How To Trade In A Car That Is Not Paid Off: 6 Steps

If you’re looking for a new car but have an existing auto loan, you may be wondering if it’s still possible to trade in your vehicle. The simple answer is yes, but there are things you should know before completing the transaction. In this guide, you’ll learn how to trade in a car that is not paid off in six steps.

Can You Trade In A Car With A Loan?

In most cases, yes, you can trade in your car at any time even if you’re still paying it off. The trade-in process is typically very easy, and you can often take your new car home on the same day.

While it may be possible to trade in a financed car, it may not always be a wise financial decision for you depending on how long you’ve had the car and how much it’s worth. Ideally, you want a trade-in offer that’s greater than the payoff amount on your loan. That way, you can pay off your existing loan and possibly even have cash left over to put toward your new vehicle. On the other hand, if you owe more on your loan than your car is worth, you’re responsible for paying the difference.

How To Trade In Your Financed Car In 6 Steps

Once you decide that it’s the right time to trade in your financed car, follow these six steps for success.

1. Determine If You Have Positive Or Negative Equity

The first step in trading in your financed vehicle is calculating your equity. In this case, equity refers to the difference between what your car is worth and how much you still owe on it. A trade is often more justified when you have positive equity – that is, the car’s value is more than what you still owe. Positive equity can save you money on your new auto loan.

If you have negative equity, what you owe is more than what your car is worth. You can still trade in your car with negative equity, but you’ll still be responsible for paying off the difference. Your dealer will typically roll your remaining balance into a new loan which makes your monthly payments greater.

To calculate your equity, first you’ll want an idea of how much your vehicle is worth. You can get an estimate using online tools like the Kelley Blue Book car value calculator. Keep in mind, though, that your dealership’s trade-in offer may not be the same.

Once you figure out your car’s trade-in value, use this simple equation to calculate your equity:

Trade-in value — Payoff loan amount = Equity

Let’s say, for example, your car’s trade-in value is $22,000 and your payoff amount is $15,000. This would mean your vehicle is worth $7,000 more than the remaining loan balance, which gives you $7,000 in positive equity.

$22,000 - $15,000 = $7,000

2. Gather Necessary Documents

Before heading to the dealership to trade in your vehicle, make sure you’re prepared to present any necessary documentation. This can speed up and simplify the process, making things easier for both you and your dealer.

Reach out to your dealership to find out what specific documents they require. However, commonly required documents for trading in a financed car include:

• Car’s title
• Registration
• Proof of insurance
• Valid driver’s license
• Maintenance records

3. Get Car Loan Preapproval

Getting preapproved for a car loan before starting the trade-in process has several advantages, one of which is that you have leverage when sorting out the financial details of your new loan. If your dealer doesn’t offer you similar terms, you finance your car elsewhere. Most dealers want you to finance with them, so they’re usually willing to give you a better deal. However, this is a negotiation and you do not have to accept the dealer’s financing to complete your trade-in.

Getting preapproved also gives you a better idea of what you can afford, helping you stay in your budget when shopping. Just make sure you’re aware of any restrictions your lender might have. For example, some lenders may limit the make, model or mileage of cars they’ll finance.

Since your preapproval is only valid for a certain window of time, typically 30-60 days, you’ll want to be ready to buy within that period. Otherwise, you’ll need to get another preapproval which also means getting another hard credit inquiry – and this could impact your credit score.

4. Start Car Shopping

Now for the fun part: shopping for your new vehicle. If you’re a car enthusiast especially, it can be exciting to compare the latest make, models and high-tech features. However, it’s important to consider your monthly budget, the amount you have saved for a down payment and whether money will be received from the trade-in.

It may be helpful to identify what features are most important to you in a vehicle. While expensive features can be a cool addition, passing on the non-essential features can be a great way to save money. Your wallet will thank you for this come car payment time.

5. Negotiate And Receive Your Trade-In Offer

Knowing how to handle negotiation is an important part of the trade-in process. Dealers are highly skilled in this area. They can make you a great offer initially, but then try to make that money back by increasing the price of your next vehicle or offering more stringent financing terms. It’s important, then, to do your research and work only with reputable dealers.

To boost the potential trade-in value of your vehicle and negotiate the best terms, consider implementing strategies such as:

• Separate the two transactions, completing a trade-in first then purchasing another car
• Shop your car with multiple dealers and get written offers before trading in
• Negotiate the price of the car you’re buying separately
• Come prepared with trade-in offers from several places
• Research the average sale price of the make and model you’re looking for
• Thoroughly clean the interior of your car
• Remove your personal belongings from the vehicle
• Make any necessary minor repairs, like fixing dents or scratches

6. Close The Deal

Before closing the deal, read the fine print on your new loan carefully. Be aware of all the important details like how interest is assessed or if there are any prepayment penalties for paying off the loan early. Also, make sure that you know what you’re paying for and ask questions if anything seems excessive. Dealers may try to charge you for items such as the title processing, registration and documentation fees.

If you’re not satisfied with the trade-in offers you get from a dealership, you can always explore other ways to sell your car.

Alternatives To Trading In A Car You Still Owe Money On

As we’ve briefly discussed, trading in a car you haven’t paid off at a dealership may not always be financially advantageous. The good news is that there are other options available if you’re still looking to get a new vehicle.

You could consider refinancing the car loan, making car payments until there’s positive equity in your car or selling your car to a private party instead. If you sell privately, it can take up to 6 weeks to receive the title, and you’ll need the title to complete the sale.

Going one of these routes instead might help you get more money for your car than you would with a dealer. Just make sure to carefully weigh the pros and cons before deciding.

The Bottom Line

The idea of trading in your car for a new one can be thrilling. However, it’s important to have positive equity, a solid trade-in offer and attractive financing terms for your new loan. Otherwise, you might consider either waiting a bit longer to trade in or exploring other alternatives.

Regardless of your situation, download the Rocket Money^SM app today to effortlessly keep track of your car payments.