Trading In Your Co-Owned Car: What Canadians Need to Know

Thinking about trading in a car you co-own with a partner, family member, or friend? It's a common scenario in Canada, especially when you've shared the responsibilities and benefits of a vehicle. While the process of trading in a car you fully own is usually pretty straightforward, adding a second owner into the mix brings a few extra steps and considerations. Don't worry, it's totally manageable, but knowing the details upfront can save you a lot of hassle.

What Does 'Jointly Owned' Really Mean?

When we talk about a jointly owned car, it simply means that two (or sometimes more) people are listed on the vehicle's ownership (often called the registration or permit) document. This usually means you both have a legal claim to the vehicle, and often, if there's a loan, you're both co-borrowers on that as well.

The Golden Rule: Both Owners Need to Agree

This is the most crucial point: when you trade in a jointly owned vehicle, both owners generally need to consent to the transaction. This isn't just a suggestion; it's a legal requirement to ensure that neither party is making decisions about shared property without the other's knowledge or agreement. Most dealerships will require both owners to be present to sign the trade-in paperwork, as well as any new financing agreements if you're purchasing another vehicle.

What If There's an Outstanding Loan?

Many jointly owned cars also come with a joint car loan. If this is your situation, the trade-in process will directly impact that loan. Here's how it typically works:

• Paying Off the Old Loan: The trade-in value of your current vehicle will first be applied to pay off any outstanding balance on your existing loan.
• Positive Equity: If your car's trade-in value is more than what you owe, that extra money (positive equity) can be used as a down payment on your new vehicle, or sometimes you can receive it as cash.
• Negative Equity: If you owe more on your car than its trade-in value, you're in a negative equity situation (sometimes called being 'upside down' or 'underwater'). This difference will need to be paid off, either out of pocket or, more commonly, rolled into your new car loan. Be mindful that rolling negative equity can increase your new loan amount and monthly payments significantly, affecting both owners' credit and financial burden.

Remember, if both of you are on the original loan, both of you are responsible for its repayment until it's fully settled, even after the trade-in.

Essential Documents You'll Need

To make the trade-in process smooth, gather these documents for your dealership:

• Vehicle Ownership/Registration: Make sure both names are clearly visible.
• Valid Photo ID: For both owners (e.g., driver's licence).
• Current Insurance Information: For the vehicle being traded in.
• Loan Account Information: If you have an outstanding loan, have your account number and lender details handy.
• Lien Release (if applicable): If you've recently paid off a loan but the lien hasn't been removed from the ownership document yet, you might need proof from your lender that the loan is satisfied.

What If One Owner Can't Be Present?

While having both owners present is always the easiest and most recommended approach, life happens. If one owner absolutely cannot be there, here are some potential (but not guaranteed) workarounds:

• Power of Attorney (POA): The absent owner could grant a Power of Attorney to the present owner, specifically authorizing them to act on their behalf for the vehicle trade-in and purchase. This document must be legally drafted and often notarized. Dealerships might still have their own policies regarding POAs, so always check with them first.
• Notarized Consent: In some cases, a dealership might accept a notarized letter of consent from the absent owner, explicitly stating their agreement to the trade-in and outlining any terms. Again, this is at the dealership's discretion.

Our advice: Always communicate with your dealership well in advance if one owner cannot be present. They can tell you exactly what documentation they will require to proceed.

Impact on Your Credit

Trading in a jointly owned car, especially if it's tied to a loan, can affect both owners' credit profiles. If you're paying off an old loan responsibly and taking on a new, manageable loan, the impact can be neutral to positive over time. However, if you're rolling a significant amount of negative equity into a new, larger loan, or if the new loan is too much for your combined income, it could put a strain on your finances and potentially impact both your credit scores negatively if payments become difficult.

Key Takeaways for a Smooth Trade-In

• Communicate: Talk openly with your co-owner about the decision to trade in, the new vehicle, and the financial implications.
• Know Your Numbers: Understand your current car's value and how much you owe (if anything) on your loan. This helps you negotiate better.
• Prepare Documents: Have all necessary paperwork ready for both owners.
• Talk to the Dealership: Be upfront with the dealer about the joint ownership from your first conversation. They can guide you through their specific requirements.

Trading in a jointly owned car doesn't have to be complicated. With clear communication and preparation, you and your co-owner can navigate the process smoothly and drive away in your next vehicle with confidence.