Confusion about trading in a financed vehicle and the auto loan for the vehicle being purchased

[Anonymous]

I'm pretty new to auto loans, and I haven't been able to find an answer for this.

I have one current/active auto loan from Capital One that was opened 6 months ago (first auto loan I've had). Vehicle trade in value is ~$20,000 and the amount I owe on it is ~$14,000. The vehicle was a poor choice for the winter snow and I'd like to trade it in for a truck. I'd like to go through Capital One again for vehicle 2, but I wanted to know more about how the loan application is processed for trade in vehicles.

At the dealership finance office, when I apply for the capital one loan (or any servicer) for vehicle 2 using vehicle 1 (currently financed) as a trade in, how will that affect my auto-enhanced credit score? Running my loan application will return with a current auto loan open with a balance of $14k, and the vehicle being purchased would be approx. 18k. So with trading vehicle 1 in, the auto loan will be paid off by the dealership and I'll be financing about ~$14k for the second vehicle. Will my loan application/credit take a hit or does it factor in that the currently open auto loan will be paid in full with the trade in.

Sorry if this confusing to read, I don't quite understand the trade in financing process so it's hard for me to put my question in to words clearly!

[sid33]

Your report will show what accounts are currently reporting and the score on the date and time it’s pulled. It does not take in to account what you will do, like trading in a vehicle on another. You may see a hit on your score when your current loan is paid off and you open a new loan. If this is your only installment loan, you may see a bigger hit. 

You might want to talk to a local cu to see if they can offer a better rate than cap1. 

[DaveInAZ]

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@sid33 wrote:

Your report will show what accounts are currently reporting and the score on the date and time it’s pulled. It does not take in to account what you will do, like trading in a vehicle on another. You may see a hit on your score when your current loan is paid off and you open a new loan. If this is your only installment loan, you may see a bigger hit. 

You might want to talk to a local cu to see if they can offer a better rate than cap1. 

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Good advice, a local or national/online credit union. I bought a car Sept. 1. I checked Cap One and they offered 5.25%, then checked a local credit union, they offered 3.45%. I went with DCU (Digital credit union) for 2.99%.

[ls2016]

I can't answer your question as I've only purchased/financed 5 cars in my lifetime and still don't know enough to help you out, sorry. However, I was wondering if the dealership have already informed you that they are willing to give you $20,000 for Vehicle #1? Just curious!

I do believe that both, vehicle #1 and vehicle #2 could possibly show at the same time on your credit reports (you may not see a score drop at this point). It depends on how slow or fast the finance companies report the information. Your scores could fluatuate up and/or down. That's really hard to guess at.

[Appleman]

When you are filling out the application for the new vehicle they will take into account that payment when calculating your debt to income ratio to see if you qualify. With the old loan make sure you continue to make payments until you confirm with the lender that the car is paid in full. Sometimes, the dealer is slow to pay off a trade and an upcoming payment may become overdue. And no worries, if you overpay the original lender will send you a check for any over payment.

Take the time to get the value of your trade, stopping by a Carmax for a free buy offer to see what a dealer will likely give you (good when negotiating to have this number). 

You say the current car is not good in the snow? Price a set of snow tires and wheels from a place like Discount tire. Take a look in your community and see if people drive cars exactly like you rear round (my bet is not everyone has a 4 wheel drive). Your gas usage will likely go us with a truck as well. 

By trading in a vehicle you are going to take a hit financially.