Does trading in a car affect creditworthiness? | Maguire Hyundai (2024)

FAQs

Does trading in a car affect creditworthiness? | Maguire Hyundai? ›

Frequency of credit applications

It likely has minimal impact on your credit score, especially if you purchased a new car when you traded it in.

Most manufacturers don't disclose their credit score requirements, Hyundai included. Generally, getting an affordable car loan can be challenging if your score is below 660. To take advantage of the best Hyundai financing deals, you'll almost certainly need at least good credit (more than likely excellent, or 740+).

In some cases, there may be a prepayment penalty for paying off your loan early. If you owe more than your trade-in value – often referred to as “negative equity” – a dealer or lender may offer to roll the balance of your existing auto loan into a new auto loan, but this will make your new auto loan more expensive.

When you trade in a car that you have equity in, the dealer will pay the remainder of the loan and subtract the equity from the price of the less expensive car. If the equity of your trade-in exceeds the price of the car your trading for, the dealer will cut you a check for the difference.

When Not to Trade In a Car. Although there are exceptions to this rule — as there are for most rules — don't trade in a car that is worth less than what you owe. In other words, if you get less when trading it in than the loan payoff, don't do it.

If you don't have a loan on the car, the best time to trade it in is often before its factory warranties expire, typically at 36,000 miles or three years for new vehicle warranties and 60,000 or five years for powertrain warranties.

Ideally, you want to keep a car for a few years after it is paid off before you trade it in. This way, you get to enjoy the benefits of ownership. If you can't or aren't willing to wait that long, at least make sure you have positive equity in the loan.

Moving forward with a trade-in when you have negative equity is typically a bad idea. You will be responsible for paying down your new loan on top of the amount left over from your previous loan. Essentially, you will pay for your new car and the one you just sold.

How Much Negative Equity Is Too Much on a Car? The maximum negative equity that can be transferred to your new car is around 125% . It means your loan value should not be more than 125% of your car's actual worth. If it is more than 125% then your next car's loan would not be approved.

What happens if your trade-in is worth more than the car you are buying? ›

If you're downsizing and your trade-in is worth more than the new car, the dealership will give you a check for the balance. If money is owed to you, be sure to get the exact amount in writing. Things can get a bit more complicated if you still owe money on your trade-in.

Negotiate offers

Since dealers typically start with low trade-in offers, it's up to you to negotiate a better price. You shouldn't accept any offers below the industry guides' minimum value — if the dealer refuses to meet it, try another dealership.

If your car's trade-in value is more than your current loan balance, then you're all set—you can just pay off the old loan and apply the difference toward the cost of your new vehicle. But if you owe more on your car than its trade-in value, then you'll have to make up the difference.

Like other forms of investments, buying or selling stocks won't directly change your credit score, but they can indirectly affect it. However, there is an exception — margin accounts.

Although you can trade in a car that's not yet paid off, it's usually best to wait until the vehicle has been entirely paid off before you trade it in—especially if your car is worth less than what you owe on it.

Often, it's best to pay down or pay off your auto loan before selling it or trading it in. The main concern is whether you have positive or negative equity on your loan. With negative equity, you should pay off your auto loan before you trade in your car.

Selling a financed car to a private buyer or dealership likely won't hurt your credit. However, if you have negative equity, you might need to refinance your auto loan or take out a personal loan to cover the difference between your car's value and what's left on your loan.