What happens when you trade in your vehicle?

You found the vehicle of your dreams and the dealership offered you what you believe is a fair amount for your trade. So, now what?

If you own your trade-in vehicle outright (you’ve completed any loan or lease commitment that you may have had), it is important that you have your title with you when you go to the dealership. Then, you can sign it over to the dealership at the time you sign the paperwork for your new vehicle.

In most cases, though, when someone decides to trade in a vehicle, they still owe money on a lease or loan. In these situations, the dealership will go through a few more steps, such as obtaining account and payoff information, preparing additional documents, etc.

Obtaining the payoff information

Couple talking to dealership representative

When your trade-in vehicle has a loan that requires payoff, the dealership will contact your lender to obtain the amount required to bring it to a zero balance. They may also require additional information such as your account number, to make sure the money is applied to the correct account, and the lender’s mailing address.

If you have a billing statement or a coupon book, it’s a good idea to take that to the dealership with you so you have some of the information they may need.

How is your payoff calculated?

A standard payoff is made up of two parts – the balance owed today plus the daily interest, also known as the “per diem.” (If any late fees or other charges have accrued on the account, they will be added to the balance as well.) Typically, a dealership will require either a 10- or 20-day payoff when you trade a vehicle with a payoff.

If you call to request a payoff or log in to your account online to view your payoff, most lenders will provide a 10-day payoff, which includes today’s balance plus 10 days of daily interest. You can also request a 20-day payoff or ask for the per diem so you can calculate it yourself.

Calculator on clipboard

For example, let’s say Anita Carr wanted to trade her 2016 Ford Escape. She called to get her 10-day payoff and her lender told her it was $2,345.67. But she wanted to know her daily interest (her per diem), just in case the dealership wanted that as well, so she asked her lender for her per diem, which was $0.76. By doing so, she could easily calculate her 20-day payoff on her own:

10-day payoff = 2,345.67
10 days @ 0.76 per day = 7.60
2,345.67 + 7.60 = $2,353.27
Anita’s 20-day payoff is $2,353.27.

Although someone from the dealership will likely call your lender to verify the payoff information, it’s also a good idea to call yourself, before you go to the dealership. Then, like Anita in the example above, you have a good idea of exactly what you owe before you even start shopping for your next vehicle.

What additional documents are needed?

Documentation required to trade in your vehicle will vary depending on the state in which the vehicle is titled and registered, along with the dealership requirements. It’s important that you understand your responsibilities when trading in your vehicle, though, so if there is a form that you find confusing, make sure you ask questions before signing.

Dealer looking at paperwork

During the payoff process

Once the transaction for your new vehicle is complete, the dealership will issue payment to your lender in order to pay off your trade-in vehicle. The check will be issued for the agreed-upon amount on your contract.

It is important to understand that it is your responsibility to make sure your account reaches a zero balance. This means:

If you have a payment due during the time the dealership is processing the payoff of your vehicle, you are responsible for making the payment. If your lender receives payment that is for more than the amount owed on your account, they will issue a refund. In the meantime, though, it’s important that you make your regular payment on, or before, the due date.

If there is a delay in your lender receiving the dealership’s payoff check for ANY reason (including, but not limited to mail delays, lost checks, funding delays on your new vehicle, paperwork errors, etc.), you are responsible for a payment (or payments) that may be due in the meantime and/or additional interest that accrues during the delay.

While it’s not required, it is a good idea to follow-up with your lender a few days after you’ve traded your vehicle, to see if they have received the payoff. If they have not, you can let them know that you did trade your vehicle and the name of the dealership who will be sending the payoff.

Final steps

Family traveling in car”

Finally, if you haven’t already done so, consider things like removing the traded vehicle from your toll tag account and following up with the DMV to see what, if anything, you need to do to remove your name from the vehicle’s title and registration.

Once your account has reached a zero balance, your lender will release the lien and forward the necessary title paperwork to the dealership and you can ride off into the sunset, enjoying your new vehicle.

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