-in value for your car.
After that, you have the choice to go with any other dealership or to negotiate with your current car dealership.
When you have competing quotations, it will become very easy to increase your car’s trade in value.
Once the trade in value of your car increases, chances are the negative equity might turn into positive equity. If that is not possible, you can at least break even.
In any of those cases, it will become effortless for you to trade in your car.
There is another way to negotiate with your car dealer as well. We will highlight that below.
2. Use third-party appraisal services
Many third-party appraisal services are available these days. They are available online as well as off-line. You have to go with a nationwide third-party appraisal service.
Since they do not have any financial incentive to downgrade your car’s value, the appraisal will be higher. With the help of this appraisal, you can negotiate with any car dealership easily.
When you opt for any of these 2 methods, it will really become easier for you to increase your car’s trade in value. In the process, you might end up owning positive equity in your car. Once that happens, trading in your car becomes easier.
Are these methods not suitable for you?
If so, there is an alternative as well. While technically, you will not be able to trade in your car, but you can certainly buy the newer car you want.
We will highlight that alternative below.
Alternative: Find a Private Buyer
The method is to find a private buyer. It is much easier to get a higher value for your car through a private buyer.
The downside is that the dealer might not provide the same lucrative deal for the new car.
You might be thinking, where can you find a private buyer?
These days, online classified websites and online automobile selling websites can find you a buyer in no time.
You need to keep in mind that you might have to do a lot of paperwork when you’re dealing with a buyer you have found online. Only if you are well versed with that can you opt for this method.
Before selling your car to a private buyer, you have to take a quotation of a new purchase from your car dealership.
Only when it makes financial sense to sell the car to the private buyer and then purchase a new car in a separate transaction should you go ahead with it.
While technically, this method can allow you to purchase a new car, but it is not exactly trade in.
If none of the other options we have highlighted above work, you can certainly go with this one.
Confused between the numerous options and alternatives?
If so, we will share a simple guide below, which will help you choose between these methods. Once you go through the guide, it is easy to find the answer to how to trade in a car with negative equity?
Which Option Should You Choose?
Below we will highlight a few parameters which can help you choose between these options.
You have to take into account the negative equity amount. If the negative equity amount is small, you have 2 options.
The 1st option which you can go with is to pay off the negative equity amount. In that case, you can trade in your car almost instantly. For this, you have to get the payoff quotation from your lender. The payoff amount is the exact amount you have to pay to close the car loan.
If paying off negative equity is not convenient for you, you can think about postponing your trading in. It will ensure that you pay off more principal while waiting it out. Doing so automatically, you will break even on your car. However, before going with this option, do calculate how many months it would take to break even on your car equity.
Thus, taking into account the amount you need to pay off will help you choose the right option.
The next factor which you have to consider is affordability. In many cases, due to rising income, the car owner can afford higher car payments.
If you’re one such lucky car owner, you can certainly rollover the negative car equity into a new loan. Once you do so, you can purchase your new car almost instantly. You will not have to worry about paying upfront or waiting it out.
It might so happen that you might not need an expensive car at all. The option you choose will also vary depending on your need.
Once you discover that your current car has negative equity, you have 2 options.
Car owners who do not need a bigger car can keep their current one. In that case, you don’t have to worry about going for the trade-in at all. You can continue with your current car for years to come.
If you have the need, you can think about buying a similarly priced car. Not only that, you can think about purchasing a more affordable car. Doing so ensures you will not have to worry about negative equity and other such problems. Your car payments will also come down.
Your need will undoubtedly determine the option which you choose while trading in your car.
These 3 are the parameters that you should consider while deciding which option you should choose.
Trading in a car with negative equity might be difficult. However, it is not impossible. With the solutions and the alternatives that we have listed above, trading in your car despite negative equity is undoubtedly possible.
Instead of thinking that you will never buy your dream car because of negative equity, you have to refer to our guide above. Once you do so, getting your hands on your dream car is undoubtedly easy and possible.