Can I Trade a Car I'm Financing for a New One?

You can trade a car you're financing for a new one, but it's not as simple as trading in a car you own outright. The lender will need to approve the trade-in and may require you to pay off a portion of the existing loan.

The lender will also consider the value of the new car you're trading in for, which may not be as high as you think. According to a study, 1 in 5 car owners overpay for their trade-in by an average of $1,500.

You'll need to get an appraisal of your current car's value to determine its worth. This will give you a basis for negotiating with the dealer or lender.

Trading in a car you're financing can be a bit tricky, but understanding the basics can help you navigate the process. The value of your old car and the amount you still owe on the loan are key factors to consider.

If your old car is worth less than what you owe on the loan, you have negative equity, which means you'll still be responsible for paying off the remaining balance. This can be a problem if you're trading in your car for a new one, as you may have to pay off the negative equity out of pocket or roll it into the new loan.

Here are the possible scenarios when trading in a car with negative equity:

Keep in mind that rolling over loan balances is a common practice, but it's not always the best option, as it can create a vicious negative equity cycle that's difficult to escape.

As you start to consider trading in your car, it's essential to understand the basics of the trade-in process.

A trade-in is essentially a swap, where you give the dealer your old car in exchange for a new one, or a certain amount of cash.

Cars depreciate quickly, with some models losing up to 60% of their value within the first three years of ownership.

This means that if you bought a car for $20,000, it might only be worth $8,000 after three years.

With rare exceptions, the older a car gets, the less it's worth, making it a crucial factor in the trade-in process.

Accidents, repairs, or other damage can further reduce a car's value, making it even harder to trade in.

If you borrowed money to buy a car, it's possible you owe more on your car loan than the car is worth, a situation known as negative equity.

Negative equity can make trading in your car a challenging and costly process.

Vehicle equity is a crucial aspect of the trade-in process. Understanding whether you have positive or negative equity on your auto loan can save you money and headaches.

If you have positive equity, you're in a good spot. You owe less on the car than it's worth, so you can trade it in without worrying about paying off the loan. You'll receive enough money from the trade-in to cover the remaining balance.

On the other hand, if you have negative equity, you may need to pay off the remaining loan balance out of pocket before trading in your car. This can be a costly surprise, so it's essential to be aware of your equity situation.

Here are the key differences between positive and negative equity:

Knowing your equity situation can help you make informed decisions about your trade-in. If you're unsure about your equity, be sure to check your loan documents or consult with a financial advisor.

You'll need to collect the necessary documents, including basic information about yourself and your loan. This will include your loan details, such as the remaining balance and loan terms.

Some car dealers might promise to pay off the negative equity on your old car, but they might actually roll the cost into a new loan. You'll still end up paying it, but with interest.

You'll want to be aware of the potential for negative equity when trading in your car. For example, if your old car is worth $15,000 but you still owe $18,000, you'll have $3,000 in negative equity.

Be cautious of dealers who claim to pay off the negative equity themselves. If they really rolled the cost into a loan, that's illegal.

You can visit dealerships and online marketplaces to request trade-in quotes, and it's essential to compare those offers to your findings from KBB and Edmunds. You don't have to trade in your current car at the dealer where you buy your next one.

Ideally, you can trade in your vehicle for more than the amount remaining on your loan, which will ensure you have extra to put toward your next car. If not, try to negotiate as close as possible to the remaining amount on your loan to minimize your losses.

If you're trading in your car, you should walk away with a check you can send to your lender to pay off your trade-in. Some dealers may handle the payoff for you, but be sure to follow up to ensure the money gets where it's supposed to go.

Shopping around is a crucial step in finding the best trade-in deal for your old car. You don't have to trade in your current car at the dealer where you buy your next one.

Get trade-in quotes from multiple dealerships and online marketplaces to compare their offers. Tools like Kelley Blue Book (KBB) and Edmunds can help you calculate your car's worth and determine its trade-in value.

You can use these tools to find the average trade-in value of your vehicle, which will help you negotiate your trade-in offer. If you can trade in your vehicle for more than the amount remaining on your loan, you'll have extra to put toward your next car.

To minimize your losses, try to negotiate as close as possible to the remaining amount on your loan. This will help you avoid rolling over negative equity into your new car loan.

Here's a quick comparison of trade-in options to keep in mind:

Before signing a financing contract, read the disclosures carefully, as they'll reveal the cost of that credit, including the downpayment and the amount financed on the installment contract.

The dealer must give you these disclosures, so don't be afraid to ask if you're not seeing them.

If a car dealer promises to pay off your negative equity, make sure it's not included in your new financing or your final loan contract. Be cautious of dealers who roll over the negative equity into your new car loan, as this can lead to a larger loan and higher monthly payments.

You can roll over the negative equity into your new car loan, but this means you're borrowing more on your new car loan. This could make you upside down on your new car loan quickly, and you'll need to consider the consequences of having a larger loan amount.

To check if your negative equity is part of your new car loan, read the financing contract carefully and look for details about the down payment and the amount financed. You might have to do the math to understand how the dealer is handling your negative equity.

Here are some steps to take if you want to roll over your existing auto loan balance into a new loan:

Dealers occasionally have vehicle trade-in offers, and if the dealer promises to pay off your negative equity, make sure it's not included in your new financing or your final loan contract. Be sure to read the contract carefully and don't sign anything until you understand and are comfortable with the terms.