How To Trade In A Car With A Loan

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For practical or personal purposes, there are numerous reasons why you would want to trade in a car that has a loan. After all, a car loan can be 72 months long, and a lot of change can occur within this time period. If you’re in the market for a new car, but your current car has an active loan, don’t worry — you still have options. If you’re curious about how to trade in a car with a loan, and what steps you’ll need to be aware of, you’re in the right place. This article covers that in greater detail below. 

Can you trade in a financed car?

Absolutely! If you haven’t yet finished the financing term with your existing loan, you can still either cash in your existing equity or roll over the debt balance into a new auto loan

How trading in a car works

Trading in your vehicle doesn’t need to be complex. You can trade in your vehicle in person at a dealership, or online through websites like Carvana. Trading in your car is when you strike a deal with a dealership to pay you a fair price for your existing vehicle in exchange for purchasing another vehicle. For example, a dealership may offer you $10,000 for your existing vehicle, and you’re interested in purchasing a new vehicle for $35,000. The $10,000 you receive for your existing vehicle can be used to help purchase the new vehicle. 

Before you decide to trade in your car, make sure you do your research. You want to be educated on the current market value of your existing vehicle so you can properly negotiate with the car dealership you plan on using to purchase your next car. 

How to trade in a car that is not paid off

If you want to trade in a car that is not paid off, that’s certainly possible. Don’t be intimidated by this process either, there are just a few steps you’ll need to follow. 

Step 1: Collect your documents

Collect all documents that pertain to your current auto loan. This includes the financing agreement you signed with the dealership or lender. More often than not, there is no early-pay penalty or restriction on trading in your vehicle. But be sure to give the agreement one last read to confirm this clause isn’t present. 

Step 2: Determine your car’s value and equity

Determining the value of your vehicle is an important step if you’re trading in your car with a current loan, and knowing its value is important even if your car is 100% paid off. Determining your car’s worth can be done from the comfort of your home. Websites like Kelly Blue Book, CarMax, or Carvana all have online tools you can use to calculate the value of your car. 

Remember, equity is not the same thing as the current value of your vehicle. Equity is what the asset (the car) is currently worth less the debt you owe on that asset. For example, if your car is worth $10,000 and you have $6,000 remaining on the loan, the equity is $4,000. That’s how much you’d profit if you sold your car for $10,000 and paid off your loan. 

When using online tools, be sure to be completely realistic about the condition of your vehicle. Do not suggest your vehicle is in pristine condition if there are visible damages to the interior or exterior of the vehicle. This will quickly be identified once the dealership or company sees your vehicle in person and can slow the trade-in process. 

Step 3: Shop around

Look for three main variables as you shop around:

  1. Who will offer you the most money for your trade? Plenty of dealerships and websites allow you to trade in your vehicle. Getting the highest value for your trade-in can help reduce the amount of money you borrow for your next vehicle and ultimately lead to more cash in your pocket each month with a reduced monthly car payment.
  2. Who has the best deal on the car you want? Prices vary between dealerships, so be sure to receive quotes from at least three dealerships on the car you want.
  3. Vehicle financing is also important. For example, dealership A may be giving you a great trade-in value and a competitive price on your new vehicle, but its financing may not be a great option. The interest rate from dealership A, and the fees associated with the loan, may be above what another lender or dealership is able to give you. Don’t be afraid to shop around for the financing of the vehicle. A few percentage points on the interest rate can save or cost you hundreds or thousands of dollars per year.

All three of these variables need to be taken into consideration before you determine what dealership has the all-in best deal. 

Step 4: Negotiate one last time 

Once you’ve identified who has the best all-in deal, try to negotiate with that dealership one last time. You may not be able to secure a discount on the purchase price of the vehicle, but you may be able to secure other benefits. For example, ask for 12 to 24 months of free oil changes, or ask for rubber floor mats to be provided at no additional cost. 

Step 5: Close the deal

If you’re pleased with everything you’re getting, it’s time to close the deal. Each dealership has its own processes, but expect to fill out an agreement and provide forms of identification. 

Should you trade in a car with a loan?

Understanding whether you should trade in a car with a loan isn’t an exact science. Some people have positive equity in their vehicle, which means the car is worth more than what they owe on the loan. When that occurs, you’re in luck. 

But it’s a sticky situation to trade in a vehicle when your outstanding balance on your existing loan exceeds what a dealership is willing to give you for a trade-in value. 

When this occurs, you’d be forced to pay the difference. For example, if you owe $10,000 on your current loan, and the dealership is willing to give you $6,000 for your trade-in, you can either roll the delta of $4,000 into the auto loan for your new vehicle or pay off that $4,000 balance in full. Nonetheless, this is a bad situation, and you should think twice before trading in your vehicle with negative equity — unless there is a very good reason to do so. 

Do your research 

Financing a car is a big decision and one that shouldn’t be taken lightly. Before you decide to trade in your car, or purchase a new car, be sure to crunch the numbers and do your research. Plenty of free online tools can make it easier to get a full understanding of the value of your vehicle and a fair-market price for the vehicle you desire. Do not make a major purchase without getting educated on all your options.


How does trading in a car work when you still owe on the loan?

If you still owe money on your loan, you can either roll over the balance into a new auto loan, or you could pay off the loan in full before securing a new auto loan.

Is it better to trade in a paid-off car or a car with a loan?

Generally speaking, it’s ideal to trade in a car that is fully paid off.

Does a car need to be paid off to trade?

Absolutely not. You can trade in your vehicle even if you have a loan on it.

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