How to Trade in a Car You Still Owe On

Some car buyers opt for longer-term car loans to get the lowest monthly payment. Yet, these buyers might find that after a few years driving their car their needs have changed. Maybe they purchased a two-door sports car and are now expecting a new addition to the family.

If the car owner is still paying down the principle of their current car, can it still be used as a trade-in for a new vehicle? Yes! Here’s how to trade in a car you still owe on.

Know the Loan Payoff Balance

It is possible to trade in a vehicle with a principal balance remaining on the loan. Yet, car owners need to know how much they owe on that balance, and they also should figure out if there is any equity in their vehicle.

Equity is the difference between what is owed on the car (i.e. the loan balance) and how much the car is worth. So how do car owners figure out if there’s any equity in their vehicle?

Using tools like Kelley Blue Book (KBB), car owners can research the current value of their vehicle. There are a number of factors that can affect the value of the car, however. Condition, mileage, age and make/model all play a part in determining the overall current value of a vehicle.

In addition, upgraded features like leather interior or advanced navigational systems also could help bump up the price. Unfortunately, any issues like body damage, ripped up upholster or other cosmetic blemishes could negatively impact the value.

KBB let’s car owners figure out the value of their vehicle related to the trade-in price or a private sale price. Car owners who opt to privately sell could price their vehicle higher (per the recommended pricing from KBB). Dealerships who buy cars for trade-ins will need to factor in their own profits, which is why trade-in values could be lower.

Once car owners determine the trade-in value of their car, they need to deduct the loan balance to determine if the vehicle has equity. If the trade-in price is higher than the loan balance, the remaining balance is the equity in the car.

However, if the trade-in value (from KBB) is less than the remaining balance, then there is negative equity, or the car is ‘underwater.’

Can Car Owners Trade-In an Underwater Vehicle

When a car has negative equity—when owners owe more than the value of the vehicle—the car might still be used as a trade-in. However, car owners will need to talk to the dealership about how this can affect financing for the new vehicle.

The balance of the old loan could be rolled into a new loan. Or car owners could opt to pay off the old loan before trading in the vehicle. Car owners may find that they don’t owe much on the current loan, and it might just be easier to pay off that balance.

Sometimes a car owner might need to upgrade their vehicle but might not be in a financial position to pay off the old loan. They could decide to simply have that loan balance added into the new car loan. Consumer Reports explains that this could lead to the new car now being underwater or having negative equity.

Equity Can Help Lower the New Car Price

Car owners also could discover that their car is worth more than what they currently owe. The trade-in value could pay off the loan PLUS possibly lower the price of the new car.

KBB values might reveal that the car is valued at a price higher than that remaining loan balance. For car owners, this would be the ideal situation. Yet, car owners might need to be prepared for dealership negotiations.

Get the Best Price for a Trade-In

Dealerships could differ in what they offer for a trade-in. Dealerships need to build in their own profit margin to make the sale beneficial to them.

Car owners might need to shop around when they owe money on their current loan. The first dealership might not offer the highest price for the trade-in. If car owners have time on their side, they might opt to visit a few dealerships to get multiple estimates for their trade-in.

This is why researching the value of the vehicle and knowing the KBB estimates is so important for car owners. While, again, the value of a vehicle can be impacted by different factors, KBB can provide a ballpark estimate for the amount that car owners should expect to receive for their trade-in.

If a dealership offers far below the KBB trade-in value, stepping away and visiting more dealerships could help buyers find a much better deal. When car owners still owe a balance on their current loan, the trade-in price could mean the difference between rolling a balance into a new car and possibly paying off the balance of the old car in full…and starting fresh.

Can Buyers Demand a Certain Price for their Trade-In?

Some buyers might think that the remaining balance of their loan is the price they will receive for the trade-in. Buyers also could feel that they can demand a specific trade-in price.

While trade-in values might be negotiable to a certain degree, dealerships likely want to come out of a sale in the positive. They will offer the trade-in value based on the factors associated with the car’s make/model, condition, mileage, etc. Buyers can’t simply demand a certain trade-in price.

In addition, the remaining loan balance of the trade-in car doesn’t factor into the deal for dealerships beyond that the loan needs to be paid off in the deal for the new car. The dealership isn’t going to look to the loan balance as a factor in determining the value of the vehicle.

If the trade-in value exceeds the outstanding loan balance, then this equity falls in favor of the buyer. However, if the outstanding loan balance exceeds the trade-in value, then the balance is added to the new loan. In some cases, this could lead to a new vehicle being underwater.

Selling a Car Privately

Car owners might find that they could receive a better price for their vehicle if they sell it privately. This could help ensure that the loan balance is paid off in full and that the buyer can buy a new car without taking that old balance onto the price of their new car.

There are pros and cons to selling a car privately. Car owners will need to research the value of their vehicle for resale (KBB can help). KBB also offers advice on selling a car privately and how car owners can ensure a safe transaction.

Finding a New Car

When car owners determine how much they can receive for their trade-in, they also need to figure out how much they can feasibly spend for a new vehicle. Carzing can help car buyers find the car they want at the price they can afford!

Carzing offers an easy-to-use query system that enables car shoppers to narrow down their search by make/model, keywords, body type or price. Results can be filtered by price (high to low, low to high), mileage or other specifications.

When shoppers find the car they want, they can use Carzing to get prequalified. Buyers can choose the financing terms that meet their needs and the monthly loan payments that fit their budget. Carzing also helps buyers know how much they need for a down payment!

While car owners can trade-in a car with a loan balance, they need to understand the value of that vehicle and if the loan can be rolled into new financing. Car owners may discover that their car has equity that could help lower the price of a new vehicle.

Understanding the financial obligations of the current loan and knowing the value of their car can help car buyers feel empowered when they are buying and shopping for a new vehicle. Use Carzing to find the best financing and to understand how the value of the trade-in and that outstanding loan balance factors into monthly payments for a new car.