Keen on trading your car? Here’s what you need to know

The process of trading in your vehicle can be daunting and complex, though the most important factor is to “break even”. 

Trading a paid-off car is fairly uncomplicated as all you need to do is have your ownership documents at hand, have the vehicle valued and then negotiate a satisfactory trade-in value for it, says Lebo Gaoaketse, WesBank’s head of marketing and communication.

“For a financed vehicle, the process can be a bit more complex, especially if you are not fully familiar with the intricacies of vehicle finance,” he says.

According to Gaoaketse, the primary factor to consider when trading in a financed vehicle is the concept of the break-even point, or the stage at which the trade-in value of your vehicle is equal to or greater than the outstanding balance on your loan. This, he says, is the ideal time to trade in your financed vehicle.

Gaoaketse says there are many factors that affect trade in, among them the finance term, the deposit and the vehicle’s resale value. 

“Longer finance terms mean it will take longer to reach break-even. A larger deposit will help you reach break-even sooner. Some vehicles depreciate faster than others, which affects their resale value and subsequently the break-even point in the finance contract,” he said.

According to him, there are certain benefits of trading in a car at its break-even point. 

“You won’t pay more than is necessary to get out of your current finance agreement. You also get protection from excessive debt. It negates the carry-over of old debt into a new loan agreement, and it helps you maintain your affordability level,” he advises. 

If the trade-in value of your vehicle is less than the outstanding balance on your loan, you’ll have negative equity. This means you’ll need to pay the difference between the trade-in value and the loan balance. You may be able to roll over this outstanding amount into a new loan, but that would increase your monthly payments as well as the total interest amount.

Tips for trading in a financed vehicle

Gaoaketse offers the following tips for those looking to trade in their financed vehicle:

Know your finance contract terms: Contact your lender to find out the outstanding balance and settlement amount on your loan, which may differ due to accrued interest.

Shop around for the best trade-in offer: Get quotes from multiple dealerships to ensure you are getting the best possible offer.

Negotiate the terms of your new loan: Don’t be afraid to negotiate the interest rate and finance term on your new vehicle finance contract.

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