How to Trade in a Car (Even If It Isn’t Paid Off)Jun 30th, 2021
There are many reasons why someone will trade in their vehicle. From wanting a lower monthly payment, to upgrading to a vehicle that better fits their life. No matter what, dealerships like Finch Used Cars make trade-in processes easy, fast and transparent. Many ask how exactly does it work, especially if you still owe money on the car loan.
A trade in, no matter what, is actually much easier than you think. Here's the facts.
1. What's left on the loan?
“How much do I owe on my car?” It’s a common question for anyone who is looking to do a trade in. Finding that out isn’t as simple as adding up the remaining payments until the term is over however. There could be penalties for early repayment, or interest calculations
The best way to find out is to call your lender and request a payout amount. It’s good information to have on hand going into a car-shopping experience, but it’s not absolutely necessary since we here at Finch Auto Loans can find that out for you! If your loan is already paid off, it makes the trade in that much simpler.
2. Know the value of your trade in
It's super important during a trade in to know the value of what you’re trading in. Things such as age, make and model, condition etc are all things that determine your trade in value. The Canadian Black Book "Value Your Car" can help you get an idea, but that’s not set in stone. Market demand and condition are big factors in our trade appraisal.
Our Service Department will do an overall inspection of a proposed trade vehicle. They’ll check the condition of brakes, tires, fluids, and other mechanical parts. Damages like bruised interior or exterior will lower its trade-in value though. A good practice is to make sure all small repairs are done before you make a trade, to get the highest appraisal.
3. What does equity mean in a car?
If you still have payments when the time comes to trade in a vehicle, Finch Used Cars takes the value of your vehicle minus the current loan amount, then subtracts that amount from the price of your new vehicle. The difference between your trade-in value and the amount owing is known as equity, and it can be either positive or negative.
What is positive equity?
If your car is worth more than loan amount, it’s positive equity. That means that after the loan is paid off, there remaining amount goes toward the car you’re purchasing, lowering how much you need to borrow. To simplify it, if we appraise your trade-in at $15,000, but the loan balance is $9,000, you have $6,000 in equity! Usually takes at least two years if you’ve financed with zero down with average miles and conditions to reach the break-even point. After that though you’re likely gaining positive equity.
What is negative equity?
It’s actually possible to owe more on your car than what it’s worth, and if the loan value is higher than the trade-in value, it’s negative equity. It's also called ‘upside down’ in a loan. An example of this would be if you bought a car last year for $30,000 with no money down, but now want to get the brand new model, your original might be worth less due to depreciation. So if you still owe $25,000, but your vehicle is only worth $20,000, you would still owe $5,000 after the loan is paid off.
Since there would be a lien against your car until it’s paid off, it’s very hard to sell it privately unless you can on your own pay off the balance. Trading in a car with negative equity isn't the end of the world, the amount you’re upside-down can be tacked onto the loan for the car you’re purchasing. Canadians who have negative equity on their trade-in vehicle have higher monthly payments on their new car loan than if they didn’t have the trade-in. This isn’t good or bad, it’s just a reflection of a larger loan amount to account for the negative equity.
4. What documents are needed for trading in a car?
1. The car’s registration - You’ll need this to transfer ownership to the dealership.
2. I.D, like a Driver's License - Proof that you’re the person on the registration and can legally trade the car in.
For getting a car loan for your new vehicle, you'll also need proof of income, through a recent pay stub with year-to-date earnings, and proof of address for the loan application.
5. What dealerships do with trade-ins
Once we've come to an agreement, we’ll handle the financials and take possession of your old vehicle, and take care of paying out your old car loan balance.
A big part of our business is through used car sales, and trade-ins act as replenishment to the inventory. A good-quality used car is in high demand, and we will always put it through a process known as reconditioning once we get a trade in. It involves mechanical repairs, safety certification, and detailing the interior and exterior.
The Bottom Line
The factory-trained technicians at all of the Finch dealerships in London are simply the experts at keeping your car running the way that it should. When you choose to return to your Finch dealership for service, you can rest assured that your vehicle is in great hands. Whether you are in need of routine maintenance like an oil change or tire rotation or something more significant, bringing your vehicle back to your Finch Used Car dealership will give it the best chance to retain its value and stay on the road for years to come.
Plus, with the free vehicle pick-up and drop-off available at Finch locations across London, getting your vehicle serviced has never been this convenient.