How a Trade-In Affects Your Loan

Once you decide on a car you want to buy, the question becomes, how are you going to pay for it? Unless you have the full amount for the vehicle in cash, you will have to reach a financing or lease agreement. The most common option is to take out a car loan and pay off the over time. If you’re trading in a vehicle, you can significantly lower your loan amount and rate. In this guide, we’ll outline everything you need to know about car loans, and how they are impacted by trade-ins. Our team has helped hundreds of drivers trade-in their vehicle and find a car loan that works for them. To discuss your options for financing and how to get the most value for your trade-in, contact our team today.

HOW CAR LOANS WORK

“Handshake Agreement Trade” licensed under Pixabay by Capri23auto

Using an auto loan enables you to purchase the vehicle you want now even though you don’t have the upfront cash for it. Auto loans are available through financial institutions like an auto loan broker, bank, or a car dealership. When you buy a vehicle from a dealership like North Miami Mitsubishi, they can often offer you a higher chance of approval on your auto loan because of their wide network of finance partners.

Loans come with a payment plan and a set interest rate, which you can use to determine how much you’ll actually pay over the course of the loan term. One of the benefits of using a car dealer’s financing options is that you can often get a better interest rate. This enables you to save money in the long run.

Before you take out an auto loan, though, you should look to see if there’s anything you can do to lower the loan amount. For example, if you can make a larger down payment at signing, and you won’t need to take out as large of a loan. The smaller the loan you take out, the less you’ll have to pay in interest and the lower your monthly payments can be. Cash is one way to do this; another is through a trade-in.

HOW A TRADE-IN IMPACTS YOUR CAR LOAN AMOUNT

One of the most frequently asked questions we receive is how a trade-in can impact an auto loan. If you’re the current owner of a vehicle, you can likely trade your car in to lower the cost of your new vehicle. When you trade in your vehicle, you give it to the dealership as partial payment for your new vehicle, and the dealership subtracts its value from the price of the new vehicle. You can trade in practically any vehicle, whether it’s working or not. Just keep in mind that the better the condition of the vehicle, the more value it will have.

If you want to see the value of your current vehicle, you can value your trade-in on our website. This will give you a pretty good idea as to the amount you will be able to subtract from the cost of your new vehicle. For example, if you want to buy a vehicle for $10,000, and your current vehicle has a value of $3,000, you can trade it in, and now the cost of the new vehicle drops to $7,000.

Lowering the cost of your new vehicle purchase can make it more affordable over the long term and short term. For instance, with a lower cost, you’ll likely have lower monthly payments. You also won’t have to pay as much in interest on the auto loan, which can help you pay it off faster.

Another benefit of using a trade-in is that it can help you get approved for the auto loan. If you have a less-than-ideal credit history, it may be hard to get a loan with a low interest rate. But by lowering the principal amount, you are more likely to get a better interest rate and approve your loan.

Before you assume that you can’t afford another vehicle, think about how a trade-in might help. Between the lower principal cost and better interest rate, getting another vehicle may be more affordable than you think, thanks to your trade-in. To discuss your personal financing options with a professional, contact our team and we’ll be happy to help you.

CAN YOU TRADE-IN A CAR YOU’VE TAKEN A LOAN OUT ON?

An important subject to know more about when it comes to trade-ins and auto loans is negative equity. Negative equity is a deficit in owner’s equity in which you owe more on your auto loan than the value of the vehicle. For example, if the value of your current vehicle is $4,000, and you have $5,000 remaining on the loan, you have a negativity equity of $1,000.

This can happen for a number of reasons. For instance, if your car experiences a significant mechanical failure, it may drop its value due to the need for repairs. You may also be unable to pay off your loan as quickly as you’d like, which allows interest to accumulate while the car’s value continues to depreciate. Eventually, the two sloping lines will cross paths, and you’ll owe more on your vehicle than it’s worth.

It’s important to try to keep this from happening. Regularly check the value of your vehicle and compare it to how much you still owe on the loan. If you believe the value will soon drop below the loan amount, it may be a good time to sell it or trade it in so you can still receive some benefit from doing so.

FIND GREAT TRADE-IN VALUE AND CAR LOAN RATES IN MIAMI

If you’re in the market for your next vehicle, North Miami Mitsubishi is here to help. We have a wide selection of pre-owned vehicles for you to choose from. Our expert sales staff can help you find the perfect vehicle and secure an auto loan that works for your situation. If you have a car you’d like to trade in, we’d be happy to provide you with an estimate for your trade-in value and factor this into your next vehicle’s price. We make the car-buying process, including getting a loan and trading in a vehicle, incredibly simple and stress-free. Start by browsing our inventory online, or contact us today to schedule a time to visit our Miami Gardens dealership.