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Should you pay off your car prior to trading it in? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make better financial decisions by offering financial calculators and interactive tools as well as publishing high-quality and impartial content. This allows you to conduct research and compare information for free — so that you can make informed financial decisions. Bankrate has partnerships with issuers, including but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The offers that appear on this site are from companies that pay us. This compensation can affect the way and where products are displayed on the site, such as, for example, the sequence in which they be listed within the categories of listing and other categories, unless prohibited by law. Our loans, mortgages, and other home loan products. This compensation, however, does have no impact on the information we publish, or the reviews that you read on this site. We do not contain the entire universe of businesses or financial offerings that could be open to you.

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3 minutes read. Published April 18, 2022

Authored by Kellye Guinan Written by Personal and Business Finance Contributor

Kellye Guinan is a freelance editor and writer who has more than five years ‘ experience within personal finance. She is also a full-time employee at her local library, where she assists the community gain access to information on financial literacy, in addition to other subjects.

The edit was done by Rhys Subitch Edited by Auto loans editor

Rhys has been writing and editing for Bankrate from late 2021. They are passionate about helping readers gain the confidence to control their finances with concise, well-studied facts that break down complex subjects into digestible pieces.

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If you still owe money on your vehicle There are a few actions you need to take prior to selling it. Be careful, however — negative equity can have a significant impact on your financial situation. This is a viable option however it could result in paying more than you’re required to. How do you pay off your car before selling it all cases, it is best to make a payment or clear your loan prior to selling it or trading it into. The main concern is whether you have positive or negative equity in your loan. If you have negative equity it is important to pay off your auto loan prior to trading into your vehicle. Possible equity A positive equity in an auto loan signifies that you owe less on the vehicle than the value of it. For example, if you have $10,000 left on your loan, but your vehicle is worth $15,000, you’ve got $5,000 in positive equity. If you decide to sell your vehicle your equity could be used to purchase a new car for an down payment, which will reduce the amount you have to borrow. Positive equity Negative equity does the reverse. If you still need to pay back $10,000 on your loan but your car has a value of $8000, you’ll end up with $2,000 in negative equity. This is what lenders and columnists in the field of financial advice call » .» It’s an unwise situation to find yourself in. If you sell your car, you will be required to pay for the remaining from your own pocket. It is crucial to break even as it stops you from converting negative equity into the new loan and the cost of the car you’re not driving. How do you trade or sell an automobile that you owe money for. People trade in and sell vehicles with liens frequently. In fact, dealerships may advertise paying off your car after upgrading to more recent model. However, it’s more complicated than changing one car for another. Check out the value of your vehicle through websites like Edmunds as well as Kelley Blue Book. Check out cars that have similar trims and compare average selling points within the same area. Determine your budget for your new car and the amount you are owed on the current one. If you have debt that is greater than what you’ll get through selling it, think about other options. Gather maintenance records and other paperwork. This may help increase the value of your vehicle in the event of a trade-in, by showing that it’s been taken care of. Find offers on trade-ins from dealers and don’t need to visit one location. Everybody uses the word «trade-in,» but really it’s selling your car. It is possible to search for various quotes to find the best price. Be sure to get everything written and especially if the dealer assures you that they will pay off the loan. Be sure to have an official copy of the deal. It’s still your responsibility to pay off your loan, so follow up and make sure that your lender is paid when you’ve traded in your vehicle. Alternatives to trading in a car If you’re in default on your loan and you want to trade it in, this is not the best course of action. Instead, consider selling your car to private buyers and paying for the loan up front or refinancing it at a lower cost. Utilizing a private buyer, rather than dealers, can help you for more. But, you’ll need to manage the process of paying off your lender and transfer the title yourself. This is something that the dealership typically handles on your behalf, therefore it may be an added burden. The process of paying off the loan may not be an option for all. But if your payment isn’t making you rich, put aside some money to break even. This way, trading your car in won’t involve taking any of the remaining loan balance onto your new auto loan. Also, you should try to . Don’t extend the loan period in order to reduce your monthly payment- this increases the chance that you’ll be upside-down. Instead, you should reduce the amount you’ll need to pay. Next steps Provided you aren’t upside down on your loan swapping your vehicle for a less expensive option may be the right solution. If you do have negative equity, try refinancing instead — it could allow you to lower the interest rate so you pay less overall. Most importantly, don’t roll your remaining loan in to a brand new one. Work with your lender to get rid of your car, or look for another option to avoid taking on further debt if you can help to pay it. Learn more

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Written by Personal and business finance contributor

Kellye Guinan is a freelance editor and writer with over five years of experience in personal finances. She is also a full-time worker at her local library where she helps the community gain access to information on financial literacy, as well as other topics.

The edit was done by Rhys Subitch Edited by Auto loans editor

Rhys has been editing and writing for Bankrate from late 2021. They are dedicated to helping readers gain the confidence to manage their finances with precise, well-studied facts that break down otherwise complex topics into manageable bites.

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