Financing a used car with a trade-in is an easy process, even if you owe money on the vehicle you wish to trade in. Trading in a vehicle is a negotiating process that should be kept separate from the "new" car purchase. You will have to negotiate on both. If you owe money on your trade-in, you should provide the dealer with the financial institution so that he may determine your payoff information, including interest charges and overnight payoff address.
Obtain your pre-approval so that you may begin shopping for your new or used car at a dealer that accepts trade-ins. Depending on your credit, you will be approved for a number amount and a loan to value (LTV) ratio. The total amount you can finance depends on your credit score. You may be able to finance 120 percent or more of a vehicle's value. This will allow you to finance taxes, fees and additional money owed on a trade if the trade vehicle has lost equity and you still owe on it.
Use your dealer for financing if you're not financing on your own. The dealer will use a financing institution that will also consider LTV ratios based on credit. People with low credit scores may not be able to finance without putting down money. You may be able to cover this amount with your trade-in or have to put cash down to cover additional money owed beyond the trade-in amount.
Research and determine the worth of your vehicle based on trade-in values. Even though the dealer will decide what the vehicle is worth, you may negotiate based on popular car appraisal websites or books so that you may determine a fair trade-in value. The dealer should be able to explain to you why your vehicle is worth less than you have calculated through your research, or she may even offer you more money for the trade if the car is well maintained.
Find your used car and negotiate prices. Determine the retail value of the vehicle you wish to buy through the same appraisal websites or books that determine value. Once you have determined the value of the trade-in and of your new purchase, you should be presented with a dollar amount that will be financed.
Gather paperwork for your vehicle that will be traded in once terms are agreeable. You must provide the dealership with a title and a lien release, if applicable. You will sign the title over so that the dealer becomes the new owner. Sign the paperwork for the vehicle you are purchasing, including contracts and Department of Motor Vehicle forms. You will leave your trade-in behind and drive away in your new car once paperwork is complete.
