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Can a Car Loan Be Transferred to Another Car?

A car loan cannot be transferred to another car. Instead, many consumers trade in an existing vehicle for another one, but what happens to the existing car loan? What most often happens is that any balance left after trading in a car toward the purchase of another is then added to the loan for the new car. Unfortunately, this can result in some negative consequences.

“Rolled” Balances and Negative Equity

Rolling the excess balance into the new loan immediately creates negative equity in your new car, so from the start you will owe quite a bit more than the value of your new vehicle. This difference between the balance and value may cause you to have to buy additional insurance, often called gap insurance. This insurance is designed to cover the balance of any loan in the event the vehicle is destroyed in an accident. It is also relatively expensive.

If you need to transfer a balance to a new vehicle, you must have good enough credit to secure the loan. If you utilized a subprime auto lender for the original loan, you may have difficulty. It is in your best interest to shop your loan to several companies, no matter your credit score, but especially if you have bad credit. Should you be denied by a traditional lender (bank or credit union), look online. There are many reputable companies that offer car loans to non-traditional credit scores.

Driving Your Car Until It’s Paid Off

It has become common practice for people to trade in vehicles before they are paid off. In fact, Kelley Blue Book has found that more than 30% of shoppers are upside down on the vehicles they trade in. This puts you in a very bad position financially, since negative equity is a risk even for a regular purchase with no trade-in. If you plan to finance your vehicle, you really should be planning to drive the vehicle until it’s fully paid off. With the 60 to 72 month auto loans that have become popular in recent years, it often takes 40-50 months before you owe less on the vehicle than it is worth. Trading in before this time could be a problem.

About the Author

The author has many years of experience in automotive finance and insurance. However, each consumer's situation is unique. It is best to contact a finance specialist for further assistance.
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