By Anthony Santiago - Editor-in-Chief

July 7, 2023

How to Trade in Car Not Paid Off

how to trade in car not paid off

If you want to get rid of your current vehicle but still owe money on the loan or lien, this article is for you. 

Thanks for stopping by. I've been a car guy all my life, and as we age, I am happy to report that adulthood has been good to me. With years of experience in the automotive space and being fiscally responsible, I can share my tips and insights to help you trade in your car even though it still needs to be paid off. Perhaps you are trading in your parents' car.. 

When trading in a car with a balance, there are TWO important numbers to consider, the payoff amount and the trade-in value or equity. 

If the loan amount is MORE than the vehicle is worth, the industry calls it "upside down." 

You are at a slight disadvantage when you are upside down since you will be responsible for making up the difference upon trade-in. 

Most car dealerships will entertain the idea of your trade as they will make money somewhere in the financing. In fact, they probably will say that the outstanding balance will be rolled into the new balance. 

This option might sound good on paper initially, but the truth is that there is a limit on how much the banks or lending institutions will allow you to borrow for the new vehicle with the negative equity.

Key Takeaway

  • Understand your car equity: It is important to know whether your car has positive or negative equity before trading it in.
  • Positive equity means your car is worth more than what you owe, while negative equity means you owe more than what your car is worth.
  • Determine your car's worth: Contact your lender for the exact payoff amount and the date. Then determine the current trade-in value of your car to get an idea of its current market value. Subtract the payoff amount from the trade-in value to determine the equity you have (if any) to put toward your next car.
  • Trading in with negative equity: While you can trade in, if the difference is too much, then you can postpone trading in until you have positive equity, roll over the negative equity into the loan for your next car, or give the dealer your trade-in plus the amount of negative equity.

Understanding Car Equity

As someone interested in trading in their car, understanding car equity is paramount to making a smart financial decision.

In short, car equity is the difference between the car's value and the amount you still owe. I'll break down car equity and its crucial role in the trade-in process in this section. 

Specifically, we'll explore how positive and negative equity can impact the value of your car when trading it in. Understanding these concepts can help you decide when and how to trade in your car, ultimately saving you money in the long run.

Positive Equity

When a car has positive equity, it is worth more than what is owed on its loan. This can happen if the car's value increases or the owner makes extra payments to reduce the principal balance. 

Positive equity is a good thing when trading in a car because it can be applied to reduce the overall balance of the loan or as a down payment toward a new purchase.

Owners with positive equity can apply it to a new car purchase or use it to reduce their current auto loan balance. 

Applying this equity towards a car purchase means they will need less financing for their new vehicle, thus providing immediate savings on interest payments.

Using this equity as a down payment can reduce monthly payments and potentially lower interest rates. In addition, it will also save a little in taxes since the purchase price will also be reduced. 

Obtaining accurate value estimates for your vehicle before deciding to trade in your car with positive equity is important. Dealerships typically offer lower rates than private sales, but contacting your auto loan lender for your payoff amount and conducting independent research on your car's current market value may help you negotiate better trade-in deals.

Negative Equity

When the value of a car is less than the amount of money owed on a loan, it is known as negative equity. This situation arises when the car's value depreciates faster than the loan balance decreases through timely payments. 

Most of the time, you will have negative equity in the first 3 years of ownership. It's only when you approach the end of the loan, is when you will have positive equity. Otherwise, if you pay the vehicle in cash, you will also have positive equity. 

A word of caution, it is important to note that rolling over negative equity can cause long-term financial complications and add pressure on future finances for several years.

According to Bankrate, approximately 32% of Americans who trade in their current vehicle have negative equity with the loan they'll need to deal with.

Contacting Your Auto Loan Lender for the Payoff Amount

Getting in touch with your lender is crucial to determine the exact amount you need to pay to settle your auto loan. You can easily get this information by contacting your auto loan lender for the payoff amount.

Most of the time, the lender's contact details are included on payment statements, or they have their contact information available online. 

To get accurate numbers, provide them with your account number and ask for a payoff statement that should detail all the charges needed to be paid in full and sometimes even include an expiration date.

It is important to note that some lenders might charge extra fees for early payments or other prepayment penalties, which can change the payoff amount from what you originally owe.

When contacting your auto loan lender for the payoff amount, it's always important to take notes of the dates and names of people you spoke to during the call. This helps if there are any discrepancies in payment amounts later on.

A friend once decided to trade his car in before completely paying off his car loan. He called his lender for the payoff amount and was given two options: either pay off the car completely or roll over negative equity into a new car purchase. He ensured that he understood all fees associated with these options before deciding.

Subtracting the Payoff Amount from the Car's Current Trade-in Value

When trading in a car or selling it privately, you should always check the current market price. 

I use KBB, but there are plenty of options available. 

Subtract the payoff amount from the car's current trade-in value:

  1. Contact your auto loan lender to determine the exact payoff amount of your car loan.
  2. Determine the current trade-in value of your car by looking up online car appraisal tools like or
  3. After figuring out both figures, subtract the payoff amount from the trade-in value of your vehicle.

The number should ideally be positive. If it is not positive, then you have negative equity. If that is the case, you must consider very carefully what your next move will be. 

It's critical to double-check that numbers match and have accurate information before finalizing any contract when you're trading in a car with negative equity. 

Unfortunately, not all dealerships are honest when dealing with such transactions. Take your time to very everything beforehand to avoid potential pitfalls.

For instance, one unfortunate owner traded in their negative equity towards a new purchase without double-checking all paperwork from the previous dealership after being reassured that their existing loan was paid off; it wasn't, leading them to pay twice for the same transaction. Crazy but true. 

Finally, there is a positive equation where you can trade in your car and make money.

Trading in a Car with Positive Equity

When trading in a car that still has equity, you have a couple of options for applying that equity. 

In this section, we'll look at the benefits of trading in a car with positive equity and explore how you can apply that equity to purchasing a new car. 

Another option is to make a down payment and reduce the overall balance of the loan. Either way, you could save a significant amount of money. 

Applying the Equity to the Purchase of a New Car

When trading in a car with positive equity, there are two ways of applying equity to purchasing a new car. First, the equity can be applied directly to reduce the overall balance of the loan for the new car. Second, it can be used as a down payment to decrease the loan amount further, thereby lowering monthly payments and total interest paid over time.

It is important to negotiate trade-ins and new car purchases separately. This ensures that you are getting a fair price for both transactions. 

Making a Down Payment to Reduce the Overall Balance of the Loan

To reduce the overall balance of the car loan, you can also make an additional down payment. A down payment goes towards paying off the principal amount of the loan, reducing both the monthly payments and total interest paid over time.

Here is a 3-step guide on making a down payment to reduce the overall balance of the loan:

  1. Calculate how much you can afford to put down as a down payment.
  2. Coordinate with your lender and let them know that you will be making a down payment. They may require specific instructions on how you would like this amount applied to your loan.
  3. Make your payment securely through your lender's website, mail, or phone.

It is important to note that a larger down payment will lower monthly payments and interest paid over time.

Before deciding, it is vital to conduct thorough research on lenders and compare options. Some companies offer more favorable terms than others, which is worth investigating these further.

It is also crucial to double-check all details in one's calculator before proceeding with any agreement.

Trading in a Car with Negative Equity

As someone who has been through the car buying process before, I know firsthand that negotiating a trade-in can be tricky.

I will cover the BIG issue when trading in a car with negative equity. The good news is that it's not uncommon for car owners today to owe more on their car than it's worth due to depreciation rates and high-interest loans.

However, it would be best if you aimed to have positive equity upon trade-in.

I will discuss strategies for handling negative equity, such as postponing your trade-in or rolling over the negative equity into the loan for your next car. Then we can explore the option of giving the dealer both your trade-in and the amount of negative equity to find a way to sell your car.

Postponing the Trade-in

Delaying the Vehicle Trade-in process refers to holding off on selling or exchanging the car for another vehicle. This can be a good choice for people who paid high amounts for their cars and are now experiencing negative equity or those who can only afford a new car if they trade in first.

By delaying trading in, you use time in your favor to help reduce the gap between what you owe and what the car is worth. Just keep using the vehicle until it has been paid off completely. 

Alternatively, if they need a new car, a common option is to consider getting into a lease instead of buying outright.

For example, my friend postponed trading in her Sedan when she found out she had negative equity. She avoided a costly mistake and decided to keep her old car after finishing its payments. The cost to operate is less than the monthly payments of a new vehicle. 

My dad used to tell me that adding negative equity to your next loan is like trying to cure a hangover with more alcohol. He always believed in buying when the time was right.

Rolling Over the Negative Equity into the Loan 

When trading in a car with negative equity, you can roll over the remaining amount into the loan for your next car. This means that the unpaid balance of your current loan will be added to the new loan for your next vehicle. 

However, this option may only sometimes be the best choice for you.

Furthermore, rolling over negative equity can increase monthly payments and an extended loan term. It is essential to consider if extending the term is worth paying more on interest rates while owning a depreciating asset.

Ultimately, it's best to avoid rolling over negative equity altogether. 

Refrain from letting fear of missing out drive you towards making costly mistakes when finalizing trading deals for cars. 

Consider consulting experts and reviewing all options available before committing yourself to any binding agreements when rolling over negative equity into a new vehicle purchase.

Giving the Dealer Your Trade-in Plus the Amount of Negative Equity

When trading in a car with negative equity, one option is to give the dealer your trade-in plus the amount of negative equity. This means that you would be paying off the remaining balance of the loan on your old car and including it in the financing for your new car. Essentially, you are transferring the debt from one vehicle to another.

This is a better financial decision if you can cover the balance, as this will reduce your loan term and monthly payment. However, consider postponing the trade-in until you have built up more equity in your car. This approach will help reduce overall debt in a more manageable way.

Final Steps Before Trading In

If you do decide to move forward, there are a few crucial factors that I will need to keep in mind to ensure a smooth and seamless transaction.

  1. Firstly, I must remember the importance of negotiating the trade-in and car purchase separately. This will allow me to get the best price for the trade-in and the new car.
  2. Secondly, I must aim for a good interest rate to ensure a fair price. During this phase, reviewing the contract carefully is also paramount. Before signing, I will take out my calculator and double-check the numbers.
  3. Lastly, confirm that the outstanding loan is paid off if the car still needs to be fully paid off.

Double-Checking the Numbers with Your Calculator

Double-checking the numbers with your own calculator is crucial when trading in your car. This ensures you're getting a fair deal for your trade-in and new purchase and protects you from being taken advantage of by dealerships.

Here's how to double-check the numbers with your calculator:

  1. Calculate the current trade-in value of your car using reliable sources such as Kelley Blue Book or Edmunds.
  2. Determine the payoff amount owed to your auto loan lender.
  3. Subtract the payoff amount from the current trade-in value - this will give you an estimate of the equity or negative equity in your vehicle.
  4. Use this number when negotiating with dealerships to ensure you get a fair price for your trade-in and new purchase.

It's important to note that while these calculations can give you a good idea of what to expect, they could be more foolproof. Dealerships may use different valuation methods or adjust prices based on other factors, such as demand for certain models. However, double-checking the numbers with your calculator can help prevent any major discrepancies or surprises at the dealership.

It is recommended that you take your time with making decisions and take enough time to calculate everything properly.

Checking the Trade-in's Loan is Paid Off

To ensure the trade-in process goes smoothly, it is crucial to check if the loan for the trade-in vehicle is paid off. This can help avoid complications in transferring ownership from your name to the dealer or new owner.

You can verify if your loan is paid off by contacting your lender directly and requesting an account balance statement. Ensure that all remaining payments have been cleared and that no additional fees or penalties are associated with the loan.

It is important to remember that failing to pay off the loan before trading in could lead to negative equity on your new car purchase or even legal consequences such as being sued by the lender.

Check whether a trade-in loan is paid off should be a step in your pre-trade-in checklist to ensure a hassle-free exchange of ownership and prevent future issues.

FAQs about How To Trade In Car Not Paid Off

Can I trade in a car that is not paid off?

Yes, you can trade in a car that is not paid off. However, it can be costly if you owe more than your car is worth.

What is positive equity when trading in a car?

Positive equity is when your car is worth more than the amount you owe on your loan. This difference can be applied to the purchase of a new car.

What is negative equity when trading in a car?

Negative equity is when your car is worth less than you still owe on the loan. In this case, you'll have to pay the difference between the loan balance and the trade-in value.

Can I roll over the negative equity into a new car loan?

You can roll the negative equity into a new car loan. However, this option is often unwise because it creates a larger loan amount and pays more interest.

Should I postpone the trade-in if I have negative equity on my car loan?

If you don't need a new car urgently, postponing your new car purchase and trade-in until you pay off the loan or have positive equity may be a better option.

How can I get a good deal when trading in my car?

Negotiate the trade-in and car purchase separately to ensure you get a good deal when trading in your car. Use a car loan calculator to estimate numbers and review the contract carefully to double-check the numbers with your calculator. Also, check that your trade-in loan is paid off a few weeks after completing the deal.

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Anthony Santiago - Editor-in-Chief

About the author

I am a passionate car enthusiast who likes to help people save money and avoid headaches when it comes to cars. I believe that everyone can find the right car at the right price. I share my tips and experience so you can learn quickly and maximize your next SUV, truck or car purchase.

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