‘Can I trade-in my car even if it’s not fully paid yet?’ [Newbie Guide]

Your car is more than just an instrument of transportation; it’s also a constant companion that has seen both your blissful moments and your moments of weakness behind the wheel. 

There's always the temptation to upgrade to something newer, faster, and sleeker

But as the adage goes, there’s no such thing as forever. It then becomes inevitable that you start to take a shine to another car, leading you to entertain thoughts of selling or exchanging your current ride for a more updated model. The one thing that’s holding you back is that your car isn’t fully paid yet, with possibly at least a year left on the mortgage.  

Customers who availed of their cars through financing are likely to encounter this problem, since they have an extended financial responsibility compared to those who bought their cars with cash outright. So is it possible to put your car for sale or trade-in even if you’re still paying for it? The short answer is, yes you can. But, you have to pay close attention to what comes after those three words. 

Make sure you have the bank or lender's consent in writing 

Remember, the car is technically not your property yet since you took out a loan from the bank, dealer, or any other financial institution to be able to drive it home from the dealership. Simply put, the mortgagor or borrower (you) will have to get the approval of the mortgagee (lender) before you do anything that will result in the ownership of the vehicle being changed. 

Especially important to note is that the lender’s consent needs to be put down in writing and duly signed. But before you start firing off an email to your bank stating your intention, you will need to find out how much you still owe on the loan. In an ideal situation, you’ll turn out to have positive equity on the vehicle, meaning the value of the car is higher than the amount left on your loan. 

Also be mindful of just where you stand in terms of your current loan 

A more challenging situation is negative equity, which means you owe more than the vehicle is worth. In this case, be prepared to pay off the remaining loan balance after the dealer has appraised your car’s trade-in value. A more practical solution would be to put off trading the car in the meantime until your finances improve. 

For those with negative equity, resist the temptation to roll the loan balance over to a new one, as this would lead you to basically pay twice – once for the amount left on the existing loan and another one for the value of the new car. That’s hardly an ideal financial situation, as it increases the chances that you’ll be in a financial trap. 

Find more tips for beginner car owners at Philkotse.com.