Being upside down on your trade in can make the car buying process even more difficult if you are a person with bad credit
What we do
On the internet you’ll find car loan application sites that work with individuals with bad credit and help them reestablish their auto credit by filling out an online bad credit car loan application and financing vehicles with auto loans for bad credit.
The best of these sites, such as Auto Net Financial, also provide applicants with the information they need in order to understand this type of loan as well as the loan process, since a poor decision can trap them in a loan they can’t afford which could result in a repossession that could further lower their credit scores.
Unlike tote the note dealers, the dealers that are affiliated with Auto Net Financial all work with lenders that report your payment history to the credit bureaus, which can result in an improvement in your credit score. This means that if you make all your payments on time, you can raise your FICO score and reestablish your car credit at the same time.
The key to a successful second chance car loan lies in following some simple guidelines. In this case, it means being aware of the lender requirements for a down payment on the loan. It is especially important it you don’t have cash for a down payment that you don’t have negative equity in your trade in vehicle.
Book value
Car dealers determine the value of your current vehicle by using a number of different sources. NADA and Kelley Blue Book values, Black Book values and auction reports all give dealers a picture of what your car might be worth to them. In addition to this information, the dealer will also physically inspect the car as well as take it for a test drive. After taking all these things into consideration, the dealer will determine a trade in value for your car.
Many customers are surprised that their car isn’t worth as much as they thought it might be. NADA and Kelley Blue values that most consumers have access to should be thought of as only a guide. Auction values, available online only to dealers, are more up-to-date. They are also more geographically accurate, since book values cover an entire region while auctions are local. In addition, the dealer may have to replace tires and pay for reconditioning and detailing your trade in. Those costs will also lower your car’s value.
Trade equity
Trade equity is a term that is used to describe the difference between what your car is worth and how much you owe on it. Once the value of your trade in has been determined, you need to know if you have equity in the vehicle. Here is how it works:
• If your car is paid off and you own it free and clear, the entire value of the vehicle would be your trade equity.
• If you still owe money on your car and the trade value is more than what you owe, than the difference would be your trade equity.
• If you owe money on your car and its value is less than what you owe, then the difference is known as negative trade equity or, simply, negative equity.
Other terms car dealers use for negative equity situations are “upside down” or “in the ditch”.
Trading in
If you have trade equity or you have enough money to cover your negative equity (plus the down payment requirements for a bad credit car loan), then it makes sense to trade in your car. If you trade in a car with negative equity on a new loan without covering the difference amount that you still owe on your current loan, however, you will end up paying finance charges on not one, but two cars. When you are dealing with a bad credit car loan and the associated high interest rates, this can be expensive in terms of the amount of interest you end up paying – not to mention the fact that it makes qualifying for this type of loan that much more difficult.
When to consider a negative equity trade in
You should contemplate a negative equity trade only if it will save you money. Believe it or not, there are actually two scenarios in which a negative equity trade will save you money. The first instance involves a vehicle that is out of warranty and necessary repairs will cost you more than you spend on the difference in interest expenses on the new loan. The second example involves a savings in actual operating expenses. If you are trading in a vehicle that gets 10 miles per gallon on a vehicle that gets 25 miles per gallon, the added interest expense should be offset by the savings in fuel costs.
If neither of these situations exists, then you are essentially paying for two cars with one loan. Again, with the high interest rates associated with bad credit auto loans, this is not a good financial decision.
The bottom line
Trading in your current car if it is paid off or you have equity in it will help reduce the amount of interest that you will pay on a bad credit auto loan. If you are “upside down” in your current vehicle, trading in your car only makes sense if you are avoiding costly repairs down the road or if you can offset the increased interest expenses with savings in fuel, maintenance, and/or insurance.
Auto Net Financial can help you
For more information on bad credit auto loans and before you buy a car from a local Tote the Note, We Finance Everyone car dealer, consider applying for a bad credit auto loan from Auto Net Financial, a leading national car buying service for people with bad credit. Our credit application is encrypted so your personal information is secure, and you can fill it out in the comfort and security of your home.
So why not begin the process of rebuilding your credit by filling out our online bad credit car loan application now.
