Personal Car LoanHow To Upgrade Your Car When You Still Have A Loan

How To Upgrade Your Car When You Still Have A Loan

November 30, 2014

Whether it’s a change in lifestyle, accident damage or a great sales deal, there are times when changing cars is a major priority. But what happens if you want to get a new car when you’re still paying off your old one?

When you first take our a car loan, you sign a legally-binding contract and agree to pay back the full amount, including interest and fees specified in the product disclosure statement. That means you will have to deal with this loan if you want to buy another car and trade-in or resell your current one. As insurance company Allianz explains on its website:

“If you fail to repay a secured loan, the lenders are entitled to repossess and sell your car as a means to cover their losses. If the vehicle sale doesn’t cover the full amount of the loan, you will have lost your car and still have money owing.”

The above scenario is exactly what we want to avoid. But paying off the existing vehicle and a new one is also something most people want to avoid – especially when you could get a better price for a new car by reselling or trading in the one you currently drive.

In most cases the ideal outcome is to get rid of the existing loan and get a new one to suit your new car. In order to do this, St George says the existing loan “needs to be paid out in full at or before time of sale” (or trade-in, depending on what route you take to upgrading your car).

While all of this could sound really complicated, there’s actually a number of solutions. This guide looks at some of the most important factors to consider, and different approaches that can help make upgrading your car and dealing with an existing car loan a lot easier.

On This Page

  1. Valuing the current car
  2. Selling vs. trading in your car
  3. Paying out your car loan
  4. Negotiating changes with your car loan provider
  5. Getting new car finance
  6. Conclusion

Valuing the current car

Valuation is an important step to take before selling or trading in a car because it gives you a clear idea of how much money you will get for it. When it comes to existing car loans, valuing your vehicle can also help you figure out how to negotiate changes or balloon payments.

Big Bank Westpac actually recommends getting your car valued before you make any major decisions.

“Before buying or selling a car, we suggest you check the value of the car you own, or wish to buy,” it says, linking to third-party valuation service Red Book.

Community First Credit Union, on the other hand, also says this step is particularly important when residuals are part of the agreement.

“If you plan on selling the car before the residual is due, consider what the car’s market value will be and whether or not it is likely that you will need to pay out any differences in order to sell it,” the credit union explains.

Whatever your current plans are, getting an estimate of the value of your current car will help you decide what to do next.

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Selling vs. trading in your car

There are two main options people choose when upgrading their vehicle. You can sell the current car independently or choose to trade it in at a dealership for a credit on your new car. What you decide to do really depends on your individual circumstances, as there are pros and cons to both options.

On the private sale side of things, some of the benefits could include a higher sale price and more control over the process. The drawbacks are that you may have to pay for repairs, have to figure out advertising and transfer details and be around for people to test drive it, which can make it time consuming.

With trade-ins, on the other hand, one of the biggest benefits is that you can sell the car as it is, without worrying about the cost of any repairs that would deter a private buyer (the reseller deals with that themselves). It also takes some of the edge off the cost of buying a new car, assuming you trade it in at the same dealership.

According to Mike Sinclair, car expert and Editor-in-Chief of, the decision between private sales and trade-ins really depends on what your goals are and the state of your current car.

In a guest blog for CommBank, he says that “both methods of disposal have their weaknesses and benefits.”

“Low mileage, well looked after popular models are easy to sell privately,” he says, adding that you should take great photos and describe why the car is a great buy in your ad so that it sells quickly.

But, he says, “if your car’s not a peach or you simply don’t have the time, then selling your old car to a dealer is usually quick and fuss free.”

Getting an independent valuation could help you make this kind of decision before you even set sights on a new car. Whatever you decide, it is important to weigh up the pros and cons, and consider the financial implications, so that you know that the upgrade will be as easy as possible.

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Paying out your car loan

Most car loans allow you to pay out the remainder of the loan at any time. But there could be additional fees and charges, particularly if you have a fixed rate loan.

In many cases, these types of car loans will have Early Exit fees, and could also factor in the estimated cost of interest so that the lender still gets the money they agreed to at the start of the loan. Details of these fees and charges will be in your car loan information booklet, and you can also find the terms and conditions on many car loan provider websites. GE Money provides a good example of some standard “early termination fee” charges on its website, which outlines:

“An Early Termination Fee is payable, upon you paying out this contract early. The amount of the fee is –

  1. $750 if the original loan amount exceeds $12,000


  1. 25% of the original loan amount if $12,000 or less


  1. A or B multiplied by the number of unexpired whole months in the term at the time this contract is paid out, divided by the number of whole months in the term.”

While the specific amounts vary between lenders and even loans, this example gives you an idea of what to expect when you want to upgrade vehicles and pay out your existing car loan.

Another element to consider is the age of the car when you applied for finance, and the age and state of it now, because it affects the overall value of the car. And, as indicated above, if the car is worth less than it was before, you will have to pay the difference to your lender in order to clear the loan.

The bottom line here is that it’s important to check what fees your lender could charge before you make any decisions about upgrading, so that you have a clear idea of how much you will have to pay for going ahead with the change.
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Discussing an upgrade with your car loan provider

Whatever route you decide to take with upgrading your car, it is a good idea to let your car loan provider know where you’re at with things. Keeping them in the loop could help you figure out the most affordable way to get a new car and pay out your current loan as quickly and easily as possible.

Discussing car changes with your lender could also help you figure out other financing options. Can you afford to sell your current car and pay out the loan? Would it be better to consider transferring the balance of the car loan to a personal loan or credit card? Could your lender offer you a deal on the new car to simplify the process?

These kinds of questions are hard to answer accurately without talking to your actual lender. But if you are really uncomfortable dealing with them directly, you could also consider talking to a car loan expert for qualified and objective guidance.
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Getting new car finance

If you want to upgrade your car, the chances are good that you also want to get a new car loan to cover the costs. As mentioned above, this transition can be tricky when you already have an existing car loan, which is why it is important to discuss your individual circumstances with qualified experts. That way you can get a personalised and accurate assessment of your financial situation and clear advice on the best way to get new car finance for your upgrade.

Just as with your first car loan, it is important to shop around for different finance options. While a dealership could encourage you to get finance with them (especially if you are trading in your car), MoneySmart says it is still “usually cheaper to get a loan elsewhere.”

“Banks, building societies, credit unions and specialist lending and leasing companies also offer car loans, so check out what’s on offer.”

The difference when you’re upgrading your car is that there might still be existing debt to consider. Talking to potential lenders about your situation and asking what they can do for you, then, will help you get a clearer idea of the options that you have so that upgrading your car doesn’t break the bank.
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Although buying a new car when you still have repayments on an existing vehicle is not an ideal situation, there are times when it’s necessary or more convenient than sticking with your current car. Plus, there are a number of ways to deal with it.

The sections above outline important factors and steps you can take to make sure that upgrading your car when you still have a car loan is as simple and cost-effective as possible. By looking at things like the value of your current car, private sales and trade-in options, paying out your loan and getting new finance you will be equipped to deal with an upgrade at any time.

Letting your car loan provider know about your changes in circumstances, or getting advice from a car loan expert, will also help you figure out the best approach for an upgrade. While switching an older car for a newer one can often be marketed as a quick and easy process, taking time to consider the details will help you find the best financial options. That way you can drive away from the process knowing that you have the best car finance for your circumstances.
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