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How to trade in a car that is not paid off

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If the time has come to get a new vehicle but you still have not completely paid off your loan, there are still options for trading in your car. The process will take some preparation and differ depending on your state of equity. 

  • If you have positive equity it means that the value of your car is worth more than the amount left on the loan. This is a good spot to be in. It allows you to take that additional value and put it towards the cost of the new vehicle. 
  • If you have negative equity or are upside down on your loan, a trade-in can be a bit more challenging. This means that you owe more on the vehicle than it is worth. It’s a precarious financial situation where you will have to pay the remaining loan balance after the trade-in value is assessed.  

How to trade in a car that is not paid off  

Trading in your vehicle can save you a large chunk of money and time. The money you receive can be put towards your vehicle purchase, lowering the cost. Follow these steps if your vehicle has positive equity and you wish to trade it in for a new vehicle.  

Before starting your trade-in process gather the following information for the dealership.  

  • Your driver’s license.  
  • Proof of income and residency.  
  • Vehicle title. 
  • Loan payoff amount and account information. 
  • Vehicle keys. 
  • Vehicle insurance.  

1. Find your car’s trade-in value 

The first step in trading in your vehicle is to figure out how much your car is worth. Knowing the value of your vehicle will help you to negotiate and can help you choose your new car with a budget in mind.  

Tools available on Kelley Blue Book or Edmunds can help you calculate your car’s worth. After you figure it out, use that trade-in number to determine how much money you will have left towards the new vehicle purchase. Simply subtract your remaining loan amount from the trade-in value. 

2. Shop around  

Now that you know the value of your vehicle you can confidently shop for your next car. Use the remaining amount after paying off your loan as your jumping-off point when it comes to budgeting. Shop around with different dealers to ensure you are getting the best deal offered. 

3. Make the deal   

After figuring out the value of your car and setting your sights on your new vehicle, it is time to sign off on the deal. Be sure to read the fine print offered and do not be afraid to walk away if the negotiated price isn’t what you see on paper. Depending on how you choose to finance your next vehicle, pay close attention to the new loan terms offered.  

Why you shouldn’t trade in a car with negative equity  

If you are interested in getting a new vehicle but have negative equity on your current loan, it is recommended that you postpone trading it in until you are no longer underwater. By rolling the loan over into a new one you are putting you and your bank account at risk. 

While it is likely that you will encounter dealerships that push for you to roll over your negative equity into your new vehicle, this will lead to higher interest rates and loan amounts — not something you want. Think of it like this: Drivers that choose to go ahead with a trade even with negative equity are responsible for paying both the amount left on the loan and the value of the new car.  

Alternatives to trading in your car  

Trading in your vehicle isn’t the only option available to you if you are ready to say goodbye to your current car. One great way to get a new vehicle while ridding yourself of your current is through a private sale, which may even fetch a higher price than a trade-in.  

The bottom line 

After understanding where your equity lies you can make the best financial decision and ideally get behind the wheel of a new car. Whether that’s through trade-in at a dealership or through a private sale is going to depend on how much your car is worth and how much is left on your loan. 

Written by
Rebecca Betterton
Auto Loans Reporter
Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers in navigating the ins and outs of securely borrowing money to purchase a car.
Edited by
Auto loans editor