How to save money when trading in your car

It’s time to trade in your old car for a new one. Trading in your car can be a great way to upgrade to a newer model or simply get a different car that better suits your needs. You’re looking forward to driving your new dream car off the showroom floor, but you first need to consider the car’s financing agreement. This article is to help you succeed in your financial transactions and save money when trading in your car.1

Are you still paying off your car?

While shopping for your new car, you may still be paying off the old one you bought with bank finance. There may still be several years left of instalments, seeing most vehicles’ financial agreements cover six years. The challenge is how to end the current financial agreement, trade in your car and buy a new car. Consider the below tips when going through this whole transaction process. 1

What is your car’s trade-in value?

An informed decision is crucial to making the right decision – therefore it’s important to do your research and find out the trade-in value of your current car. It should be a value that dealers would offer you, and which will help you in your negotiations.¹

What is your car’s trade-in value?

An informed decision is crucial to making the right decision – therefore it’s important to do your research and find out the trade-in value of your current car. It should be a value that dealers would offer you, and which will help you in your negotiations.¹

Don’t trust any dealer

Don’t just take your car to the first dealership you come across. Trust in your thorough homework more instead of what a friendly dealer offers you. You may be surprised at how much the offers can vary. A car dealer called cars.co.za provides a free tool for selling your car through their vast dealer network. After loading your car’s information online, you can expect many offers from dealers in the used-car market, within 48 hours. In this way, you are likely to secure an optimum trade-in value.¹

Find out the settlement value

Next, you must understand the settlement amount needed to end your current finance agreement. Go online to your bank and search for “settlement quote.” It’s important to note that the outstanding balance listed on the settlement quote is not the settlement amount as there may still be additional charges you are liable for. If you settle your car loan too early, the bank may charge you penalty interest. This applies to loans exceeding R250,000.¹

Are you facing penalty interest?

If the loan amount was more than R250,000, you might have to pay penalty interest. Avoid this by giving the bank or financial institution 90 days’ notice for settling your account. Contact your bank, give 3 months’ notice, and save yourself as much as R10,000.¹

Compare the settlement quote with the trade-in value

You will find that the trade-in value offered by the dealer is often less than the settlement value owed to the bank. This can happen if you sell your car sooner than 3 years of the loan period, didn’t provide an initial deposit, or the agreement includes a balloon payment. Unfortunately, if you want to continue buying your new car, you’ll have to find bridging finance.¹

So, what now?

You can continue paying the instalments on your car until the trade-in value exceeds the settlement amount. This may not be the news you were expecting, but it’s not wise to borrow extra bridging finance just because you want to purchase a new car. It’s best to go ahead once you have sufficient cash.¹

Disclaimer

This article aims to guide anyone who wants to trade in their current car for a new one. It explains how to save money by avoiding certain pitfalls and encourages those who don’t yet have enough money to buy a new car to be patient.¹

First, consult a certified financial advisor when buying one of our products. In this way, you’ll make the right choice.

Sources:

1. 1. Trading in your car? How to avoid a Debt Trap