What happens if I want to trade in my car during my auto loan?

If you want to trade in your car during your auto loan, it's possible, but there are several important considerations and steps involved in the process. Here's what typically happens when you decide to trade in your car while you still have an existing auto loan:

1. Evaluate the Value of Your Current Car:
Determine the current market value of your car by using resources like online valuation tools, consulting with dealerships, or getting an appraisal from a trusted source. This value will serve as the tradein value.

2. Compare TradeIn Value to Loan Balance:
Compare the tradein value of your car to the outstanding balance on your auto loan. The tradein value should ideally be equal to or greater than the loan balance. If it's less, you'll have negative equity (also known as "upsidedown" on your loan).

3. Positive Equity: If the tradein value exceeds the loan balance, you have positive equity. In this case, the dealership will apply the positive equity toward the purchase of your new car. This can reduce the amount you need to finance for the new car.

4. Negative Equity: If the tradein value is less than the loan balance, you have negative equity. The dealership can still facilitate the tradein, but the negative equity will typically be rolled into the new auto loan for the replacement vehicle. This means you'll owe more on the new loan than the cost of the new car, which can result in higher monthly payments.

5. Review Loan Terms for the New Car: Carefully review the loan terms for the new car, including the interest rate, loan amount, and monthly payments. Make sure you understand how the negative equity from the tradein is factored into the new loan.

6. Complete the TradeIn Process:
Provide all necessary documents and information to the dealership to complete the tradein. This includes the title and any loanrelated documents for your current car.

7. Choose Your New Car:
Select the new vehicle you want to purchase, negotiate the purchase price, and agree on the tradein value for your old car.

8. Finance the New Car: The dealership will assist you in securing financing for the new car. This may involve applying for a new auto loan or transferring the negative equity from your previous loan to the new loan.

9. Transfer Ownership:
Complete the necessary paperwork to transfer ownership of your old car to the dealership. They will handle the necessary documentation.

10. Review the New Loan Agreement:
Carefully review and understand the terms and conditions of the new auto loan agreement, including the interest rate, loan duration, and monthly payments. Ensure that all negotiated terms are accurately reflected in the contract.

11. Make Payments on the New Loan: Once the tradein is complete, you'll be responsible for making payments on the new auto loan based on the agreedupon terms.

Trading in your car during an existing auto loan is a common practice, but it's essential to be aware of the financial implications, especially if you have negative equity. Consider how the tradein will impact your monthly budget and overall financial situation, and make sure you understand the terms of both the tradein and the new loan for the replacement vehicle.