How to Trade in a Financed Car: Here’s What You Should Know – Updating

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Trading a financed car means trading a car that you are still paying off. Dealers will be happy to work with you on this and do most of the legwork, but you should be well-armed with information before beginning the process.

What you need to know about trading a financed car

If you trade in a vehicle that you still owe money on, the dealer takes over the loan and pays it back for you. They usually also take care of the ownership transfer process.

If the trade-in value of the vehicle is greater than the amount you still owe on the loan, it means you have positive equity and this value will help bring down the cost of the car you buy.

For example, let’s say you buy a car for $10,000. If your trade-in is $5,000 and you owe $2,000 on it, the dealer will pay back the loan and your $3,000 of equity will reduce the cost of the new car to $7,000.

However, if you owe more than the car is worth on a trade-in, it means you have negative equity. The merchant still pays back your original loan, but they require you to pay them the difference in cash, or they offer to transfer the difference to your new loan.

Using the original example, if your trade-in value is $1,000 and you still owe $2,000, you would need to put up $1,000 in cash for the merchant or allow them to add that to your new loan.

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As you weigh your options, here is some information you should know:

  • The trade-in value of your vehicle: You can estimate this using sites like NADAGuides and Kelley Blue Book. Note that they give you a range of values ​​so there is room for negotiation with the dealer.
  • How much do you owe: Log into your online account with your lender to find out how much you owe and compare it to the trade-in value of your car. Note that you need to look at the payout amount, which includes the interest that has accrued since your last payment.
  • Your budget: Once you know if you have positive or negative equity, consider how much you’re willing to spend on the new vehicle. If possible, avoid a situation where you convert negative equity into a new loan, as this can lead to even more debt. Also consider the interest rate and monthly payment on the new car loan to see if they fit your budget.
  • Your credit options: When it comes to financing a car purchase, you have several options. First, you can leave it to the dealer to take care of it. They will submit your loan application to multiple lenders and offer you options. However, keep in mind that dealers may take a cut for arranging financing, which may increase your interest rate. The other option is to get direct financing by approaching the lenders yourself. It requires more work, but it can save you some money.

Also remember that you can generally get a better price if you sell your car in a private transaction, but this can be a lengthy process. If you want to proceed with a trade-in for your convenience, read on.

How to trade a financed car

If you’ve decided to trade in your vehicle, here are a few steps to maximize your savings:

  • Be ready to negotiate. As mentioned earlier, there is no set value for each make and model. Instead, you get a range of values ​​based on the condition of the car and other factors like the mileage and age of the car. If you know this range in advance, you can negotiate a good price with the dealer. If they are not willing to negotiate, try another dealer. In fact, shopping for your car could help you maximize the value of your trade-in.
  • Prepare your car for trade-in. Take some time to clean your car and take care of minor repairs. You don’t necessarily have to pay to get it detailed, but it can help if you don’t have the time or materials. Even minor repairs can help. Since the dealer doesn’t have to do it themselves, they will likely charge you more money than you would pay for the repair.
  • Gather your paperwork, including maintenance records. Get your car’s 10-day payoff letter from your lender. You can usually find it online or by calling customer service. You should also bring your vehicle registration certificate, proof of insurance and any recent service and repair records.
  • Use your equity. If you owe less than the trade-in value of the car, you can use that equity as a down payment on the new vehicle. Alternatively, you can request that you receive the difference in cash and use the money as you wish. But if a lower monthly payment would be better for your budget, use it to reduce the cost of the new vehicle.
  • Wait for the purchase. If you owe more than your car is worth, you should wait until you can pay off the original loan yourself or pay the dealer the difference in cash before buying a new car. Putting that difference into the new loan could put more strain on your budget and cause more problems down the road.
  • Get a written confirmation of the payout. The dealer usually takes care of paying off your old loan when you buy a car with a funded trade-in. However, it’s a good idea to notify your lender, especially if you’re about to receive a payment. Most importantly, make sure you get written confirmation from both the dealer and the lender that your old loan has been paid in full. The last thing you want is a surprise bill because the merchant took too long to repay the loan.
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Pros and cons of trading a financed car

Depending on your situation, there can be both advantages and disadvantages to trading in your financed vehicle and buying a new one. The following should be noted:


  • You can buy a cheaper vehicle and cut your monthly payment.
  • You may get better credit terms for the new vehicle.
  • If you have positive equity, you can use it to reduce the cost of the new car.


  • Swapping a financed vehicle for a car with a higher monthly rate could negatively impact your budget.
  • If you have negative equity, you may be facing a large cash payment on your new loan.

The final result

Although the process seems simple on the surface, it can get complicated, especially when you owe more than it’s worth. If you still owe money for your car, consider whether it’s too soon to trade it in to buy a new vehicle.

It is also important to prepare your finances and credit for the new car purchase. Check your credit score and credit report for free with Experian to get a picture of where you stand and determine if you need to take steps to improve your credit score before proceeding. Improving your credit score can qualify you for better interest rates and payment terms.

So the article “How to Trade in a Financed Car: Here’s What You Should Know” has end. Thanks you and best regard !!!

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