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Heres how the process might work for different scenarios.
Can You Trade In a Car You Still Owe Money On?
it’s possible for you to trade in a car even if you have a balance on the loan.
Ideally, the trade-in value exceeds the loan balance.
The money from your trade-in will go toward paying off the loan.
It all depends on the loan balance vs. trade-in value.
Ultimately, it will cost more money.
Here are the steps to get started.
Check Your Loan Balance
Request the loan payoff amount from your lender.
This might also be listed online or on your statement.
Note that the payoff amount may differ from your current balance, according to theConsumer Financial Protection Bureau.
Use sources like Kelley Blue Book or Edmunds to determine how much your car is worth.
Visit multiple dealers to find out how much they are willing to pay for your trade-in.
If the trade-in value is lower than the loan balance, you may need to cover the difference.
Explore Your Options if You Have Negative Equity
Negative equity doesnt mean you cant make a deal.
You have several options to pay off the old loan.
Some dealers will allow you toroll the remaining loan balanceinto your new car loan.
Then, you’re free to use that cash to pay off your loan.
Consider refinancing the current loan at a lowerinterest rate.
This can reduce the payoff amount and loan balance, resulting in more equity.
You might consider holding onto your older car for a few months to get the loan balance down further.
Negotiate the Trade-In Offer
If youve decided to trade in your vehicle, compare all the offers.
Keep dealer inventory in mind, since youll want to find a new car at the same dealer.
If you have negative equity in your current vehicle, ask if the dealer offers negative equity assistance.
This must be disclosed on the contract.
The dealer pays off the remaining loan balance with your cars trade-in value.
Any negative equity may be rolled into the new loan unless youve paid it separately.
Read the contract carefully to determine what happened with the previous loan.
It requires more careful planning, though.
You may not walk away with cash in hand for a down payment on a new car.
Before you decide how to handle your outstanding loan balance, consider all your options.
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