When it comes to using a car as a trade in, the equity that you have in the vehicle can either work for or against you.
In most cases where you hear concerns over equity, it’s referring to negative equity, meaning that the amount owed on the vehicle is more than it’s worth.
Positive equity, then, would be the opposite.
Positive Equity Defined
A vehicle has “positive equity” when the estimated value of the vehicle exceeds the outstanding balance of the current lien (auto loan).
Trading in a vehicle with positive equity can be a huge advantage when financing a new car. This is because the value of your trade in not only pays off your existing loan, but contributes as an addition to your down payment towards your new loan.
How to Trade In Your Car with Positive Equity
Unlike trading in a car that has negative equity, you don’t have anything to be worried about in terms of this trade in impacting your ability to get approved for financing. In fact, this would be seen as a positive to lenders and help your approval chances.
The processes of trading in a positive equity car is the same as any other trade in. You can handle this at the dealership when you’re purchasing your new car. Just be sure to bring all of the required documentation like a lien payoff letter and the title.
Is it Easier to Get Approved with Positive Equity on Your Trade-In?
Yes! As mentioned earlier, having a positive equity trade in can actually help your approval odds.
By contributing that equity to your new loan, you’re reducing the total amount financed, which in turn reduces the risk and total debt that you are taking on with the car loan.
While this still doesn’t guarantee approval, it can serve as a big advantage – especially for people seeking subprime financing.
Setting Yourself Up for Success After a Positive Equity Trade-In
If you find yourself in this situation, it can open up a lot of options for you. With that being said, it’s important to do your research to ensure you continue to set yourself up for success and maintain positive equity in your new loan.
Be sure to set a budget of what you can comfortably afford to pay for your new vehicle and don’t exceed it. The last thing you want to do is go from an advantageous position to struggling to make payments and damaging your credit.