You’ve decided it’s time to change cars.
Maybe you need something bigger.
Maybe your circumstances have changed.
Maybe the kilometres are getting high, the vehicle no longer suits you, or you’ve simply found something you’d rather own.
There’s just one problem.
You’re still paying off your current car.
This is extremely common.
You don’t necessarily need to wait until the existing car loan is completely repaid before buying another vehicle.
But the existing finance doesn’t disappear when you trade or sell the car.
Before looking at the finance for the replacement vehicle, you need to understand what is happening with the finance you already have.
If you’re looking at upgrading your car in Liverpool or elsewhere in Australia, one of the first numbers worth finding is your current finance payout.
Start With the Payout, Not the Original Loan Amount
Suppose you originally borrowed $45,000 to buy your current car.
That doesn’t tell us what matters today.
What we need to know is:
How much will it cost to pay out the finance now?
Your financier can provide a current payout figure.
That is the amount required to clear the existing finance at the relevant time, subject to the financier’s terms and the validity period of the payout figure.
Once you have that number, you can compare it with what your vehicle is currently worth.
That comparison tells us a lot about the position you’re in before you buy the next car.
Your Car May Have Equity
Suppose your current finance payout is:
$20,000
and your vehicle is worth:
$27,000
There is a $7,000 difference.
Subject to the actual trade or sale and settlement of the existing finance, that difference may provide equity towards your next vehicle.
For example, if a dealership agrees to give you $27,000 for the trade and $20,000 is required to clear the existing finance, the remaining value may contribute towards the replacement purchase.
That can reduce the amount of new finance required.
But don’t assume the equity amount until you have both an accurate payout and a realistic value for the car.
Or You May Owe More Than the Car Is Worth
Now reverse the numbers.
Suppose your finance payout is:
$27,000
but your vehicle is worth:
$20,000.
There is a $7,000 shortfall.
This is commonly referred to as negative equity.
Changing cars doesn’t make that $7,000 disappear.
It needs to be dealt with as part of the overall transaction.
Whether some or all of a shortfall can be considered within the replacement finance will depend on the complete application, the replacement vehicle, the amount being requested and the lender’s requirements.
In some circumstances, you may need to contribute cash.
In others, the vehicle you are planning to buy or the overall purchase may need to be reconsidered.
That’s why we want to understand your existing car finance before you commit to the replacement vehicle.
What Happens to My Existing Loan When I Trade the Car?
If you trade your current vehicle through a dealership, the existing finance generally needs to be cleared as part of the transaction.
The dealership will usually want to know the payout amount because finance secured against the trade-in needs to be dealt with.
The trade-in value and payout are then part of the overall changeover calculation.
For example:
Replacement vehicle: $48,000
Trade-in value: $25,000
Existing finance payout: $18,000
There may be $7,000 of equity from the trade available towards the replacement purchase.
But if the payout were $30,000 instead, the same $25,000 trade would leave a $5,000 shortfall.
Same replacement car.
Same trade-in.
Completely different finance position.
What if I Sell My Current Car Privately Instead?
You may decide that selling the vehicle privately could achieve a better price than trading it.
That can potentially change your equity position.
For example, a dealership might offer $22,000 for the car while you believe you could sell it privately for $26,000.
If the finance payout is $24,000, those two options produce very different outcomes.
The dealership trade may leave a $2,000 shortfall.
A private sale at $26,000 may leave money after the existing finance is cleared.
But if finance is still secured against the vehicle, it needs to be dealt with properly as part of the sale.
A private buyer is likely to want confidence that the existing finance will be cleared.
The settlement process can therefore involve coordination between you, the buyer and the financier.
Don’t assume you can simply take the buyer’s money, hand over the car and worry about the existing finance afterwards.
Can I Just Keep the Old Car Loan and Buy Another Car?
If you are keeping the existing vehicle rather than selling or trading it, that is a different situation.
The existing car finance remains one of your financial commitments.
If you apply for finance for another vehicle, the lender may need to consider the repayment on the existing loan along with your other commitments.
That can affect the assessment of the new application.
If you genuinely intend to keep both vehicles, tell Thrive Broking.
If you intend to sell the existing car after buying the new one, tell us that too.
The way the transaction is actually going to work matters.
What if I Need the New Car Before I Can Sell the Old One?
This happens.
You may rely on your existing vehicle for work or family commitments and not want to sell it until the replacement is ready.
That can create a timing issue.
At the point the new finance is being considered, you may still have the existing car loan.
Whether and how the proposed sale of the current vehicle can be taken into account will depend on the lender and the circumstances.
Don’t assume the existing repayment can simply be ignored because you plan to sell the car later.
Tell us exactly what you intend to do and when.
That gives us a much clearer picture of the transaction.
Should I Get a Payout Before I Start Shopping?
You don’t necessarily need a payout figure before you look at another car.
But once you become serious about changing vehicles, it is useful information to have.
If you know:
the approximate value of your current car
the current finance payout
how much cash you have available
the approximate price of the replacement vehicle
you can start looking at the changeover more realistically.
Without the payout, you may think you have $10,000 of equity in your current vehicle when you actually have $2,000.
Or you may assume you are in negative equity when the position is better than you expected.
Get the number.
Then work from the actual position.
Does the Payout Stay the Same?
Not necessarily.
A payout figure is generally calculated for a particular date or period.
If you obtained a payout several weeks ago, you may need an updated figure when the transaction is ready to proceed.
The amount can change as repayments are made and according to the terms of the existing finance.
If you are close to purchasing the replacement vehicle, make sure the payout being used is current.
What if I Have a Balloon on My Existing Car Finance?
A balloon payment can affect how much remains owing on the existing finance.
If your current loan has a balloon and you decide to change vehicles before the end of the term, the relevant question is still:
What is the payout today?
Don’t look only at how many regular repayments you have made and assume that tells you how much equity you have.
Compare the actual payout with the vehicle’s current value.
That tells you much more about your position.
The Dealer Says They’ll Pay Out My Existing Finance. Is That Enough?
A dealership may handle the payout of existing finance as part of a trade-in transaction.
But you should still understand the numbers.
Ask:
What are they giving me for the trade?
What is the finance payout?
Is there equity or a shortfall?
How is that being reflected in the replacement purchase?
You want to understand the complete changeover rather than simply hearing that the old loan will be “taken care of”.
The old finance still forms part of the numbers.
What Is the Changeover Amount?
When people focus on the price of the new car, they can miss what the whole change is actually costing them.
Suppose the replacement car is $55,000.
That figure alone doesn’t tell us how much finance you need.
You might have a trade worth $25,000 with only $15,000 owing.
You may therefore have equity available.
Another customer could have the same $25,000 trade but a $30,000 payout.
They have a shortfall.
A third customer may have no trade at all but contribute $10,000 cash.
All three are buying the same $55,000 vehicle.
Their finance requirements are different.
That is why Thrive Broking wants to understand the entire purchase rather than just the price of the replacement car.
Should I Pay Off the Existing Loan Before Applying Again?
Not automatically.
If you have the money to clear the existing finance, that is one option you may consider.
But whether you should use your available cash that way depends on your circumstances and what else you need the money for.
You may prefer to retain some cash.
You may need funds for other commitments.
Or clearing the existing finance may make sense for what you are trying to achieve.
There isn’t one answer that applies to everyone.
Tell Thrive Broking what cash you have available and what you want the replacement purchase to look like.
What if I’ve Only Had the Current Car for a Short Time?
You can still investigate changing vehicles.
But if you are early in the existing finance term, it is particularly useful to establish the payout and current vehicle value before committing to another purchase.
Vehicles can depreciate, and the finance balance may not reduce at the same rate as the vehicle’s value.
That can leave a shortfall.
The size of that shortfall, if there is one, matters when considering the next finance application.
Can I Upgrade to a More Expensive Car?
Potentially.
But the fact that you already have car finance doesn’t tell us whether a larger replacement purchase will be suitable or available.
The lender may consider your income, employment, housing position, existing liabilities, living expenses, credit history, the replacement vehicle and the amount being requested.
If there is also a shortfall from your existing vehicle, that becomes another part of the overall transaction.
Rather than deciding whether you will qualify based only on the price of the new car, give Thrive Broking the complete picture.
What if My Income Has Changed Since I Bought the Current Car?
Tell us.
Your new finance application is assessed based on your current circumstances and the relevant lender requirements.
The fact that you qualified for your existing car loan does not mean a new lender will automatically approve another application.
Your income may have increased.
You may have changed employers.
You may now be self-employed.
Your housing costs may have changed.
You may have taken on or repaid other debts.
The new application needs to be considered on the circumstances that apply now.
What if My Credit Position Has Changed?
The same principle applies.
Your current car loan may have been established several years ago.
A new finance application is a new assessment.
If anything significant has changed since the existing loan was arranged, tell Thrive Broking.
It is much better for us to understand the position before deciding how to approach the new finance.
Don’t Commit to the New Car Based on Your Old Repayment
Suppose you currently pay $650 a month on your car loan.
You may assume that if the replacement vehicle produces a similar repayment, the finance should be straightforward.
But the old repayment doesn’t tell us enough.
Your current loan may have a different balance, interest rate, term or balloon structure.
Your financial circumstances may also have changed.
The replacement vehicle may be worth more or less.
Compare the proposed new finance on its own merits rather than using the old repayment as proof that the new application will work.
Changing Cars in Liverpool?
If you’re in Liverpool and want to replace a vehicle that still has finance owing, Thrive Broking can help you work through the position.
If you’ve already found the replacement car, send us the details.
We’ll want to understand the purchase price, your current vehicle, its approximate value, the existing finance payout and whether you intend to trade or sell it privately.
If you haven’t found the next car yet, you can still speak with us.
Knowing your existing payout and likely vehicle value can give you a clearer starting point before you decide what to buy.
Thrive Broking assists customers across Australia by phone and online and is available seven days a week.
Before You Upgrade, Know These Two Numbers
If you remember nothing else, start here:
What is your current car worth?
What is the current finance payout?
Those two numbers tell you whether you have equity, little or no equity, or a shortfall that needs to be dealt with.
From there, we can look at the replacement vehicle and the finance you may need.
If you’ve already found the next car, send Thrive Broking the details.
If you’re still looking, tell us what you’re considering.
We’ll start with where you are now and what you’re trying to achieve with the next vehicle.