Car loan rollover.
If you still have an outstanding balance on your current car loan it is possible to roll it over into a new auto loan. This is an option for people that have a trade in that has negative equity, meaning you owe more on the car or truck than it is worth. Learn what rolling over your car loan involves and how to do it.
This is an option when buying a new vehicle, if you are “under water” or upside down on your car car or truck. Again, this means you would have negative equity However there are benefits and drawbacks to rolling over an existing car loan. A car loan rollover will be an option if the following conditions are met.
- You are looking to buy a new car or truck and
- You have negative equity on your current vehicle, meaning the balance on your existing auto loan is greater than the value of your current car or truck.
This form of financing only comes into play when shopping for a new vehicle. There are other ways to refinance an existing auto loan, and that can be done anytime the owner wants, and learn more on refinancing a car loan.
What is a car loan rollover?
It involves paying off your existing car or truck loan's remaining balance with the funds from your new car loan. It is not an ideal option to consider, but it may be helpful to some people who have limited options when it comes to paying for a new vehicle.
Essentially, the outstanding amount of the car loan is added to the new loan. So if your current vehicle has a book value of $10,000, but you owe $15,000 on it and are purchasing a new vehicle, the $5,000 difference from the old loan will be added to how much you borrow for the new truck or car. In effect, the balance on your old automobile loan is added to the new one so your total debt is in effect much higher.
At the end of the day, you will owe more money to your lender(s). As this approach involved creating a larger loan balance on the new vehicle financing. This process allows you to transfer the debt from one car to another, eliminating the need for a separate loan payoff.
Benefits of rolling over your car loan
While the option should not be a first choice to any borrower, if you have no other options, there are several pros to doing this. However, any borrower should always assess all the pros and cons.
A rollover simplifies the car buying process: A rollover can simplify your car buying experience by merging your existing and new car loans into one. Sometimes the interest rate may be lower too, which is also a form of refinancing. It eliminates the need to manage multiple loans and can make the process less overwhelming.
Potentially lower interest rates: If you have a high interest rate on your current car loan, rolling over to a new loan with a lower interest rate could save you money in the long run. However this will often depend on the borrower’s credit score and income. For example, if you have improved your credit since you bought your last vehicle, the interest rate on the car or truck may be lower.
Easier budget management: Combining your old and new car loans may make it easier to manage your finances, as you'll only need to worry about one monthly payment to one bank, lender, or creditor.
Save money on repairing your current car or truck: It is always a challenging in trying to decide when to buy another truck or car vs. putting money into fixing the current one as it “breaks” down. As pouring money into fixing an auto is not always the best option. However there are charities and mechanics that offer help with car repairs, and find how to get your car fixed for free.
Drawbacks of a car loan rollover
In general, there are many cons to rolling over an auto loan. If you are considering this, this means the last car or truck you bought was more than you could afford. Or you borrowed too much money for too long for your last vehicle. However, the cons to a rollover include the following.
Higher new car loan balance: Rollover loans tend to have higher balances or longer repayment terms. As you're combining the outstanding balance from your previous loan with the new car's purchase price. This higher balance can result in increased monthly payments and a longer repayment period, even sometimes as long as 7 or 8 years which is a bad idea.
Negative equity: If you owe more on your current loan than the car is worth (so you are upside down it it”, rolling over the loan could result in negative equity on the new vehicle. This can make it more difficult to sell or trade in the car in the future, as you may still owe more than the vehicle’s value.
Increased interest costs and APR: A higher loan balance will often have a higher interest rate, whether your credit is good or bad. In addition, the potentially longer repayment period will almost be guaranteed to result in increased interest costs over the life of the loan.
Steps to roll over your car loan
Planning is always critical. Anytime you take on new debt, whether to buy a car, house, or anything, be thorough and methodical. Always be thoughtful and do research before a major purchase, and this concept applies to an auto loan rollover as well.
Determine your current vehicle’s value: Before you begin the process of rolling over your car loan, it's important to know the value of your current vehicle. Research your car's make, model, and year to determine its market value. You can use online resources such as Kelley Blue Book or Edmunds to get an estimate. Be sure to factor in the condition, mileage, and other factors.
Calculate your current auto loan payoff: Review your most recent statement(s). Or contact your lender to obtain the payoff amount for your current car loan. This figure represents the total amount needed to pay off your existing loan, including any fees or penalties.
Assess your current car's equity: Compare your current car's market value (using the steps above) to the outstanding balance on your loan. If the car or truck value is higher than the loan balance, you have positive equity, which again means you are upside down on it. If the car's value is lower than the loan balance, you have negative equity.
Shop for a new vehicle: When shopping for a new car, it's essential to factor in your existing auto loan balance. Keep in mind that rolling over your loan will increase the new total cost due to the factors we mentioned above, so it's crucial to find a car that fits your budget.
Secure a new car loan: Apply for a new car loan with a lender who is willing to offer a roll over program. Some of the major banks, such as Chase, BofA, and others will do this. A new ore used car dealer may also offer a roll over program, but the fees and interest rates are often higher. Shop around and compare loan offers to find the best interest rates and terms.
Complete the trade-in: After find the vehicle you want, and securing a new car loan, work with the dealership to trade in your current vehicle. The dealership will apply the trade-in value of your old car towards the purchase of the new one. If your trade-in value is less than the remaining balance on your old loan, the difference will be added to your new loan.
Pay off your existing loan: The dealership will use the funds from your new car loan to pay off the outstanding balance on your current auto loan. In almost all cases the dealer does this, but you need to verify it. This step is crucial in ensuring that you're no longer responsible for the old loan.
Review the new loan agreement: Before signing the new loan agreement, carefully review the terms and conditions, including the interest rate, monthly payment, length, fees, payoff terms and loan term. Review any other terms and conditions too. Make sure you fully understand your new financial obligations.
Tips for a successful car loan rollover
First and foremost, the entire concept is not idea. All borrowers should aim for positive equity on their current car or truck before trading it in. Maybe keep your current vehicle longer, and stay away from long term loans that go 6, 7, or even 8 years. This can help reduce the risk of negative equity in your new car loan and make it easier to sell or trade in the future.
Otherwise, the following may help. Low income families will also be able to talk to a professional to get free advice, such as non-profit credit counseling agencies or advisors. Locate non profit credit counseling online.
Pay down your existing automobile loan: If you have negative equity in your current car, consider making extra payments to reduce the loan balance before trading it in. This can help minimize the amount of negative equity that you roll over into your new loan.
Choose a vehicle with a strong resale value: When shopping for a new car, consider selecting a model with a strong resale value. This can help ensure that you maintain positive equity throughout the life of your new loan.
Consider a used car or truck: A vehicle loses musts of its value in year 1 and 2. Buying a vehicle that is used, maybe 2 or 3 years old, is often a much better deal.
Negotiate the best deal: When trading in your current car and securing a new loan, don't be afraid to negotiate with the dealership to get the best possible deal for a rollover. This includes negotiating the trade-in value of your old car, the purchase price of the new car, and the terms of your new loan.
Monitor your loan: After rolling over your car loan, it's essential to keep an eye on your balance, stay away from fees and make regular payments. Stay on top of your monthly auto payments to avoid falling behind and ensure that you continue building equity in your new car.
Conclusion on rolling over a car loan
Rolling over an existing car loan to a new one is not ideal, but it is an option. The advantages is that it can simplify the car buying process and potentially lower your interest rates for a new vehicle if your credit has improved since the last vehicle you bought. It also gets you into a newer car earlier, maybe before you need to put money into fixing your previous auto. However, it's important to weigh the benefits and drawbacks to a car loan rollover carefully to make the best decision for your financial situation.
Related Content From Needhelppayingbills.com
|
