Dye Autos Denver Area Truck and Automotive Blog
Yes, when buying a car or truck, your trade in vehicle can serve as your down payment. However, there are factors to consider in that decision.
1. Dealers accept trade ins and cash down payments.
The amount of total down payment you’ll need is governed by two things:
- The amount that the bank requires in order to provide you with a loan. Your credit score is the driving factor.
- The amount of monthly payment that fits your budget.
2. Is your trade in loan paid off?
- If your trade in loan is paid off, the dealer will appraise your trade in and give you the price they’re willing to pay for your vehicle (actual cash value or ACV). You can use that amount as a down payment, or, in some circumstances, you can take part of it in cash back to pay for other important things in your life.
- If your trade in loan is not paid off, the dealer will get in touch with your bank for the pay off amount and compare it with the price they are giving your for your trade in (ACV).
- A positive difference (you owe less on your loan than your trade in’s ACV) means you can use the amount for your down payment.
- A negative difference (sometimes called “negative equity” – you owe more on your loan than your trade in’s ACV) gets a bit more complicated and #3 below explains more.
3. Does your trade in have negative equity?
Equity is the difference between your trade in’s actual cash value (ACV) and the amount you owe on the loan. For example, if your vehicle’s ACV is $5,000 and you owe $3,000, you have $2,000 in equity that can be used as a down payment toward the new car purchase.
If your trade in’s ACV is $3,000 and your loan pay off is $5,000, you have negative equity.
When faced with negative equity in a trade-in, you’ll need to weigh all of your options. There are three main courses of action you can take:
- Pay off the difference – This is ideal if your negative equity amount isn’t too high and you have the cash. Not everyone is in a position to do this.
- Roll it over – “Roll over” the negative equity into the new loan. Not all lenders are willing to do this, so make sure you ask if this is an option. The downside to rolling over negative equity is that you’ll be increasing the amount of your new loan, which will increase the monthly payment. However, in many cases, when it’s amortized over the full term of the loan, it is affordable.
- Wait it out – The last option is to wait until there’s no negative equity. Waiting until your trade-in is paid off or the loan reaches a point where there is equity could make your next car purchase easier – but it’s not a guarantee. Trade in values fluctuate and now may be the best time to buy.
The only way to know for sure on trading in your car or truck as a down payment…
…is to visit a trusted Denver dealer who’s got many years of experience providing seasoned advice and helping people get the best car loan.Read More
Many car buyers prefer to trade in their current vehicle when getting another one because it’s easy. All you have to do is drive to the dealership, sign a your paperwork, and drive away in a different vehicle. What many buyers don’t know is that there are other benefits of trading in your car.
One of the biggest benefits of trading in your car is that you can apply the trade-in credit to your down payment, thereby reducing the amount you need to finance. (ie: lowering your monthly payment!)
There can be tax advantages, too. Colorado and most other states require sales tax to be paid only on the difference between the price of your trade-in and the vehicle you’re buying, not the full price of the next car.
But this tax benefit doesn’t apply if you sell your old vehicle yourself!
Important tips when trading in your car
We’ve been selling trucks for a long time in the Denver/Wheat Ridge area. We’ve heard from customers like you who want to know “insider’s tips” on trading in your car. Here are four of our BEST tips!
- Give your trade-in curb appeal.
- Clean the exterior and interior well.
- Remove small dents.
- Fix window glass defects.
- Be honest with yourself about your car’s trade-in condition. The more forthright you are when using online appraisal tools, the better off you’ll be when it comes time to trade it in. Very often, people come into the dealership with an overly-optimistic idea of what their car is worth, only to find that reality is less optimistic.
- Don’t forget to pack all your car’s accessories. Trading in your car means you are trading in everything that goes along with it. Make sure the original owner’s manual and any extra keys are in the vehicle when you arrive at the dealership. Dealers like used cars that still have all the accessories and may even give you a better deal on your trade when everything is there.
- Bring all vehicle paperwork with you. You will need:
- Certificate of title (if you don’t have it, the DMV can tell you how to get it replaced). Note: if you have an outstanding loan on the vehicle, this will not apply since the bank has your certificate of title.
- Current registration.
- All your car keys and the owner’s manual.
- If you still have a loan on the car, you’ll need to have your account number or a payment stub.
- Maintenance records. These help support your claims about whatever prior damage your car has had and the repairs it has undergone.