Should I Roll My Old Car Loan Into My New One?

couple signing car loan paperwork
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If you still owe money on your car, you may be considering trading in your current car for a newer one. If you need a bigger car, or your car has become unreliable, you may be wondering how to deal with your existing car loan and your current car. It is common for people to trade in the car at the lot and to roll the old loan into the new loan. You should carefully consider your options before you choose to do this.

Dangers of Rolling Your Old Loan Into a New One

The biggest danger of rolling your old loan into your new one is that you will owe more than your car is worth, which can make selling your car even more difficult in the future. If you buy a new car, you are automatically upside down on the loan since the car depreciates as soon as you drive it off of the lot. When you add in your other loan, then you compound the problem.

It is important to remember that a car salesman’s job is to talk you into buying the car on the lot. When you remember that it will help you realize that every deal they offer you may not be quite the deal that you think you are getting. If you already owe more than your current car is worth you will compound the problem if you trade in your current car and roll the loan into your new one. Before you start shopping for a car your should determine if you want a new or a used one.

Try Selling Your Car First

You can often get more money for your car if you do a private sale. This is not a complicated process, and you can use the money to pay off your current loan. If you still owe money on the car loan, you will need to contact your bank and work out a way to transfer the loan into an individual loan or come up with the money to pay the difference.

Then once you sell the car, you will transfer the title over to the new owner.

Alternatives to Trading in Your Car

The best option when you need to purchase a car is to pay entirely in cash. However, that may not always be possible. When you decide to buy a new car, you need to make sure that you can afford the payments. One of the most common complaints about buying a car is that they paid too much and the payments are causing them to struggle financially. You should determine how much you can afford to pay each month, keeping it so your total debt load (including your rent and house payment) is below thirty percent of your monthly income. Ideally you should be able to pay off your car in three years on that current payment.

Try Finding Financing Through a Local Credit Union or Bank

Additionally you may be better off if you find your own financing for the car, rather than use the dealer financing. You may be able to find a better interest rate, particularly if you are buying a used car. Credit unions and small banks offer the best interest rates on car loans. You can contact the credit union to get pre-approved before you begin car shopping. This will let you know what your price range should be.

Negotiate the Best Possible Price

Make sure you negotiate the price with the car dealer before you buy the car. The prices are negotiable, and you may be able to negotiate the down payment amount and other terms. Some car companies will offer you a lower interest rate if you buy a new car, and you may think this is the best option, because you will save interest on the loan amount. However, a car takes the biggest depreciation in value the first three years of its life. You may end up losing as much in resale value as you would save in interest when buying a used car.

Avoid an Impulse Purchase

Another important factor to consider is to make sure that you do not get caught up in the moment when purchasing a car. Research the cars at home, and then go to the lot. Take a day or two after your test drive to make your final decision.

Finally make sure that you really can afford the payment you are making. You do not want to end up regretting the purchase for a long time. Try saving up cash to pay for your next car.