What happens when I trade my car in for a less expensive one?

What is the process for trading in a car for a cheaper one? I have a car financed right now, but the payments are too much. I want to trade in the car for a less expensive one to help save money.

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Eric Schad
Answered on Jun 29, 2021
Eric Schad has been a freelance writer for nearly a decade, as well as an SEO specialist and editor for the past five years. Before getting behind the keyboard, he worked in the finance and music industries (the perfect combo). With a wide array of professional and personal experiences, he’s developed a knack for tone and branding across many different verticals. Away from the computer, Schad is a blues guitar shredder, crazed sports fan, and always down for a spontaneous trip anywhere around the globe.
“The dealer will give you whatever trade-in value for the car. They would then apply this amount to the loan you currently have.
Hopefully, this will pay off the loan in its entirety. If it does, you might have some money left over that you can use as a down payment for the car loan of the cheaper vehicle, or you can take cash in hand.
If the trade-in value is less than what you owe on the vehicle, the lender will pay off the loan, but the remaining balance will get rolled into the new loan on the cheaper car.
This is what’s known as negative equity and something that you’ll want to avoid.
As a general rule, only trade in the vehicle if you’re going to break even between the trade-in value and the price of the car. By doing so, you can avoid negative equity.”
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