Trade in your vehicle like a pro
South Africa is reported to have more than 50 automotive brands represented locally, with over 2,500 derivatives currently on sale.
This number is set to grow as new brands are launched, ushering in new developments in vehicle technology and design that will entice many car owners to consider trading in their vehicles for newer models.
Trading in a paid-off car is fairly uncomplicated – you must have your ownership documents in place, have the vehicle valuated and negotiate a satisfactory trade-in value.
“For a financed vehicle, the process can be a bit more complex, especially if you are not fully familiar with the intricacies of vehicle finance,”
says Lebo Gaoaketse, Head of Marketing and Communication at WesBank, who offers insights on the trade-in process.
According to Gaoaketse, the primary factor to consider when trading in a financed vehicle is the concept of the break-even point.
Understanding the break-even point
“The break-even point in your finance agreement is the point at which the trade-in value of your vehicle is equal to or greater than the outstanding balance on your loan. This is the ideal time to trade in your financed vehicle,”
says Gaoaketse.
Factors that affect the break-even point
- Finance term: Longer finance terms mean it will take longer to reach the break-even point.
- Deposit: A larger deposit will help you reach the break-even point sooner.
- Resale value: Some vehicles depreciate faster than others, which affects their resale value, and subsequently the break-even point in the finance contract.
The benefits of trading in a car at the break-even point
- Avoid paying more: You won't pay more than it’s necessary to get out of your current finance agreement.
- Protection from excessive debt: It negates the carryover of old debt into a new loan agreement
- Maintain affordability: It helps you maintain your affordability level.
Reconciling the trade-in value with the finance balance
If the trade-in value of your vehicle is less than the outstanding balance on your loan, you'll have negative equity. This means you'll need to pay the difference between the trade-in value and the loan balance. You may be able to roll this outstanding amount into a new loan, but that would increase your monthly payments, as well as the total interest amount.
Tips for trading in a financed vehicle
Gaoaketse offers the following tips for those looking to trade in their financed vehicle:
- Know your finance contract terms: Contact your lender to find out the outstanding balance and settlement amount on your loan, which may differ due to accrued interest.
- Shop around for the best trade-in offer: Get quotes from multiple dealerships to ensure you are getting the best possible offer.
- Negotiate the terms of your new loan: Don't be afraid to negotiate the interest rate and finance term on your new vehicle finance contract.
