Best Way to Trade in a Car That Isn’t Paid Off You might wonder how to trade in a car if you want a new one but still owe money on your old one that is not paid off. One important factor is whether the value of your car is higher than the outstanding loan balance. Here’s what you need to know.

KEY TAKEAWAYS

The first thing you need to do is figure out the value of your car.
You can put positive equity towards the purchase of a new car if the value of your car exceeds the amount you owe on it.
If you owe more than your car is worth, then you’ll have to make up the difference with the dealer.
It’s also possible to trade in a leased car before the lease is up.

Trade-in a Car That Isn’t Paid Off Learn how much your trade-in is worth

It’s important to know how much your car is worth before you go to the dealership if you plan to trade it in. In the absence of that information, you may accept a lowball offer from the dealer without realizing it.

Using the Kelley Blue Book or other valuation guides, you can find out the value of your car online. Using the Kelley Blue Book or other valuation guides, you can find out the value of your car online. Consult several such guides, since they calculate value differently and often arrive at different conclusions.

Trade-ins rarely yield the same amount as selling the car privately. Trade-ins rarely yield the same amount as selling the car privately. Knowing about the value of your car can help you avoid being taken advantage of.

Trade-in a Car That Isn’t Paid Off Trading in a Car with Positive Equity

Trade-in a Car That Isn't Paid Off Trading in a Car with Positive Equity

You’re in a relatively straightforward situation if the value of your car exceeds the amount you owe on the loan. Say, for example, that you were offered $13,000 for your car, but still owe $11,000 on the loan. The difference ($2,000) represents the equity you own in the car when you trade-in your car. The difference ($2,000) represents the equity you own in the car when you trade-in your car.

You can use the equity in the old car for a down payment on the new one if you’re financing it You can use the equity in the old car for a down payment on the new one if you’re financing it You might be able to lower your new loan’s total cost that way. If you would like to make a larger down payment and borrow even less, you can add more money. You can deduct your trade-in from the total price that you pay if you pay cash for the car.

Trading in a Car with Negative Equity

If you owe more on your current loan than you can get for your trade-in, you are in negative equity. The reason for this is that when you trade in a relatively new car, it depreciates rapidly in its first few years of ownership. After a certain period of time has passed, depreciation will slow and your loan payments will catch up. It may be a good idea to wait to trade in your car until your outstanding loan balance does not exceed the value of your car if you have negative equity in it.

Otherwise, you’ll need to make up the difference. Dealers may offer to include that amount in your new loan, but be cautious. As a result, you will have even more negative equity when you start your new loan. If you decide to trade in that car a few years from now, you might find yourself in a similar situation.

Can You Trade in a Leased Car?

You can trade in a car that you’re currently leasing, and it works similarly to trading in one that has an outstanding loan balance. Best Way to Trade in a Car That Isn’t Paid Off You might wonder how to trade in a car if you want a new one but still owe money on your old one that is not paid off. In order to find out the car’s payoff or buyout value, you should first contact the leasing company. If you wanted to buy the car outright before the lease ended, you’d have to pay that amount. You should also inquire about early termination fees.

When you have that information, you can contact the dealership where you are buying your new car and have them work directly with the leasing company. If you trade in a leased car, you may not get the full value of your trade-in because early termination or other fees are often associated with it. To avoid negative equity when trading in a car, you might want to wait until your lease is over and exercise the purchase option.

Then, of course, you don’t have to buy the car at all. You can simply turn it in and walk away. Then, of course, you don’t have to buy the car at all. You can simply turn it in and walk away. Best Way to Trade in a Car That Isn’t Paid Off You might wonder how to trade in a car if you want a new one but still owe money on your old one that is not paid off. As long as you plan to drive that car for some time before you trade it in-or a dealer is willing to pay you more than the purchase option would cost you-that could be a better financial move.

The Bottom Line

It doesn’t matter how much your car’s trade-in value exceeds the balance on your loan—you can just pay off your old loan and apply the difference to the purchase price of your new vehicle. If your car owes more than its trade-in value, then you’ll have to pay the difference. Waiting until you have paid off your loan more may be a better financial move in that case.

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Dealerships that will pay off your trade no matter how much you owe

When you trade-in your car to buy another one, some dealers offer to pay off your loan balance. No matter how much you owe. But what if the car is worth more than you owe? Those are known as “negative equity,” and a dealer’s promises to pay off your loan may be misleading. You can deal with negative equity by understanding how it works.

How Negative Equity Works With a Trade-In

Dealing with Negative Equity

How Negative Equity Works With a Trade-In

The value of cars decreases with age, with rare exceptions. It may decrease even faster depending on other factors, such as accidents, repairs, or other damage. You might owe more than the current value of a car if you borrowed money to purchase it. In that case, you would have negative equity in that car. Dealers say you will not be responsible for the remaining balance of your old loan when you trade in your old vehicle. This is not always the case. Negative equity is sometimes simply rolled over into your new car loan, so you still have to pay it.

Example

Imagine you want to trade in your old car for a newer one.

Your loan payoff is $18,000

Your car is worth $15,000

You have negative equity of $3,000. In order to trade in your vehicle, you will need to pay this amount. Unless the dealer promises to pay the $3,000 off, it shouldn’t be included in your new loan.

But some dealers

The $3,000 will be added to your car loan

subtract the amount from your down payment

or do both

The $3,000 would be added to the principal of your new loan, but you would also be financing it (in addition to the new car).

Making a more informed decision about buying and financing a car comes from understanding how negative equity works in a vehicle trade-in. This can also help you determine whether a car ad’s claims about paying off your loan are true.
Upon signing a financing contract, the dealer must provide

Before signing a financing contract, the dealer must disclose certain information about the price of the credit. Best Way to Trade in a Car That Isn’t Paid Off You might wonder how to trade in a car if you want a new one but still owe money on your old one that is not paid off. Read them. Find out the down payment and the amount financed on the installment contract. Prior to signing the contract, ensure you understand the treatment of your negative equity. Otherwise, you might pay more than you expected.

On your contract, you will find the following information:

Down Payment

  1. Gross Trade-In Value
  2. Less prior credit or payoff by the seller

Net Trade-In (A less B) (indicated by a negative number)

  1. Deferred Down Payment
  2. Manufacturer’s Rebate
  3. Other: _______________________________________
  4. Total down payment in cash (C to G)
Dealing with Negative Equity

In case you have negative equity in the car you want to trade in, follow these steps:

Before you negotiate the purchase of a new car, find out what your current vehicle is worth. You can also check the National Automobile Dealers Association (NADA) Guide, Edmunds, and Kelley Blue Book.

If you have negative equity in your car, either because of your current loan or because of a rollover, consider these options:

If you are still paying for your current car, wait to buy another car until you have positive equity. By making additional principal-only payments, you can pay down your loan faster.

sell your car yourself. You might get more for it than what a dealer says it’s worth.

Ask the dealer how they will handle negative equity if you decide to go ahead with a trade-in. Read the contract carefully. Make sure any oral promises are included. You shouldn’t sign the contract until you know all the terms and the amount of your monthly payment. Negotiate your new loan for the shortest term you can afford, especially if you are transferring negative equity into the new loan. Your new car will take longer to reach positive equity if you have a longer-term loan.

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