How does trading in a financed car work?

I still owe money on my loan, but I want to upgrade my car to the latest model. How do you trade in a financed car?

As the length of car loans varies, it’s understandable that you may want to trade in your car for the latest model! First, you’ll need to figure out how much your car is worth and how much you still owe on your loan.
If you owe less than the car is worth, you have positive equity. When you trade in the car, you can apply that difference to your new car. For example, if you still owe $6,000 but your car is worth $14,000, then the dealership can apply that $8,000 difference towards the purchase of a new car.
If you owe more than the car is worth, you have negative equity. Here are your trade-in options:
  • Trade-in your financed car and have your current loan balance rolled into your new loan minus any discounts you receive for trading in your car. For example, if you still owe $5,000 on your car, and the dealership will give you $2,000 for trading it in, you’d technically have an additional $3,000 added to your new loan.
  • Pay off your current loan before trading in your vehicle. If you can afford to make a lump sum payment, you could do that.
  • Take out another loan to pay for the balance. By doing this, the trade-in value of your car would go directly to your new loan.
  • Wait to trade in the car until you no longer have negative equity.
Once you’ve found your new car, be sure to update your car insurance as well! Getting a quote for a new car in advance helps prevent any surprises. The Jerry app finds the best car insurance rates from top providers in seconds!
Emily Maracle
Answered on Nov 18, 2021
Emily Maracle is a car insurance specialist living in New York. Originally from the Pacific Northwest, she has a degree in English Literature and a background in customer service. She enjoys cooking, gardening, and living sustainably. In the future, she can't wait to upgrade to a hybrid or electric car.

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