Tired of trying to keep up with payments on a car you're not happy with? Don't pay for a vehicle you don't want to drive, or a car you can't afford. Instead, trade in your vehicle for a more affordable model that you can love. You can trade in a car if you still owe on it, but you should figure out if you have equity or not first.

Trading In Your Car

Trading in your vehicle can be as simple as driving to a dealership for an appraisal, picking out another car, and signing a contract. But, if you still owe money on the vehicle you're trading in, you have to make sure the lender is paid. This can be fairly easy if there's equity in your car, but it becomes more difficult if you're in a negative equity position.

Let's look at the difference:

  • Can I Trade In My Car if I Still Owe?Trading in with equity – When you have a vehicle with equity, it means the car is worth more than the amount you owe on your loan. If you own a vehicle outright, the actual cash value (ACV) of your car is the equity. If you still owe, the difference between the ACV and the loan payoff amount is the equity. Once your lender is paid, the amount left over can then be used as a down payment on your next vehicle.
  • Trading in with negative equity – When you owe more on your loan than the car is worth, you have negative equity, which is also referred to as being upside down. When you're trying to trade in for a different vehicle, it makes things more difficult. You often have to cover the difference between the car's ACV and your loan payoff in cash, with no money left to use as a down payment on another vehicle.

3 Options for Negative Equity Trade-Ins

With negative equity, it can be difficult to trade in for another car since you aren't getting the same perks as you are from trading in a vehicle with equity. Typically, you have three options if you want to get out of your current car while you're upside down:

  1. Pay the difference – Your first option is to pay your lender the difference between what you owe and what the vehicle is worth out of pocket. Doing so eliminates the negative equity and lets you start your new loan off without having to look back.
  2. Roll over your negative equity This option isn't always available, and depends on whether the new lender allows you to roll negative equity into your next auto loan. When this happens, it may seem like you're saving money, but, in reality, your new loan increases by the amount of negative equity that you rolled over. This means you're borrowing more money, which means a higher monthly payment, higher interest charges, and a higher overall cost. This isn't a smart financial choice and is the option best avoided unless the amount of negative equity is small.
  3. Wait it out – Though it may not be ideal, most vehicles eventually end up with equity as you continue to make payments and close the gap between what you owe and your car's value. Since not everyone has the extra cash to pay off an existing loan when there's negative equity involved, this may be your best bet.

Is There Equity in My Car?

Now that you know what to do when you have a trade-in, it's up to you as to whether you're ready to trade it in or not. If you're not sure, start by checking out online valuation sites like Kelley Blue Book or NADAguides to get an estimated value of your vehicle. Be sure to be honest when you're answering the questions online so that you get the most accurate estimate possible.

Then contact your lender for a 10-day payoff. A 10-day payoff is the current balance of your loan, plus interest charges for 10 days. Once you have this, you can compare how much you owe to the estimated value of your car to see whether or not you have equity.

Remember that the amount you get from an online valuation site is only a jumping-off point for negotiations, and the vehicle's ACV is up to what a dealer is willing to pay. Now that you know if there's equity in your car, you can plan your next steps.

Ready to Find a More Affordable Car?

When you have your equity figured out, and you're ready to find another vehicle with more favorable loan terms than you currently have, Drivers Lane wants to help. We work with a network of dealerships all across the country that have special finance departments. Those special finance dealers work with lenders that know how to assist people who struggle with credit issues.

Instead of driving all over town searching for the lender that can help you, why not get started with us instead? By filling out our fast and simple auto loan request form, we'll get to work matching you with a dealership in your area that knows how to get you the car loan you're looking for. There's never any obligation to buy, so get started right now!