Can I trade in my new car for a cheaper one?

Written by chris joseph
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Can I trade in my new car for a cheaper one?
Trading in a new car for a cheaper one can pose some challenges. (yellow car, a honda Japanese sport car model image by alma_sacra from Fotolia.com)

New car buyers may find themselves in a situation where they can't afford to make the payments on the vehicle, or simply are not happy with their purchase. It may be possible to trade in the vehicle for a cheaper one, although this is not always easy. If the vehicle is financed, any transaction becomes more complicated, and it can be difficult to avoid losing money on the transaction due in part to a new vehicle's rapid depreciation.

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Upside Down

A vehicle depreciates by as much as 20 per cent as soon as it is driven off the lot. If you financed the vehicle, you may find yourself "upside down" in your loan, meaning you owe more on the vehicle than it is actually worth. If you trade in your new car for a less expensive model, any remaining amount you still owe will be rolled into your new loan. As a result, you may not come out ahead in the new transaction.

Low or No Loan Balance

Perhaps you made a large down payment for your new vehicle and didn't have to take out a large loan, or maybe you paid the total amount in cash. If so, your transaction should be much easier. If your vehicle is worth £6,500 and you only owe £4,550, you can pay off the loan and subtract the £1,950 difference from the price of the cheaper vehicle when you trade it in. Likewise, if you are trading in the new vehicle for one with a lesser value and no financing is involved, you can also subtract the difference from the cheaper car's price.

Private Transaction

Another option is to sell the car privately instead of trading it in at the dealer. You may be able to get a much better price for the vehicle than if you traded it in, perhaps even enough to pay off your loan in full. You could also "swap" vehicles with someone who owns a cheaper vehicle, assuming you or the other party can make any necessary financing arrangements for the remaining loan balance that might still be owed.

Leased Vehicle

If you leased the vehicle instead of purchasing it, your options are a bit more limited. If you attempt to "trade in" a leased vehicle for a cheaper model before the end of the leasing term, your leasing company will likely charge you a substantial penalty for breaking the lease early. However, you may be able to engage in a practice known as "lease swapping" where you locate a "buyer" who will assume the lease for you, allowing you to then lease a less expensive vehicle.

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