When does it make sense to sell a financed car?

The biggest question you should ask when deciding whether to sell a financed car is simple: Do I need this car anymore?

Whether you own your car outright or financed it, the car depreciates the longer you own it and the more you drive it. Plus, there's always the risk of damage to your car that will cause it to lose value or be totaled. So, if you don't need the car, it doesn't make sense to be taking on those ongoing costs.

Plus, if you have a car loan, you usually also are paying for full-coverage insurance. Full-coverage rates are usually $100 - $300 a month, so that's a significant amount if you don't really need the car. If you don't drive the car at all, you should be able to "freeze" your insurance so it only covers things like a tree falling on your car while it's parked in storage.

Should I wait to sell my car?

For sports cars and convertibles, it might make sense to hold onto your car until spring and then sell it. For most other vehicles, the value might go up later, or it might not.

Usually, a car's value will not increase by waiting, so the best time to sell your car is as soon as you no longer need it.

Buyers are usually looking for the most recent model year for their budget, and every year you hold onto your vehicle, it's one model year older and therefore worth less.

Steps to sell your financed vehicle to a dealership

1.

Contact the bank you have the loan from and get a payoff amount. Typically, the payoff amount is valid for 10 days.

2.

Get a sell/trade offer from a dealership and see how much your vehicle is worth. At Buerkle Hyundai, you can expect an offer directly from our team within 1 business day.

3.

Calculate your equity and decide if you want to sell.

If your equity is below zero, then you'll need to pay the dealer that amount. It might still be worthwhile to sell if the car doesn't meet your needs anymore, or if you're reducing the number of cars in your household.

If your equity is above zero, congratulations! This is the size of the check you can cash.

Offer - Payoff Amount = Equity

4.

Accept your offer and set up a time to hand over the vehicle.

At Buerkle Hyundai, before you come in, we'll contact the lender to make sure we can buy your vehicle. (The lender usually has final say because of the terms of the loan contract, but it's 99.9% sure we'll get a yes.)

At handoff, we'll do a quick check to make sure it's the right vehicle and as you described it, and close out the necessary paperwork. That's it!

Why would I have negative equity?

Negative equity is the result of the car being worth less than your remaining loan. There are many simple reasons why this can happen:

• If you've driven the car a lot (some people drive 50,000 miles a year!), it loses value more quickly than your loan payments account for. Loan payments will more easily keep up with depreciation if you drive the typical 10,000 - 15,000 miles a year.
• If the car has been damaged, it can lose value significantly. Even after it's repaired, it probably won't be worth as much as a car that wasn't in an accident.
• If you have a very long loan term (6 or 7 years), your loan payments are typically small and include more interest, and often don't keep up with the car's depreciation. It's best to stick with loans of at most 5 years.
• If you didn't put any money down, you're almost guaranteed to have negative equity for some time.
• If you want to trade your vehicle in after only a few months your payments probably won't have kept up with the initial depreciation.
• Taxes. Unfortunately, you can't get sales tax back when you sell your car outright (without trading it in). When you bought your car, you might have had $2,000 of taxes rolled into your loan payments, so you would need to pay $2,000 before your payments even start touching the car's own value.

Why does my car depreciate?

Think about it this way: if your loan payment is $300 a month, and you drive a new car for 3 months, you've paid $900 into the car. For zero equity, you would need to be able to sell it for just $900 less than what you paid. Would you rather have a brand-new car with the full manufacturer warranty from a dealership, or one that's been driven for 3 months and 3,000 miles, for $900 less, from Craigslist?

Many buyers would prefer the new car, meaning your car has lost at least $900 in value since you bought it. Even though you've been making payments, you don't have any equity.

Even if you have negative equity, if you just don't need the car anymore, it's better to take the hit now than to continue to own a car that's depreciating.

How to sell your car if you're underwater

If you owe more on your car than what it's worth (negative equity or being "underwater"), you will need to cover the difference somehow. It's easier to sell to a dealership like Buerkle Hyundai than to try sell your car private-party while it has a lien on it.

There are essentially three options in this case:

• You pay the difference in cash, or
• You trade in the car, and roll the negative equity into your new car loan, or
• You stop driving your car and keep making payments until you have paid off the negative equity, then sell it.

Pay the difference in cash

This is the simplest option, but sometimes coming up with money to pay off your loan can be tricky, especially if you are $5,000 or more upside down. You might be able to take out a personal loan for the difference, for example from your credit union. Your monthly payments and the total interest due should be a lot smaller on, for example, a $5,000 personal loan than on a remaining $25,000 car loan.

Trade in the car, and roll the negative equity into your new car loan

If you have less than $3,000 in negative equity, and are trading in for a different vehicle, we can usually transfer it to your new car loan without any problems. In this case you might want to make extra payments whenever possible, so you don't end up with even more negative equity next time around.

Stop driving your car and keep making payments until you have paid off the negative equity

This is not usually a good option, because your car will continue to depreciate, and you'll still need to pay at least a small amount for insurance. Even if it's just $10 a month, that's still your money!

Who owns my financed car?

Usually when you finance a car, the car itself is used to back the loan. This means that regardless of whether you are listed as the owner on the title or not, the bank or credit union you got the loan from can claim the car if you stop making payments. This is called having a lien on the car.

This is also how your bank or credit union can require that you have full-coverage insurance on the car.

Because the bank actually owns the car, we will make the payoff amount directly to them, and cut you a check for any positive equity.

Regardless of who your loan is from, we can buy the car from you.

We always need more used car inventory. Is your car next?