How does trading in a car you owe money on work?

How do you trade in a car that is not paid off? Things have been tough lately and I want to trade in my luxury car for something a bit more modest. I still owe on my car loan though, so is this even possible?

I’m sorry to hear that things have been a little tough, but luckily for you, lenders know life comes with a few bumps in the road. Luckily, it is possible to trade in your car—even if you still owe money on it.
But there are some things you should know before doing so. If you’re trading in a car you owe money on, you’re looking at one of these two situations:
  • You have positive equity: If your car is worth more than the amount you owe, then it should be smooth sailing. You can easily apply that difference toward the purchase of a new car.
  • You have negative equity: If your car is worth less than what you still owe, then you’ll have to pay the difference between the loan balance and the trade-in value. You can pay in cash, pay through another loan, or—the less recommended route—apply the balance to your new car loan.
So, how does this all work?
Well, when you trade in your car, its value is subtracted from the price of the new car. But when you trade in a car with a loan, then the dealership takes over the loan and pays it off. The dealer—not you—should handle all the paperwork, such as the transfer of title.
If you’re trading in a car with a loan, be sure to have the following things handy:
  • Loan information, including payoff amount and account number
  • Driver’s license
  • Vehicle registration
  • Keys and any remotes to the vehicle
  • Proof of insurance
  • A printout of the trade-in value
It’s important to keep in mind that both the price of the new car and the value of the trade in are highly negotiable. Brush up on your negotiation skills to get a better deal.
Also, note that there are other ways to lower your loan payments. On average, car owners pay $85 less every month by refinancing their auto loans. See if refinancing will save you money with the Jerry app.
Hana Sabah
Answered on Oct 19, 2021

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