How Soon Can You Trade In a Financed Car?

Finding a vehicle you love can be challenging. You can spend days or even months searching for the right make, model, and trim with the features you desire. After looking everywhere, you find a vehicle that meets your needs and decide to buy it. You go through the application process for financing and get approved, then drive it off the lot. Only after that do you find a vehicle you love even more and wish you could trade in the one you just bought. If that happens, you may wonder how soon you can trade in your financed car.

Technically, you could drive off the dealership lot where you purchased the financed car and into another dealership down the road to trade the vehicle in for another. There’s no set time to hold onto a financed vehicle before trading it in; you can own it for 10 minutes, 10 weeks, or 10 years. Once you finance a vehicle, you remain legally responsible for the loan balance until it’s paid off, and you can’t trade in a vehicle without a lien release. If you decide to trade in your financed vehicle, you’ll want to consider several factors.

Will You Lose Money on the Trade?

Financing a vehicle often includes extra fees, such as loan origination fees, extended warranties, tax, title, and license, so the total balance of your loan could be more than what the vehicle is worth. The first step in trading in a financed vehicle is to determine the vehicle’s trade value.

Once you know what it’s worth, you can subtract the payoff amount for your loan to determine if you’ll lose money in the trade. Remember to ask if there are any prepayment penalty fees because you’ll also need to add them to the payoff balance. Prepayment penalties are fees you agreed to when the loan originated and are only added to the loan if you pay it off early. If you’re trading your financed vehicle in on another vehicle, you’re paying the original loan off early.

Whether your vehicle has positive or negative equity will determine your next move.

What Is Positive Equity?

If your vehicle’s value is higher than the payoff balance of your loan, including any prepayment penalty fees, you have positive equity. You can sell or trade in your vehicle for more than what you owe on it, and the extra can either mean cash in hand or more money applied to the down payment on the new vehicle.

What Is Negative Equity?

You have negative equity when your vehicle’s value is lower than what you owe on your loan. Having negative equity is also referred to as being upside down on your loan. It’s common to have negative equity at the start of a loan because of all the extra fees that get added. If you have negative equity, you still have options for trading in your current vehicle for a new one:

• Pay off the loan: If you need to purchase a new vehicle right away, you can use savings to pay off your current loan balance.
• Wait for positive equity: It’s best to trade in your vehicle when you have positive equity, so you can continue paying on the loan until you reach that point.
• Trade for less: If you can’t wait until you have positive equity and don’t have the cash to pay off the loan, you could trade your vehicle in for a less expensive vehicle with a lower payment.

If you decide to trade your financed vehicle in for a new one, even if you have negative equity, try to avoid the following if possible:

• Don’t roll negative equity into the new loan: While moving your negative equity into a new loan is possible, you’ll be paying more interest, and your new loan will remain upside down.
• Don’t focus on only the monthly payment amount: When comparing loans, it’s important to look at more than just the monthly payments. Because interest rates can vary greatly, you could end up paying more in the end.

Why Trade In Your Financed Car?

You might be considering trading in a car early for several reasons. If your family has grown in number, you may need a larger vehicle to accommodate everyone comfortably. Perhaps you’ve discovered off-roading and want to have something to drive on exciting trails as well as the highway. Early car trade-in can also benefit you if you need to eliminate or reduce your monthly payments. If money is the reason, other alternatives exist, especially if you have negative equity in your vehicle. These include:

Private Sale

You can advertise your car for sale online or with flyers to attract a private buyer. Selling to a private party can provide you with the money you need and often for a slightly higher price than what you’d get for a trade. You may need to invest time in advertising and meeting potential buyers, but the payoff could be worth it. Contact your financial institution to determine the steps required to complete a private sale and release the lien.

Refinance Your Current Loan

You could be eligible for a refinance if you financed your car when you had poor credit, but your score has improved since the original loan. A better credit score can mean a lower interest rate, saving you money on your monthly payment and total loan payback. You may also be able to extend your loan term. Just be aware of the interest rate and the total interest you’ll pay if you opt for a longer loan.

When you’re ready to trade in your vehicle for an upgrade, visit our team at #1 Cochran Youngstown. We have plenty of options and can help you with the financing aspect if you’re trading in a car early. Our Chevrolet dealership is at 8010 Market St., and our Buick GMC dealership is at 7997 Market St. in Youngstown, Ohio. Call us at 844-417-7332 or complete our secure online form to get started today. Our sales and finance team is available at both locations from 10 a.m. to 6 p.m. Monday through Friday, and 10 a.m. to 4 p.m. on Saturday.