Can I trade in my car if I still owe money on it?

When purchasing a new vehicle, there are a lot of factors to consider. Everything from whether you’re going to sell or trade in your old car to what make or models you’re interested in can feel like major decisions, especially when the average driver owns their vehicle for around eight years. For something you’re going to be spending a lot of time in, it feels critical that you find the perfect vehicle to suit your needs.

While some people know exactly what they want in a new vehicle, down to the year, make, and model, others are unsure. More confusing yet, some vehicle owners still owe money on their last car. You might even be asking yourself, can I trade in my car if I still owe money?

The short answer is yes! There’s no need to stress if you are ready to purchase a new or used car but still have a car loan on the one you currently own. There are just a few simple steps you need to take in order to better understand your options.

What Do I Need To Do?

First, check with your bank to see what you still owe on your vehicle. This will help you when you find out what your vehicle is worth and what the difference is. Then you can check out the Edmunds Trade-In page on Hometown Chilicothe’s website to find out how much your vehicle is worth. This will help you to determine what your buying power is and we can help you find the perfect car from there!

Whether you have a loan on your car or not, trading in your car is easy when you work with Hometown Auto in Chillicothe, OH.. You can apply for financing, get pre-approved, and use our Payment Calculator right on our website! We know it can be overwhelming to trade in a car and purchase something new. We pride ourselves on providing you an experience that is as stress-free and smooth as possible.

Trading in a vehicle that you still owe money on takes a few extra steps. Knowing how much you still owe on your vehicle, as well as the value of the vehicle, can be critical when making a final decision to trade in a car. After all, if you owe more than your vehicle is worth, it can be costly to trade in.

This is because your loan doesn’t just disappear when you trade in your vehicle. It still needs to be paid off. If the value of the car is higher than what you owe on it, the trade-in should ultimately cover the balance of the loan and might even have enough left over to put towards your new vehicle. But if this isn’t true, you might end up losing money on the trade.

Regardless of the reason for wanting or needing to trade in a car, from needing more space to getting better fuel efficiency, or for any other reason, Hometown Chillicothe can help.

Find Out How Much Your Car Is Worth

Finding out the value of your car can be incredibly important for trading in your vehicle. When you trade in a vehicle that’s paid off, you can subtract the whole value of the car from the new car purchase. However, when you trade in a car with a loan, there is a little bit more math involved to take into consideration the amount you still owe on the loan.

Firstly, make sure to contact your auto loan lender to ask about your loan payoff amount, or how much you owe on your loan. This figure could be higher than your remaining balance when you take into consideration the owed interest.

Then determine the current trade-in value of your vehicle with a pricing guide. You can find a variety of pricing guides online, such as Kelley Blue Book or Edmunds. Subtract your trade-in value from the payoff amount - if the number is positive, you will have money left from trading in to put towards your new car. If the number is negative, that is how much you will need to pay in cash or to cover with the new car loan.

That being said, the final trade-in price is negotiable at most dealerships, so the number you end up with will be more of an estimate than an actual price.

Negative vs. Positive Equity

To break it down in another way, if you’re trading in a car that you still owe money on, you should fall into one of two categories based on if you have positive or negative equity.

Positive Equity. If your car is worth more than the amount you own on the loan, this is good. The difference is called positive equity. Positive equity means that when you trade in your vehicle, you will get money back which you can then use to put towards your new vehicle, although the amount won’t be as much as if the vehicle was fully paid off.

Negative Equity. If you owe more money on your loan balance than your car is worth, this is negative equity. That happens especially if you bought a car new off the lot, as some cars depreciate in value very quickly after they are first purchased, and others don’t retain their value for very long regardless of if you purchased them new or used. This is sometimes referred to as being “upside-down” or “underwater” on your loan.

When you trade a vehicle with negative equity, you’ll have to pay the remaining loan balance with cash, or you can roll it over into your new car loan. The latter option is convenient, but not always recommended. Rolling over a loan means that the dealership covers the remaining loan balance, then adds that amount to your new loan. In terms of function, though, this means that you are still paying off your old vehicle even as you no longer own it.

Trading In A Car With Positive Equity

As aforementioned, this can play out in a few ways. Your equity is deducted from the negotiated price of your vehicle, and the remaining loan balance that the dealership would “owe” you can be applied to the new car purchase.

For example, if you still owe $10,000 on your vehicle and the trade-in value is $15,000, you would take $15,000 (the value) - $10,000 (what you owe) to leave you with $5,000 (the remaining balance) to put directly to a new vehicle as a down payment (or in addition to a down payment you were already planning).

The remaining balance of the new vehicle will still need to be covered by cash or a new auto loan, but trading in a vehicle with positive equity is essentially like partially paying for a new car with your old car.

Trading In A Car With Negative Equity

If you’re underwater on your car loan, you’re responsible for paying the difference between what you owe and the car’s value. For some, the negative equity is minimal. For others, this can be quite costly.

An example of this would be if you still owed $15,000 on your vehicle but your trade-in value was only $10,000. In this case you would take $10,000 (the car’s value) - $15,000 (the amount you owe on your loan) for a balance of -$5,000. This means that even after giving the dealership your old vehicle, you would still owe $5,000 to them. In this situation, there are two options.

Firstly, you could postpone the trade-in. If you aren’t in urgent need of a new vehicle, it might be a better option to wait to purchase a new car until your current one is closer to being paid off, or at least until your negative equity turns to positive equity.

Your other option is to roll over the negative equity. If for whatever reason you are in urgent need of that new vehicle, it might be recommended to you to roll over your negative equity into your new loan, especially if you don’t have the cash to cover the difference.

While rolling over your loan is an easy way to switch cars and simplify the process, it essentially means you’re upside-down on the new loan balance before you even walk out of the dealership.

Other Considerations

The last major consideration to account for is that both the new car purchase price and the value of the trade-in are negotiable, which means that you can have quite a bit of flexibility with these numbers. It is important to get your estimated numbers before entering the dealership, but you might very well be able to negotiate more favorable numbers for yourself.

Trade In A Car At Hometown Chillicothe

At the end of the day, if you want or need to trade in your current vehicle for a new one, don’t let a remaining auto loan balance prevent you from doing so. The financial experts here at Hometown Chillicothe can help you every step of the way, with the expertise and tools to help you make an informed decision.

Whatever your budget and whatever your needs, Hometown Chillicothe can help. Take a look at our selection of new and used vehicles on our website. If you see one that you might be interested in, give us a call or stop by to take it for a test drive.