Tips on Buying Cars: Sell/Trade a Financed Vehicle, honda accord hybrid, bad shape

Question
My girlfriend has a '05 Honda Accord Hybrid. There is about $12k left on the loan. She wants to trade/sell her car mainly because of a monthly payment of over $292. When she bought the vehicle 2 years ago, her credit was in bad shape due to a misunderstanding. This caused her to have an interest rate close to 11.5% - financing term of 72 months - financed amount of $15k. Today her credit is in the top tier. We don't want to refinance because we'd rather lower our payments without significantly extending the life of a new loan.

KBB gives a price of $14k to sell it privately and $12k for a trade-in. I've read that it is much easier to trade in a financed vehicle over selling it privately. Is this true? If I find a dealer accepting the vehicle for a $12k trade-in and purchase a used vehicle for around $15-16k, how does it all work since the car is still being financed? Would I have a new loan for just the difference (16 - 12# or would the difference add to the original financing #12 + 4)?

The bottom line is that we're trying to figure out the best way to be free from the original 11.5% financing and finance a new car at a much reasonable rate now that her credit has rebounded. Plus, if I co-sign, we will get the best rate because I have a near-perfect credit score.

Any suggestions?

Thanks!

Answer
GP,

Thanks for your question.  This is a very common question.  First, yes it is SO much easier to sell a vehicle or trade in a vehicle to a dealership that has a loan already on it.  Now, if you are trading into a new car, then your second scenario of the balance would be true.  This is the way it works.

Car you want to buy:  $15,000
Trade Value on yours; $12,000
Trade Difference:     $ 3,000
Taxes:                $
Payoff on trade:      $12,000

Total Amount to finance on new Loan : $15,000 plus whatever the taxes are.

If her credit has significantly improved, then you will get a much lower interest rate, and therefore your payments should be lower than what they currently are assuming that you are financing the same amount.

Thanks - JB