How to Trade In an Unpaid Car

Car dealers take trade-ins with outstanding loans all of the time.

Car dealers take trade-ins with outstanding loans all of the time.

If you are ready to buy a new car, having an unpaid-off loan on your current car should not be a barrier to trading that old car for a new one. When you buy a new car, the dealer will take care of paying off your old car loan. However, the dealer does not pay the loan out of the goodness of his heart. Your understanding of the trade-in process helps you keep an eye on what happens to your old car loan and where the amount of the new loan came from.

Call the lender of your current car loan and ask for the current payoff amount of your loan. Many auto lenders have automated systems that will provide the payoff value when you enter your account information.

Look up the approximate trade-in value of your car using one of the auto value websites, such as Edmund's or Kelly Blue Book. Note the payoff amount of your loan in relation to the trade-in value. It's a good thing if your loan balance is less than the car is worth. Not so good if you owe more than the car's value. However, you still may be able to trade in your old car.

Go to the dealership to shop for and test-drive new cars. Let the salesperson take your current car for a trade-in appraisal.

Negotiate on both the purchase price of the new car and how much you are receiving for your trade-in. One way to negotiate is to focus on the price difference between the two cars. You want to get the smallest difference possible, whether the money comes from a lower purchase price or a higher trade-in value. Stay away from the financial numbers as much as possible at this point.

Review the dealer's offer for financing after negotiating the prices. The amount you need to pay to get the new car will be the difference in prices plus the payoff of your old loan plus any taxes and fees. The loan amount will be this value minus any cash you will pay as a down payment. If your trade has positive equity -- worth more than the loan balance -- that equity will act as a down payment on the new car.

Complete the car purchase if you are satisfied with the purchase and trade-in figures and the cash down and monthly payments fit your budget. Up until the point of signing the paperwork and taking the keys of the new car, you always have the option of walking away and trying again another day.


  • With an "upside down" trade-in -- when you owe more than the car is worth -- there are several ways to handle the negative equity. The dealer can roll the negative equity into the new car loan. To do so, the dealer may "upright the deal" -- increasing both the purchase price of the new car and the trade-in value of your car to show positive equity instead of negative equity. This is one reason to focus on the price differential.
  • If you are too far upside down in your car, the solutions are to pay more cash or wait until your loan balance is smaller to try to buy a new car.

About the Author

Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.

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