How to Roll Over Your Car Loan

What happens if you want a new car, but you’re still paying off your current one? Rather than paying off two separate loans, you might be able to “roll over” your current loan. This is when you add what you still owe to your new car loan.

Rolling over a car loan can be helpful in some cases, but there are drawbacks to consider, too. In this article, we’ll take a closer look at how to roll over a car loan and how to decide whether it’s a good idea.

How to roll over a car loan

The steps to roll over a car loan depend on whether you’re taking out a new car loan or refinancing your existing balance. Here’s a closer look at how each one works step-by-step:

Rolling over into a new car loan

When you roll over your old car loan into a new one, you trade in your vehicle, and any negative equity gets applied to the new loan. For example, imagine you owe $10,000 on your current car loan, but your car’s trade-in value is $7,000.

When you trade in your old car, the dealer pays off your car loan, but they add the $3,000 of negative equity to your new loan.

Most dealers set limits on your ability to do this. It’s common practice to limit the value of your new loan to 120% to 130% of the new vehicle’s value.

If you’re thinking about rolling over your current car loan, it’s a good idea to get in touch with dealers ahead of time to ask about their policies.

Rolling over through refinancing

If you don’t want to trade in your vehicle but you’re hoping to pay less over time, you might consider refinancing your car loan. Usually, people refinance car loans for one (or more) of the following reasons:

• They want to secure a lower interest rate
• They want a lower monthly payment
• They want to otherwise adjust the loan term

Rolling over through refinancing only makes sense in certain situations. If you have a better credit score than you did when you got the initial car loan, rolling over is likely to get you better loan terms. 

However, if your credit score is lower than it was, your only refinancing options might be less desirable than your current car loan.

If you’re thinking about refinancing, look for lenders who offer pre-approvals without doing a hard credit check. That way, you’ll be able to get an idea of what the terms of your new loan might look like.

What does it mean to roll over a car loan?

As you learn how to roll over a car loan, you’ll first want to take a look at what that phrase means. With a car loan rollover, you take out a new loan (usually either a new car loan or a loan specifically for refinancing) and then add the amount you still owe to that new loan.

Rolling over a car loan is an option if you are “upside down” on your car loan. Being upside down means you have negative equity. In other words, you owe more on the car than it’s actually worth.

Pros and cons of rolling over a car loan

Rolling over a car loan is a major decision. Depending on the terms of your new loan, it could impact your life for the next several years. So before you make the decision, you should consider the potential benefits and drawbacks.

These are some of the advantages of rolling over a car loan:

• It allows you to get a new vehicle sooner
• It’s convenient
• If your credit has improved, your new car loan might have better terms

However, you should also consider the potential drawbacks:

• You’ll be immediately upside-down on the new loan
• The new loan will likely have higher monthly payments
• You’ll probably pay more interest on the negative equity over time
• If you repeatedly roll over debt, it’s easy to get trapped in a debt cycle

Before you roll over your loan, you should also think about the potential risk to you if the car is totaled. Insurance companies will typically only pay the actual cash value (ACV) of your vehicle, not the amount you owe on the loan. That means you could be stuck still paying off your negative equity even when you don’t have a car.

Any time you’re underwater on a car loan, it’s a good idea to get gap insurance. This is insurance that specifically covers your negative equity in the car. That way, if your vehicle is totaled, your regular car insurance will pay the value of the car, and your gap insurance will cover the rest of your loan.

What are some alternatives to rolling over a car loan?

Rolling over a car loan can compound your debt and lead to you paying more over time. If possible, you might want to consider these alternatives:

• Paying down your negative equity before trading the car in
• Refinancing your loan for a lower interest rate or shorter loan term
• Keeping the car until the loan is paid off
• Trading the car in for a less valuable vehicle to eliminate your negative equity

It might also be worth selling your car privately. Usually, you can get more for your vehicle in a private-party sale than you could if you trade it in at a dealership. In some cases, that extra amount may be enough to cover your negative equity.

Better credit can lead to better interest rates

If you have better credit when you roll over a car loan than you did when you took out the loan, you might be able to secure a better interest rate. But better credit doesn’t usually happen by accident. You’ll probably need to dedicate time and effort to building it up.

Not sure where to start? Kikoff is here to help! As a credit-builder app, we help people with poor credit, little credit, or no credit boost their scores while developing better financial habits.

We offer an array of different tools, including lines of credit, secured credit cards, and credit-builder loans, to help you improve your credit. You can also track your bills and spending in the app while getting personalized financial guidance.

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