The Pros and Cons of Trading in a Financed Vehicle After 12 Months

When it comes to purchasing a vehicle, many people opt for financing as it allows them to spread out the cost over time. However, there may come a time when you decide you want to trade in your financed vehicle for a new one. In this article, we will explore the pros and cons of trading in a financed vehicle after 12 months.

The Pros of Trading in a Financed Vehicle

1. Upgrade to a New Vehicle: One of the main advantages of trading in a financed vehicle is the opportunity to upgrade to a newer model. By trading in your current vehicle, you can put the value towards the purchase of a brand new car with the latest features and technologies.

2. Avoid Expensive Repairs: After 12 months of ownership, your vehicle may start experiencing wear and tear, requiring costly repairs. By trading it in, you can avoid these potential expenses and enjoy the peace of mind that comes with a new vehicle warranty.

3. Improved Fuel Efficiency: Over time, vehicle manufacturers introduce more fuel-efficient models. By trading in your financed vehicle, you can take advantage of newer technologies and enjoy better fuel efficiency, which can result in long-term savings at the pump.

4. Lower Maintenance Costs: Newer vehicles often come with lower maintenance costs compared to older models. By trading in your financed vehicle, you can enjoy a vehicle that is still under warranty, reducing the cost of routine maintenance and repairs.

5. Access to Newer Safety Features: Vehicle safety standards continue to improve, with new safety features being introduced regularly. By trading in your financed vehicle, you can upgrade to a car with advanced safety features such as lane departure warning, blind-spot monitoring, and automatic emergency braking.

6. Potential for Lower Interest Rates: Depending on market conditions, interest rates on auto loans can fluctuate. If interest rates have decreased since you initially financed your vehicle, trading it in after 12 months may allow you to secure a new loan with a lower interest rate, potentially saving you money over the life of the loan.

The Cons of Trading in a Financed Vehicle

1. Negative Equity: One of the biggest downsides of trading in a financed vehicle is negative equity. If you owe more on your current loan than your vehicle's trade-in value, you will have to pay the difference out of pocket or roll it over into your new loan, increasing the overall amount of debt you have.

2. Loss of Money Paid: When you trade in a financed vehicle, you may lose any money you have already paid towards the loan. This is because the trade-in value is typically less than the remaining balance on the loan, especially in the early months of ownership when the vehicle depreciates the most.

3. Higher Monthly Payments: Trading in your financed vehicle for a new one may result in higher monthly payments, especially if you choose a more expensive model or take on a longer loan term. It's important to consider whether these higher payments fit within your budget before making a decision.

4. Restarting the Loan Term: When you trade in a financed vehicle, you are essentially starting a new loan. This means that if you had already made progress on paying off your current loan, you will have to start from scratch with the new loan, potentially extending the time it takes to become debt-free.

5. Depreciation: Trading in a financed vehicle after just 12 months means that you have experienced the majority of the vehicle's depreciation. This can result in a larger gap between the remaining loan balance and the trade-in value, exacerbating the issue of negative equity.

6. Limited Options for Trade-In: Not all dealerships accept trade-ins on financed vehicles. You may have to limit your options and choose a dealer who is willing to work with you on the trade-in process, potentially limiting your ability to negotiate the best deal.


Trading in a financed vehicle after 12 months has both pros and cons. On the one hand, it allows you to upgrade to a new vehicle with improved features, technology, and safety. It also helps you avoid costly repairs and can potentially save you money through lower interest rates and improved fuel efficiency. On the other hand, trading in a financed vehicle means facing negative equity, potentially losing money already paid towards the loan, and dealing with higher monthly payments. Ultimately, the decision to trade in a financed vehicle after 12 months depends on your individual financial situation and priorities. It's important to weigh the pros and cons carefully and consider consulting with a financial advisor or dealership to make the best decision for your circumstances.

25 October 2023
Written by John Roche