How Does A Trade-In Work If You Already Have A Car Loan?

Having a reliable vehicle is a vital part of life for many people, and you might depend on it to get you to and from work. You might also need it to take your kids to school, work, or appointments. If your current vehicle is starting to have issues, you might want to trade it in for a newer, more reliable vehicle. If your current car has a loan, how does a trade-in work? Here are several things to know if you want to get a new auto loan with a trade-in.

You Trade-In the Car and Loan The first thing to understand is that when you trade-in a vehicle, you trade-in the car and the loan. If you do not have a loan on the car, you simply give the car and title to the dealer. The dealer applies a credit to your new car purchase. If you have the title to your car, bring it to the dealer. If you owe money on your car, you will not have the title to it, but you must pay off the loan when trading it in.

The Difference Affects Your New Loan
Assuming you have a loan on your existing car, it is vital to know that the difference affects your new loan. The difference refers to the amount the dealer offers for your car and the amount you owe. For example, if the dealer offers $3,000 for your car and you owe $2,500, your new car loan will receive a $500 credit. If you owe $4,000 on the car and they give you $3,000, you have a $1,000 deficit. You must pay this deficit on top of your new car purchase. Therefore, you must finance an extra $1,000 in your new car because of this deficit.

Your Credit Affects Your New Auto Loan
The other thing to understand is that your credit affects your new auto loan. The lender will run your credit report to determine where you stand. If you have excellent credit, you might end up with a low-interest rate. If you have poor credit, you will have a higher interest rate to pay on your new loan.

Most dealerships accept trade-ins, and you can visit one to find out how much they will give you for your car. If you have questions about getting a new auto loan, contact a dealership or auto loan lender to learn more.