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Should you pay off your vehicle prior to selling it? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make better financial decisions by offering interactive financial calculators and tools, publishing original and objective content. We also allow you to conduct research and compare information for free to help you make financial decisions with confidence. Bankrate has agreements with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make money The products that appear on this website are provided by companies that compensate us. This compensation could affect how and when products are featured on the site, such as, for example, the sequence in which they appear in the listing categories and other categories, unless prohibited by law. Our mortgage, home equity and other home lending products. But this compensation does affect the information we provide, or the reviews appear on this website. We do not contain the universe of companies or financial offers that may be open to you.
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3 minutes read. Published April 18, 2022
Written by Kellye Guinan. Written by personal and Business Finance Contributor
Kellye Guinan is a freelance editor and writer who has more than 5 years experience working in the field of personal financial matters. She is also a full-time worker at her local library where she assists the community gain access to information on financial literacy, in addition to other topics.
Editor: Rhys Subitch Edited by Auto loans editor
Rhys has been editing and writing for Bankrate from late 2021. They are passionate about helping readers gain confidence to control their finances with precise, well-researched and reliable facts that break down otherwise complex topics into manageable bites.
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If you are still owing money on your car, there are a few steps you should take before selling it. But be cautious that negative equity could be a major impact on your finances. This is a viable option but it can mean paying a lot more money than you're required to. When to pay off your car prior to selling it all cases, it is best to pay off or clear your loan prior to selling it or trading it into. The primary concern will be whether or not you've got negative or positive equity in your loan. With negative equity you'll need to pay the auto loan before you trade with your car. Possible equity On an auto loan means that you owe less on the car than it is worth. If, for instance, you've got $10,000 remaining on your loan but your car has a value of $15,000 then you've got $5,000 in positive equity. If you decide to trade in your car, the positive equity can be put towards your next car to be used as an down payment, which will reduce the amount you have to borrow. Negative equity Negative equity can be described as the other. If you still owe $10,000 on your loan however your car has a value of $8,000, you'll have $2,000 of negative equity. This is what lenders and columnists in the field of financial advice call " ." It's something you do not want to find yourself in. If you trade in your car, you will be required to pay for the remaining out of your pocket. In addition, breaking even is essential as it stops you from converting negative equity into the new loan and the cost of a car you are not driving. What is the best way to sell or trade in a car you still owe money on People trade with and sell vehicles with liens often. In fact, dealerships may advertise paying off your car after upgrading to more recent model. However, it's more complicated than just switching one vehicle for another. Find out the value of your car 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 next car and how much you owe on your current one. If you're owed more than you're likely to get through trading it in, consider other options. Take care to collect maintenance records and other paperwork. This may help increase the value of your vehicle as a trade-in since it can prove that it's taken care of. Check out trade-in deals from dealerships -- you don't have to visit one location. Everybody uses the word "trade-in," but really it's selling your vehicle. It is possible to search for quotes from different companies to get the best price. Get everything in writing and especially if the dealer promises to pay off the loan. Be sure you have a copy of the offer. It's still your responsibility to pay the balance of your loan and follow-up and make sure you're lender is paid when you have traded in your car. Alternatives to selling the car If you're in the red on your loan and you want to trade it in, this is unlikely to be the most effective option. Instead, consider selling your vehicle to private buyers and paying for the loan down or refinancing it at a lower cost. Utilizing a private buyer, instead of dealers, can help you for more. However, you'll have to manage the process of paying the lender and transfer the title on your own. This is something the dealership typically handles for you, but it could be a hassle. The process of paying off the loan isn't an option for everyone. But if your payments aren't currently making you rich, put aside some money to reach a point of break-even. In this way, selling your vehicle in won't require taking any of the remaining loan balance onto your new car loan. Also, you should try to . Don't extend the loan duration in order to lower your payment -which increases the risk that you'll end up in the red. Instead, reduce the total amount you have to pay. The next step is if you're not over the limit on your loan, trading in your car for a less expensive option may be the right solution. If you do have negative equity, try refinancing instead -- it might enable you to lower your interest rate so you pay less overall. But, most importantly, don't transfer the remainder of your loan into another one. In collaboration with your lender or sell your car or find an alternative option in order to not take on more debt if you can help it. Find out more
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Written by Personal and business finance Contributor
Kellye Guinan is a freelance editor and writer who has more than 5 years experience working in the field of personal finance. She also works full-time as a employee at her local library where she helps people in her community get information about financial literacy, as well as other topics.
Edited by Rhys Subitch Edited by Auto loans editor
Rhys has been editing and writing for Bankrate since the end of 2021. They are passionate about helping readers gain confidence to take control of their finances through providing concise, well-studied and well-documented data that breaks otherwise complicated topics into bite-sized pieces.
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