How to Trade Down a Used Car With Negative Equity
Trading in a used car with negative equity, also known as being "upside down," is possible. Depending on the amount you will have to carry over, money you have to put down, credit rating and current incentives, rebates or discounts, you may be able to successfully get out of your vehicle. However; not everyone will be able to do this. Someone with a low credit score and lack of funds will find that he has to wait until he has more equity in his vehicle to trade it in.
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Instructions
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Research and Determine Financing
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Call your lending institution to determine what your pay-off is. Ask for a 10- to 15-day payoff so that you have an exact amount, which will include interest owed. Generally, the dealer will do the same. Write this number and date down so that you can speed up the process of shopping. If you can also write down the overnight pay-off address and your account number, you will save time at the dealer.
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Access any popular Internet appraisal website to determine the trade-in value for your vehicle. Check several websites to determine an average for your trade. Keep in mind that Internet appraisal sites are simply a guide, and your car may be worth more or less depending on options, condition of body, prior accident history that includes body work, mechanical condition and overall condition of the interior.
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Decide if you will put money down to cover this negative equity. If it is less than $2,000.00 and your credit is good to excellent, you should be able to trade in your vehicle without having to put money down. You may find yourself a pre-approval for your future loan. LTV (loan to value) ratios will have a big impact on whether or not you will have to put money down. People with excellent credit may find LTV ratios upwards of 120 percent of a vehicle's value, meaning that negative equity will be transferable into a new loan without having to put money down. Poor credit customers may have to stop here, as LTV ratios can fall as low as 60 percent, meaning you will need a great deal of money on hand to trade-in your current vehicle for another.
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Research new car incentives, if that is the route you plan to take. Some manufacturer incentives or rebates may offer thousands off of a new vehicle, which will cover some or all of your negative equity. If purchasing a used vehicle, you will be taking a chance. Dealers selling used cars at retail price will cause issues with your LTV ratios, and you will most likely have to put money down. The more money you are able to get out of your new or used car will only mean less money, if any, down for you. You should now have a list of vehicles you are interested in purchasing and know where you stand financially.
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Go to the dealer or dealers you have chosen to test drive the vehicle you are considering and test drive before going any farther. If you want to buy the vehicle, you will have the dealer appraise your trade-in. Explain to the dealer you already have an approval if you do, and what your approval amount and LTV ratio is. Your dealer will either work with you so that you don't have to put money down or tell you what funds you will need to make your purchase
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Provide your financing institution with a buyer's order (given to you after you have reached agreement with the dealer and are prepared to buy the car) to receive your check or let your dealer take care of this process if you are financing through them.
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Finalize your deal by providing the dealer with money down (if necessary), a bank check from your lending institution (if financing outside of the dealership) and title for your trade-in. You will sign the back of the title for your trade to release ownership and sign all required paperwork for your new car.
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Tips & Warnings
Before having your vehicle in to the dealer for appraisal, have your car completely detailed and bring any maintenance records you can find.
It is very important to know your credit standing if not getting a pre-approval beforehand. You can potentially waste a lot of time if your LTV ratio is very low.
References
Resources
- Photo Credit keys to the new car image by Jake Hellbach from Fotolia.com
