Trading in a vehicle you still owe money on works by the dealer paying off your existing loan to clear the lien. If your car has positive equity (worth more than you owe), the dealer applies that equity as credit toward your new car purchase. If you have negative equity (owe more than the car's value), you either pay the difference out-of-pocket or the dealer rolls that amount into your new loan.
Key points about trading in a financed car:
- The dealer usually handles paying off your current loan.
- Positive equity reduces your new car's purchase price.
- Negative equity means you may need to pay the difference or add it to the new loan.
- The process depends on the trade-in value vs. the loan balance.
- You should know your loan payoff amount and the trade-in value before trading.
- Sometimes lenders charge fees for early loan payoff.
This process is relatively straightforward, but dealing with negative equity requires careful financial planning and dealer negotiation.
