Trading in a Car That’s Not Paid Off: Step-by-Step Guide

Looking to upgrade your car, but haven’t paid off the full balance? You can still trade it in, but there are some considerations to bear in mind. When you trade in a car with a balance on it, you’ll fall into one of two camps. You’ll either have positive equity or negative equity. For our purposes, equity stands for the difference between what the car is worth and what you owe. Positive equity can be rolled into the purchase of your new vehicle, effectively reducing your purchase price, just like a regular trade-in. Negative equity can also be rolled into your new vehicle, but doing so is often ill-advised. We’ll preview everything you need to know about “when to trade in my car” and what you can expect through the process. If you’re still asking: “Can I trade in my car if I still owe on it?” After reading this, contact Bob Moore Auto Group for more information.

Find Out Your Car’s Worth

Before you trade in your vehicle, you want to get an accurate idea of its value. If you were to trade in a car that’s 100% paid off, that entire balance would apply to your vehicle. Since a balance is still owed, that means we have to do a little more math. Before you search for a new car, contact your auto loan provider to get the payoff amount for your vehicle. When you trade in a car with a loan, the dealer takes over the loan and pays it off. You’ll also want to check on your vehicle’s value using a trade-in calculator like the one linked here. Your trade-in price is typically not set in stone, but the loan payoff amount is. By subtracting the loan amount from your vehicle’s value, you can determine whether you have positive or negative equity. 

How to Trade in a Car with Positive Equity

If you have a car worth $10,000 and owe $5,000, you have positive equity! That equity will be deducted from the price of the new vehicle you purchase, so essentially, you’re getting $5,000 off the purchase price of your next vehicle. In most instances, you can use the positive equity as a down payment so you don’t need to make any sort of down payment on your vehicle. Of course, if you’d like to make a down payment as well, you’re more than welcome to. In traditional fashion, you’ll need financing for your new vehicle, so while you’re shedding one loan, you’re picking up another one, unless you pay cash for the vehicle. 

How to Trade in a Car with Negative Equity

Negative equity is when you’re upside down on your car loan. This means you owe more on the car than it’s worth. Often, if you’re upside down on your vehicle, you should focus on paying down your current vehicle to build positive equity before looking for a new one. If you like, you can roll the negative equity into a new-car loan. It’s a convenient option to upgrade, but it’s not recommended for most folks. If your car is worth $5,000 and you owe $10,000, that extra $5,000 will be added to the purchase price of your next vehicle, raising your overall purchase price, monthly payment, and even interest rate. In some instances, rolling negative equity into a less expensive car makes sense, allowing you to shed the higher interest rate and a more expensive model for a less burdensome vehicle. Upgrading from a car you’re already underwater on is not recommended.

Next Steps

When purchasing a new car, both the car’s price and the trade-in’s value are negotiable. What’s not negotiable is the payoff amount on your current loan. At Bob Moore Auto Group, we want to ensure you have all the information you need to make an informed decision about your next purchase. If you’d like more information about trading in your vehicle with a loan, contact Bob Moore Auto Group today.