Can I trade my car in if I still owe money on it?

Can I trade my car in if I still owe money on it?

motomatch / 12 January 2022

Many South Africans buy cars via a vehicle asset loan as it’s a great way to get access to a decent set of wheels and establish a solid credit record. However, you may at some stage start to consider trading your car in. This could be for many different reasons – maybe you’re finding the repayments difficult, or perhaps you’re looking for something a little newer. Whatever your reason, you’ll need to know whether you can trade the car in while you still owe money on it (yes you can) and what the process is (see below).

How do I trade my car in if I still owe money on it?

Firstly, ask your bank what the settlement amount on the vehicle is – this is the amount that is still outstanding on the car. You’ll need to know exactly how much it is before you approach a dealer. It may be useful to request this in a letter, so that you can show it to the dealership.

Secondly, do some maths and work out what cash you have available to add to the money the dealer offers you for your old car – this will greatly impact what type of vehicle you can buy next.

How does it work?

Once you know how much you owe, and what your spending budget is, you can approach a dealer of your choice.

When planning your calculations, consider that this settlement amount will be subtracted from the credit amount the dealer offers you. The dealer will then pay off your remaining loan amount and give you a credit for the value of the car you’re trading in. Therefore, if the value of your car is more than the amount of your loan payoff, this amount will be subtracted from the credit offered towards your new car. For example, if your trade-in vehicle is worth R250 000 and you still owe R200 000, you will only get a R50 000 credit towards buying a new car.

However, if the value of the car is less than the amount of the payoff, the difference (known as negative equity) will be added to the cost of your new car. For example, if your old car is worth R80 000 but you still owe the bank R100 000, the difference will be added to the price of the new vehicle you purchase.

Will an outstanding loan prevent me from trading in my old car and buying a new one?

As mentioned, if you are planning to trade your car in you will need to factor in the settlement amount you owe so that you have a clear understanding of what needs to be paid to the bank. The dealership will do this, as ownership of the vehicle will transfer from the bank to them; however, remember that this amount will come off the amount the dealership offers you in the end.

Should I wait until the car is paid off before trading in?

This is entirely up to you. You may decide to settle the amount owed directly with the bank, so that you get offered more from the dealer. Or you may decide that you really want to trade your car in sooner rather than later and let the dealer settle it. It all depends on your timelines and the finance you have at your disposal to purchase a new vehicle.

We hope you found this article helpful!