I owe $10,000 on my existing car loan. I currently have enough to pay off my loan and till have enough to put down $5000 on a new car. My question is this, is it better to pay off the loan first and then trade it in which would mean waiting for the title and adding more miles to my current vehicle or would it be better to trade it in and put down the whole $15000 on the new car?
Welcome to NerdWallet, mykallincoln!
If you intend to trade the car, it should make no difference whether you have the title in hand or not.
Dealers do this every day. If you trade the car in still owing money on it, you typically sign a power of attorney allowing the dealer to pay off your loan and take title to it. The dealer deducts what you owe from the value of the trade. You come out the same either way, with $5,000 down.
Here’s a good primer: How to trade in a car when you owe money on it
If you intended to sell the car yourself – to get more money for it – then a title in hand makes the sale much, much simpler.
This wouldn’t be NerdWallet if we didn’t remind you that one really great reason to pay off your car would be to give yourself a taste of what life without a car payment is like. You may love the extra $300 or $400 in your monthly budget even more than you love the new car. Go for a few months and build up an emergency fund. Go for a year and pay off your credit cards. Go even longer and you can think about paying cash for that next new car.
Think back to the one you want to trade in: How long did the car feel special to you?
Don’t get us wrong. We love new cars, but we like not worrying about money even more.