Can You Trade in a Car You Are Still Financing?

To begin, you may be wondering, “how soon can you trade in a financed car?” In most cases, you can trade in a car for another one even if you’re still paying off your loan. The first step, though, is to figure out whether you have positive or negative equity in the vehicle, which will impact the rest of the process.

The difference between the amount you have left on your car loan and the total value of your car determines the type of equity you have.

What is Positive Equity?

Positive equity means you have less money left on your car loan than the total value of the vehicle. When you trade in your car in this case, you can often apply it towards the down payment on your next ride.

What is Negative Equity?

On the other hand, if you have negative equity, this means your vehicle is worth less than the amount you still owe on the car loan. In this case, you can either:

• Add the negative equity to your next auto loan. Keep in mind, this could lead you to end up paying more than the total value of the car.
• Pay the difference between what you owe on the loan and the value of your vehicle as a trade-in at the dealership.

The third option is to wait until you’ve paid off the loan before moving forward with a trade-in. Especially if you recently purchased a new car, it’s a good rule of thumb to wait at least a year before trading it in.

Since new cars depreciate significantly in the first year or so, you may find that you have positive equity after you wait, even if you haven’t yet paid off the loan in full.

How to Trade in a Car When You Owe Money on It?

If you’re still paying off your car loan, you’ll want to gather some important items before heading to the dealership to trade it in. Make sure you have all the information about your car loan, including how much you have left on it and your account number.

Along with that, grab your keys, any extra equipment, and your:

• Insurance card
• Current driver’s license
• Vehicle registration information

Additionally, if you’ve valued your trade-in online, you can bring along that information too.

How to Get a Car Loan with a Trade In?

Many times, trading in your current set of wheels is a quick and efficient way to reduce the monthly payments on your next car. That’s because you can apply the value of your trade-in towards the down payment.

The bigger a down payment you provide, the less you need to finance with an auto loan. In turn, this means you’ll likely have lower monthly payments because you’ll have a smaller car loan to pay off.