Can you trade a car you still owe money on? This is a natural question many vehicle owners have. After all, when you get behind on your auto loan payments, it is only a matter of time until repossession becomes a very real possibility. If you are faced with this scenario, you may try to trade the car in at a dealership for another vehicle. In most cases, this option will not work and the car will be repossessed.
Trading Car With Loan
Can you trade in a vehicle with a loan? Chances are good the answer is no, you cannot. The primary reason that this will not usually work is because you still owe money on the car. When you try to trade in a car that you owe money on with a dealer, the dealer will have to pay off your loan for you to make the process work.
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The amount you still owe is then added to the amount that you borrow on the new vehicle. If you owe money, the dealer will have to contact your lender and will then find out that the car is not paid off or is in repo status. Wondering, is my car on a repo list? You should find out for sure before you attempt to trade in or sell your car.
Getting a New Loan
When you trade in your old vehicle, unless you have enough money to pay cash, you will have to finance the new vehicle purchase. If you are in a situation where your current vehicle is about to be repossessed, you most likely do not have enough cash sitting around to pay for a new car.
In this case, you will have to depend on the lender to still give you a loan for the car even after it finds out that you are in default on your current loan.
Working Out a Solution
Your main hope in this scenario is that the dealer you are working with wants to work with you even though the repo is in process. If you can find a dealer that desperately wants to make a sale, it may be able to work out an arrangement with your auto lender to stop the repo.
For example, if the auto dealer will pay off the loan for you, this could stop the repo and help you get another car. It may be difficult to get a dealer to do this for you, since the dealer will see that you have financial troubles. Still, it is sometimes possible, depending on how far behind on payments you are, explains the team at Auto Credit Express.
Alert the Repo Agent
The worst-case scenario in this process is that the dealer could alert the lender of your whereabouts. If you have successfully evaded the repo man up until this point, the lender will be looking for you.
When the dealer calls the lender to inquire about the loan balance, the lender will know where you are. If the dealer cannot work out a deal on your behalf, then the repo man might come take your car on the spot. In this case, you may be able to work out an arrangement to buy it back, or the repo company may require you to bid on it at the repossession sale, the FTC explains.