Below we dive into the things that you need to consider when you need to upgrade your existing car loan before the end of the loan term. In summary, these are:

  1. Find out what you owe
  2. Determine what your current car is worth
  3. Decide how you’ll pay back the existing car loan
  4. Make sure you get a great deal on your next car loan

Who Owns Your Car When You Have a Car Loan?

Most car loans are secured car loans. To offer a lower interest rate on your loan, the lender registers security against the car until the loan is repaid in full.

This means that to upgrade your car, you’ll need to pay out the existing loan first.

4 Steps to Upgrade Your Car

Here’s what you need to do to start the process of upgrading your car:

Your payout figure is the amount that you owe on your car loan. This amount may include an early termination fee and any residual value payment.

Once this figure is paid, the lender will remove their registered interest from the PPSR and the car is ‘unencumbered’. This means you are free to sell the car.

Using Redbook or a similar car valuation service, check the resale value of your car at the moment. Include the condition and odometer reading to get an accurate value.

If your payout figure is greater than your expected trade-in or resale value, you’ll need to plan to pay the difference or have this amount included in a refinance car loan when you purchase the new car.

There are two main options for your old car. You can sell it privately or you can trade in your current car as part of your upgrade purchase.

You can sell a car that’s currently under finance, and use the money to pay out your existing loan. You need to contact your lender to let them know that you intend to sell the car, and find out what is required.

Usually, the purchaser will make the payment directly to the lender to pay out the amount owing. If the purchase price is greater than the remaining loan balance, the lender will pay back the difference to you, or you can have the purchaser pay part of the purchase price to the lender and part directly to you.

Once the loan is paid out, you and the lender will sign a transfer of ownership form to legally transfer ownership of the car to the buyer.

If the purchase price is less than the remaining loan balance, you’ll need to pay the difference. You can do this with cash, or you can refinance the balance of the loan.

Trading in your car is the easiest option because the dealer will handle all of the paperwork. This means they’ll take care of paying out your car loan with the lender and apply for any extra money as a deposit towards your car upgrade purchase.

If the payout figure is greater than the amount that you’ll get at trade-in, the amount owing will need to be refinanced into your upgrade car loan. Be careful here, as you’ll increase the loan amount you need to buy your next car, making it more likely that you’ll be upside down on your new loan.

You can get the best deal on your car upgrade loan when you get a pre-approval before finding the new car.

A pre-approval allows you to consider your finance separately from the purchase price of your new car. You can analyse the finance deal in isolation to make sure it really is great value for money.

Tell your car loan broker of your intentions regarding your existing car loan when you get a pre-approval. They’ll be able to help you with the paperwork to payout your existing loan and advise you on the most cost-effective options for your upgrade car loan.

A Positive Lending Solutions car loan adviser can help you to discover a car upgrade loan that will make the process of upgrading your loan as smooth as possible.

So get in touch now to find out what your options are and you can also get a free quick quote to get an idea on how much your monthly repayments will be.

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