Car Loans, Trade-Ins and Getting A Less Expensive Car

Maybe it is the economy or maybe it is just that there were a lot of overly-ambitious people in the not so distant past, but I have been getting a ton, and I mean a TON of questions from people who need to get themselves out of a car loan and into a cheaper car.

When this happens, there are very few options but some decisions are much better than others and hopefully this will summarize the best steps that can be taken.

• Sell your car yourself- Don’t even think about trading the car in for the less expensive car! If you trade in the old car, a dealer will give you wholesale or below and will roll the balance owed on it into a new loan for you. They make money at all points on that! They re-sell the old car at a profit, make interest on the old loan by re-financing it and make profit on the newer/cheaper car and its loan. Check out how Price My Car for real sales data on cars just like yours.
• Don’t refinance if your rate is good- If you owe $9000 on a car that you sell for $6500, consider paying $4000 off the principal of the loan and then your car payment is reduced and you can pay the extra $2500 for a less expensive car.
• Check out loan options- Car loans are falling all the time right now so refinancing the balance that you owe on the old car could lower your APR by a couple of points or more! See this recent report about falling rates: bankrate.com Don’t forget to check into loans from the banks, credit unions and even insurance agents (for example, State Farm does loans).

Learn more:

Selling A Car I Can’t Afford!

Upside Down in a Car

Stumble It!