You can sometimes trade in your current vehicle even if you owe money on it, but the process can be a little different if you’re upside down on your current loan.

What’s the Car Worth?

Trading in a Car You Owe Money OnBefore you decide to trade in your car, you’ll want to check the vehicle’s current value. You can use vehicle valuation websites such as Kelley Blue Book or NADA to check what your trade-in’s estimated value could be. Then, you should contact your lender and ask for your loan payoff amount.

The next step is to determine if you have equity or negative equity in your trade-in. If your trade-in is worth more than your current loan amount, you have equity. On the flip side, if your trade-in is worth less than your loan balance, you have negative equity and are considered upside down. This could prevent you from being able to trade in a car you still owe money on.

Negative Equity: When You Owe More

When you owe less on your loan than the car is worth, you should be able to trade in your car to a dealership without issue. The dealer will take your vehicle, pay off your old lender, and you’ll have the option to apply the equity toward your next vehicle as a down payment, or you can do a cash payout and pocket the money.

But if you’re faced with negative equity, things get a little trickier. The difference between what you owe on your loan and your trade-in's value has to be dealt with in one way or another. Some lenders are willing to roll over your negative equity into the next loan. But this isn’t something we recommend you do, as this means your loan balance will increase, which leads to higher monthly payments, more interest charges, and a higher total cost. Also, some lenders may not even let you roll over negative equity in the first place, especially if you're dealing with less than perfect credit.

It's best if you pay off the negative equity with cash, or keep paying on your current loan until you’re no longer upside down before trading in the vehicle.

The Bottom Line

If you're looking to trade in your car and need a car loan, let Drivers Lane help if you have bad credit, no credit, or are facing other credit issues. We help people in unique credit situations find auto financing by connecting them to a local special finance dealership that works with lenders who can help. You can get started right now by filling out our free auto loan request form online.