You may have already noticed that lenders usually check your credit reports before you can be considered for a car loan. This can be scary for those with poor credit, but having a trade-in could help bolster your chances of getting approved for your next auto loan.
Benefits of Trade-Ins When You Have Poor Credit
As a borrower with a bad credit score, you’re going to need a down payment before you can get into your next car loan. While this requirement can seem bothersome, and even hard to meet, down payments have many benefits besides helping you get approved for an auto loan.
Without a down payment, your odds of getting approved for a bad credit car loan are slim. As far as the amount, you can generally expect a bad credit auto lender to require at least $1,000 or 10% of the vehicle’s selling price, sometimes whichever is less, but the specific amount varies by lender.
However, you don’t have to use just cash to cover the down payment requirement, since dealerships can also accept cars with equity!
This means your old vehicle could help you get into your next auto loan, since it can help you meet one of the biggest requirements of bad credit car lenders – the down payment. The equity from your old vehicle is put toward your next car’s selling price. Although, the overall condition of your vehicle is also going to determine how much you can get.
Trade-ins are very common, and they’re a great way for people to knock down the price of their next car. It’s also a great way to get rid of your older vehicle and upgrade your ride. However, dealers do appraise trade-ins, and the amount they offer depends on a lot of factors.
Getting an Estimated Trade-In Value
If you want to get an estimation of your trade-in’s value, you can get one online from multiple websites, such as Kelley Blue Book, NADAguides, and Black Book. If you know the basic information on your vehicle, like mileage, make, and model, you can get a ballpark estimate of your car (if you’re honest about its condition). Now that you have the estimate, the next step is determining if you have equity, which is what can be put toward your next vehicle’s selling price.
If you don’t own the car yet, contact your lender and request a payoff amount. Subtract the payoff amount from the estimated valuation, and that’s the equity.
However, if you owe more on the vehicle than it's estimated to be worth, you’re in a negative equity position. A car in this position can’t help you meet the down payment requirement of a lender, since you aren't going to get the amount you need to pay off your loan.
If you own the trade-in vehicle, then all of its equity can be put toward your next purchase. Make sure you have the title of the car, and bring it to the dealership so you can sign over ownership!
Trading In at the Dealership
Now that you have a ballpark estimate of your trade-in’s value and whether or not you have equity, you can head to a dealer and get the vehicle appraised.
The dealership is likely to inspect the car thoroughly, start it up, and may even take it for a drive. They’re also likely to check the tire tread, under the hood, and the interior.
Typically, dealers take trade-ins with the intent to sell them later. If your vehicle doesn’t seem like it could sell, you may not get a good offer, if you get one at all. If this is the case, you may have to look into selling your car yourself.
The actual cash value of your trade-in is determined by the dealership, so you may get less than what your online valuation estimated. However, you can take steps to ensure you get the most out of your trade-in.
It helps to clean your car – inside and out – and fix any minor issues, like dents or scratches. Check your headlights and taillights, and work to remove any stains that may be in the vehicle’s cabin. It’s not generally recommended to fix any major, expensive mechanical issues, since a dealer can usually fix it for cheaper than you can.
A clean car gives a better impression, while a dirty vehicle may tell the dealership that it wasn’t taken care of and it could negatively affect your trade-in offer. When you’re trying to meet the down payment stipulation of a bad credit auto lender, any little bit can help. The more you get for your trade-in, the less you have to fork over in cash to cover that down payment requirement.
Finding a Bad Credit Dealership
While a trade-in can help you meet the down payment requirement, you also need to get in touch with a bad credit lender. These lenders are also called subprime lenders, and they aren’t available everywhere, but we’ve got the hookup.
Start your car shopping with us at The Car Connection. We have a nationwide network of dealers that work with subprime lenders, and we can look for a dealership near you once you complete our free auto loan request form. Don’t drive all over town and look for a lender – it's 2020, so start online with us!