Is it Possible to Get Out of or Switch a Car Loan for Another Model?
Every car buyer has faced the dilemma of whether to stick with a loan for a vehicle they now regret or to switch to a new one. The decision can be complicated, but it's not impossible. If you're considering switching a car loan for a newer, more suitable model, this guide will help you understand the process and the factors involved.
Dealing with a Car That's Not Right for You
If your current vehicle is a lemon or your needs have changed, contacting the leasing company can be your best option. Leasing companies are often willing to accommodate you if you explain the situation clearly. They may be happy to replace the vehicle, especially if it has a problem (a lemon in automotive terms). In many cases, they’ll try to talk you into an upgrade rather than simply terminating your lease. This strategy is beneficial for them, as keeping you as a customer usually means they can continue collecting rent.
Net Trade and Trade-in Allowances
If you want to switch to a new car while you still owe money on the first one, you can use your current vehicle as part of the trade-in process. This involves using the residual value of your leased car to offset the cost of your new one. The specifics can vary, but the general process is straightforward:
Positive Net Trade: If your current vehicle has a trade-in allowance that exceeds the amount you owe on it, you’ll have a net trade. The net trade can be added to your down payment for the new car. This can save you money on your initial payment and lower your monthly payments, depending on the remaining balance of the loan.
Negative Net Trade: If more is owed on the trade-in than its trade-in value, you’ll have a negative net trade or trade-in credit deficit. This means you’ll need to make up the difference, either by paying cash, reducing the down payment, or incorporating the deficit into your monthly payments. For instance, if you owe $36,200 and your trade-in is worth only $30,000, you’ll need to cover the difference – in this case, $6,200. This amount can be added to the down payment or blended into your monthly payment.
Paid Examples: A 2019 Ranger leased, with a $6,000 net trade, added to a down payment of $9,700. This included $2,300 in cash back and $1,400 from a refundable extended warranty, totaling $13,400. $9,700 went towards extras, fees, and taxes, while $3,700 covered the net cap cost, leaving a beginning lease balance of $46,000. A second lease after trading in a 2019 Ranger with a $36,200 balance and a trade allowance of $30,000, leading to a $6,200 trade-in credit deficit. A $5,000 manufacturer's rebate covered part of the deficit, while the remaining $1,200 was split: $600 was added to the sale price and $600 was covered by the customer's $2,000 down payment.
Complications with Leasing
While the trade-in process can help, there are other issues with leasing that make it more challenging to acquire a vehicle. The most significant complication is the wholesale trade process. When you trade in a car, the dealer often sells it at wholesale price, which is significantly lower than the retail price. This means you may not get the full value of your trade-in, and the dealer can make a profit on the resale.
Wholesale Sales: Dealers often need to sell the traded-in vehicle quickly and at the lowest possible price to avoid carrying inventory, which can affect their profits. Consequently, you may end up with much less money for your trade-in than if you had sold it yourself or traded it at retail value. Always ask for a clear explanation of the trade-in process and any discounts or fees involved to avoid unexpected charges.
Conclusion:
Whether you want to switch a car loan for a better model or deal with a lemon, there are ways to make it happen, but it requires clear communication and a detailed understanding of the processes involved. Always document everything and keep copies of agreements. By staying informed and assertive, you can navigate the complexities of car financing and leasing smooth sailing.