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trade in a financed car

Can You Trade in a Financed Car?

Though it’s a little more complicated than selling or trading in a car you own outright, it is possible to trade in a vehicle that still has a loan. If you decide to trade in your current car before you pay it off, be prepared to do a little bit of work upfront so you are ready to move forward when you get to the dealership.

Depending on the amount left on your loan and the value of your car, you might owe money or get money back that can be applied to the new car. For this reason, it’s important to determine your vehicle’s trade-in value and your equity.

How Does Vehicle Equity Work for a Trade-In?

When you first bought your car, you likely took out a loan that you have been paying off every month since. As you make monthly payments you build your equity (the dollar amount you actually own).

Unfortunately, cars age and decrease in value each month, even as your equity increases with each subsequent loan payment. If you take care of your car, stay on top of your monthly auto loan payments and the demand for used cars is high, then your equity should still enter positive territory relatively quickly.

Once you are ready to trade in that vehicle, you’ll be faced with one of two scenarios:

  • You have positive equity which means the car is worth more than what you still owe on the loan. The difference between your equity and the remainder of the loan can then be applied directly to your next vehicle purchase, lowering the amount of money you will need to borrow and helping you get a better interest rate.
  • You have negative equity which means your auto loan is “underwater” or “upside-down.” This happens when your car is worth less than what you still owe. In order to trade in a vehicle with negative equity, you will have to pay off the difference.

For example: You bought a car for $20,000 and you financed $18,000 of it. The vehicle is valued at $12,000 when you decide to sell, but you still owe $13,000 on your auto loan. You’ll need to sell the vehicle for $12,000 and pay an additional $1,000 to clear the loan.

Conversely, if the same scenario occurs but you only owed $3,000 on your auto loan when you decided to sell, you would have $9,000 of equity you could put toward your next vehicle purchase. 

How Do You Pay the Difference if Your Auto Loan Goes Underwater?

If you’re considering a trade-in and your auto loan is upside-down, there are options to pay off negative equity.

  1. Delay the trade-in until your car is paid off or once you are no longer underwater.
  2. Pay the difference between what’s left on your loan and what the dealer offers for your trade-in. This is typically done with cash or by taking out another loan.
  3. Roll over what you owe into your new car loan. Although this option is often the most convenient, it will result in you being immediately upside-down on your new auto loan. When you add the difference, you increase the new loan amount and typically pay more interest over time.

Do You Really Need to Know Your Trade-In Value?

When it comes to pricing your trade-in, take the time to do some research yourself. The team at Easterns Automotive would be happy to give you a fast estimate on your vehicle’s sale or trade-in value.

When it is time to trade in or sell your car at Easterns Automotive, we will conduct an appraisal and extend a firm offer.

What Will You Need to Trade in a Car with a Loan?

When you decide to trade-in a vehicle that still has a loan, the dealer will take over the loan and pay it off. To successfully trade in your old vehicle, you would negotiate the terms of your new auto loan and transfer your old vehicle’s title over to the dealer.

Ensure you have the following paperwork and materials ready when trading in a financed vehicle:

  • Driver’s license
  • Proof of insurance
  • Vehicle registration
  • All keys and key fobs for the vehicle
  • The loan information (account number and payoff amount)
  • Trade-in value based on your research

Get an Honest Trade-In Offer at Easterns Automotive

If you’ve tried other dealerships in Virginia, DC and Maryland and you weren’t happy with their trade-in offers, Easterns Automotive is here to help. We have a reputation for providing honest appraisals you can trust. It’s one of the reasons we have a 97 percent customer approval rating.

Once you accept our trade-in offer, we will deduct that amount from the new auto loan and take care of the rest. Stop by one of our locations or give us a call at 877-867-0641 to learn more.