Understanding that all deals differ
There are many different terms, interest rates and deals that can be structured when taking a loan out, or as it's more commonly known locally, when financing a vehicle using the hire purchase model. Payment terms can range from 12 to 72 months, with interest rates ranging from prime (7.5%) to many percentage points above that, or even sub-prime. When it comes to deals, a balloon payment can be factored in as can a trade-in amount. All of these variables will mean that very few vehicle loans are the same, but what happens if you opt to trade your vehicle in with an outstanding amount owed to a financial institution?
Trading your car in with an outstanding loan
The first thing that you, as the current owner/ client with an outstanding loan need to do is to ask the financial institution with which you have the hire purchase agreement for a settlement letter. A settlement letter shows you what you owe on the vehicle for the remainder of the contract, but without the interest that would have accrued had you finished the loan period. With this information, you can then approach the dealership from which you are looking to do a trade-in deal and get them to evaluate your vehicle to see what sort of value they will offer you.
Once the value has been relayed to you, a decision as to whether or not you proceed with the deal can be made. If the dealership in question has offered you an amount that is equal to, or exceeds the settlement amount, you can proceed with the trade, have the dealership settle the amount with your financial institution and pay you the outstanding balance if there is an outstanding amount owed to you. Should the amount offered by the dealership not be able to settle the vehicle for whatever reason, whether it's an outstanding balloon payment or if you simply have not had the vehicle for long enough to have covered the shortfall of the settlement amount, then you will have to decide whether you wish to load the outstanding loan amount onto the vehicle that you are acquiring as part of the trade-in process. This is not recommended as it appears to create a cycle of not being able to sufficiently settle your vehicles when training them in.
