Trading in a financed car can make purchasing your next vehicle more convenient and affordable. Our online appraisal tool can help you get started by estimating the market value of your car. But the overall process isn’t as difficult as you may think. We’ll look at why and how you may trade in a financed car and answer common questions about it.

Can I Trade In a Financed Car I Owe Money On?

If you haven’t paid off your car loan, trading it in may not seem like an option. But it is possible. The dealership will essentially “roll over” the loan, meaning they’ll pay off the old loan and apply the remaining balance to the new one. You can decide to trade in a vehicle to upgrade to a bigger one or take advantage of rebates or other financial incentives.

What happens next depends on the trade-in offer. If the dealership’s offer is less than the remaining balance on your loan, you have negative equity. Your options include paying off the remainder of the loan in full or rolling over this balance into your next auto loan.

Process for Trading In a Financed Car

  • Check the Loan Balance Against Your Car’s Value: It’s important to know how much your car is worth. While the dealership will ultimately determine what it’s willing to pay for the vehicle, you can get estimates using free online tools. Also, ask your lender what your current loan balance is. Comparing the two will show if you have positive or negative equity.
  • Create a Budget: Know how much you can spend before you trade in your financed car. The more positive equity you have, the more money from your trade in you can put into a new car purchase. If you have negative equity, you might consider a less expensive vehicle to fit your budget. Also, shop around for auto loans to estimate the interest rate and monthly payments.
  • Find a New Car: When you find a vehicle you’re interested in, inform the salesperson you intend to trade in your current car. They’ll look at it and make an offer based on current market rates and the vehicle’s condition. Getting a pre-approval letter from a lender can help if the dealer is willing to beat or match the interest rate its own lenders are offering.
  • Complete All the Paperwork: Fill out the paperwork for the trade-in, new vehicle purchase, and loan. Before signing any documents, review the information to ensure the loan payments are what you were expecting and there are no hidden costs. Also, confirm the lender received the remaining balance to ensure the dealership paid off the old loan.

Additional Questions

Other common questions about trading in financed cars include:

How Much Negative Equity Can Be Rolled Over?

As far as a monetary amount, there’s no limit to the negative equity a dealer can roll into your next car loan. Ideally, the loan value shouldn’t be more than 125% of what your car is worth.

Does Trading In My Car Hurt My Credit?

If you owe on your old car loan, the new loan will cost more, so make sure the payment will be affordable. Always ask the dealership how long it takes for the old loan to be rolled into your new payments; if it doesn’t happen right away, you could be penalized for failing to pay your previous loan.

What Should My Credit Score Be?

Generally, a credit score of 680 or above helps get a decent interest rate. But you can trade in a financed car with a low credit score. However, getting approved for a new car loan can be difficult. In this case, a trade-in can help as it may cover some of the purchase cost.

Is It Better to Pay Off My Car First?

The general rule is to wait until your car has positive equity. Otherwise, you may be upside down on the loan (meaning you owe more than the vehicle is worth). You don’t have to pay off the car before trading it in, but know its value and the potential penalties of doing so too soon.

Should I Trade In My Financed Car?

It depends on ownership costs. Trading the car in can make financial sense if it needs frequent repairs or has poor gas mileage. A dealership may offer promotions that increase the value of your trade in, or, depending on your state, low sales tax requirements may make trading in an old car for a new one a better deal.

Visit Hawthorne Auto Square

From estimating your car’s trade in value to getting you into a vehicle the same day, Hawthorne Auto Square helps with the entire process. We can appraise your vehicle in minutes and quickly get you approved for low interest financing. An unbeatable warranty on service and maintenance is also included with each purchase. If you’re looking to trade in a financed car and purchase a high-quality, low-mileage vehicle of any popular brand, visit our buy here, pay here dealership or call 866-707-7664 to speak to a representative.