Many people find themselves in a situation where their existing vehicle no longer meets their needs or desires, prompting thoughts to upgrade their car. Ultimately, upgrading your car while still paying off a loan can be a complex decision, so it is important that you undertake careful planning and understand your current financial obligations.
Your Current Loan
The first step in upgrading your car is to assess the current status of your car loan. You need to know how much you still owe, the interest rate, and the remaining term of the loan. This information will help you determine whether trading in your car or selling it privately will cover the outstanding balance of the loan.
If your car’s value is less than what you owe – or you have negative equity on the loan – you may need to pay the difference out-of-pocket or roll it into your new car loan, which could increase your monthly repayments.
Your Current Financial Circumstances
If you choose to upgrade to a new vehicle, most individuals generally take on a new loan or lease, which will come with its own set of monthly repayments. It’s crucial to determine whether you can comfortably afford these payments along with any potential costs of maintaining your current vehicle until it’s sold or traded in.
If you’re already struggling with your current car loan repayments, upgrading may not be financially prudent unless you can find a way to lower your monthly costs, such as by choosing a less expensive vehicle, or securing a loan with better terms.
Selling Your Car
Trading in your current car at a dealership is one of the most common ways to upgrade while still paying off a loan. The dealer will appraise your car, and if the trade-in value exceeds the remaining balance on your loan, the positive equity can be applied toward your new vehicle.
However, if you owe more than the car’s trade-in value, the negative equity will need to be addressed. Some dealers may offer to roll the remaining balance into your new loan, but this can result in higher payments and a longer loan term.
Alternatively, selling your car privately may allow you to get a higher price than a dealership trade-in, which could help cover your loan balance. This approach requires more effort, as you will need to market the car, meet with potential buyers, and handle the sale process. However, if successful, it can provide more financial flexibility when upgrading to a new vehicle.
It’s also worth considering refinancing your current car loan if you’re struggling with high interest rates or unaffordable payments. Refinancing can lower your monthly payments, making it easier to manage your finances while planning for an upgrade. Keep in mind that extending the loan term through refinancing may mean paying more in interest over time, so it’s important to weigh the pros and cons carefully.
Before making any decisions, consult with your lender to understand your options and obligations in full.
The Fincar team is here to help you with all your financing needs. Contact us today to help arrange your next car or equipment loan.