How To Trade In A Car That Is Not Paid Off

By Minh Tong Reviewed by Nima Vahdat Updated Nov 20, 2023
How To Trade In A Car That Is Not Paid Off

Trading in a car you haven’t paid off takes a few extra steps, including understanding all the numbers of the deal. Here’s what you need to know…

There are many reasons why you might decide to trade in your car.

Perhaps your family has grown, requiring a larger vehicle. Maybe you’re seeking something more environmentally friendly or simply desire a change. 

Regardless of your motivation for a new set of wheels, you might be pondering the possibility of trading in your current vehicle while you’re still making payments on your auto loan. 

The good news is that you can!


  • Trading in a financed car is possible, but it requires careful planning and communication with your lender.
  • The equity position of your car, whether positive or negative, plays a vital role in the trade-in process.
  • Exploring alternatives to trading in your car may help you make the best financial decision for your situation. 

What Does It Mean to Trade in A Vehicle?

Trading in a vehicle refers to the process of exchanging your current car for a new one at a dealership. It’s a convenient way to upgrade to a newer model while using the value of your existing car as a down payment. 

Trading in a car typically lowers the amount you’ll need to finance when purchasing another vehicle. And while trading in a car that still has an outstanding auto loan may seem complicated, with the right steps and guidance, you can navigate this process smoothly. 

However, when your car is not fully paid off, there are some specific steps you need to follow to ensure a successful trade-in (more on this below).

Can I Trade in A Financed Car?


You can trade in your vehicle at any time, even if you have a loan on it. Trading in a car is a simpler process compared to selling it, typically involving a dealership. 

This allows you to sell your current car to the same dealer from whom you’re buying a new one, often resulting in a smooth and quick transaction, often allowing you to drive away in a new car on the same day.

It’s essential to work closely with your lender and follow the necessary steps to facilitate the trade-in process.

Step 1: Gather the Required Documents

Begin by gathering essential documents, including your car’s title, loan information, and registration. 

Contact your lender to obtain the loan payoff amount, which is the outstanding balance on your auto loan.

Step 2: Find Out How Much Your Car Is Worth

If you intend to trade in your car, it’s crucial to determine its value before heading to the dealership. Failing to do so might lead to unknowingly accepting a dealer’s offer that’s lower than the actual worth of your vehicle.

Research your car’s market value using reputable online tools or valuation guides such as Kelley Blue Book and Edmunds

It’s advisable to refer to multiple guides since they utilize varying methods for calculating value, which can result in different valuation figures.

How old is your car? What’s the make and model? How’s its condition? All these details will help you determine the car’s current value.

Step 3: Shop around

Visit multiple dealerships to explore your trade-in options. 

A representative from the dealership will assess your vehicle and provide you with a trade-in valuation. Keep in mind that the price you’ll be given is negotiable.

Step 4: Ensure You Understand the Trade-In Offer

Different dealers may offer varying trade-in values for your car.

When a dealership provides you with a trade-in offer, ensure that you fully comprehend the terms and conditions. 

If the car dealer verbally offers you a deal, see that it’s spelled out in the contract.

Review the offer and discuss any questions or concerns with the dealer. Do not feel pressured to accept an offer if you don’t think the value offered is fair.

Step 5: Complete the Deal

Once you are satisfied with the trade-in offer, you can proceed to make the deal for your new car. 

The dealership will handle the process of paying off your existing auto loan.

Step 6: Don’t Forget to Cancel After-Market Products/Services

If you’ve purchased any after-market products or services for your existing car, don’t forget to cancel them to avoid unnecessary charges.

These can include extended warranty, theft protection, service contract, appearance protection, etc.

Trading in A Car with Positive Equity

When contemplating whether to trade in your vehicle while you’re still making payments on your car loan, it’s crucial to be well-acquainted with the financial figures and to evaluate whether your trade-in value aligns with the remaining balance on your loan.

If your car is worth more than the remaining loan balance, you have positive equity, meaning you’re in a relatively straightforward situation. You can apply this equity as a down payment on your new vehicle, reducing the amount you need to finance.

For instance, suppose the dealership assesses the value of your trade-in at $12,000, and your outstanding loan balance stands at $7,000. In this scenario, you possess $5,000 in equity.

As a general guideline, achieving the break-even point on a car loan typically takes approximately three years for individuals who have financed their vehicle with no down payment, maintained average mileage, and ensured the vehicle stays in good condition. 

After reaching this point, you’ll likely start to accumulate positive equity.

Trading in a Car with Negative Equity

If you owe more on your car loan than the car is worth, you possess negative equity, which is common when you’re trying to trade in a relatively new car. 

As soon as a new car drives off the dealership lot, its value depreciates significantly, frequently resulting in negative equity for buyers right after acquiring their new vehicle. You might also hear it referred to as underwater or upside down in a loan.

In this case, you may need to cover the difference between the car’s value and the loan balance, either through a down payment or by rolling the negative equity into your new auto loan. 

While the latter may be tempting, it’s not always the best idea as the loan balance will be higher.

To illustrate negative equity, consider this scenario: If Jenny purchased a vehicle twelve months ago for $35,000 without making an initial down payment but wishes to trade it in for a new model today, the car’s value might have depreciated to $25,000. 

Her outstanding loan balance could currently be at $30,000, leaving her with a $5,000 deficit even after clearing the loan.

How Dealerships Handle Trade-Ins 

Once you’ve agreed to trade in your vehicle for one offered by the dealership, they will manage the financial aspects. Upon approval of this arrangement, the dealership will take possession of your old vehicle. 

Regardless of the situation, the dealership assumes responsibility for settling your previous car loan balance.

Dealerships derive a significant portion of their profits from used car sales, considering trade-ins as a means to replenish their vehicle inventory. 

High-quality used cars are in high demand, and the dealership typically subjects them to a process known as reconditioning. This process includes mechanical repairs, safety certification, and thorough interior and exterior detailing.

In cases where the dealership cannot recondition your vehicle or it doesn’t fit their inventory criteria (due to age or high mileage, for instance), they will usually opt for either 1) wholesaling it or 2) auctioning it.

Can You Trade in a Leased Car?

You can trade in a leased car, similar to trading in a car with an outstanding loan. 

To do this, contact the leasing company to determine the car’s payoff or buyout value and check for any early termination fees. 

When trading it in for a new car, the dealership can work with the leasing company directly, but you might not receive the full trade-in value due to possible termination fees. 

Waiting until the lease ends and exercising the purchase option may be financially wiser, allowing you to either buy the car or return it without further obligations.

Alternatives to Trading in Your Car

While trading in a car is a common practice, it’s essential to consider alternatives, such as selling your car privately, paying off the loan before trading it in, or refinancing your existing loan to improve your equity position.

A Few Final Thoughts On How to Trade in A Car That Is Not Paid Off

Trading in a car that isn’t paid off is feasible with careful planning and communication with your lender and the dealership. 

Understanding your car’s equity position and exploring alternatives can help you make the best financial decision for your situation.

If you are currently overburdened with debt as you look to trade in your vehicle, it’s important to know that you have options that could help you reduce your debts.

At Americor, we understand the importance of managing your finances wisely. 

As America’s trusted source for debt relief solutions, we aim to empower you with financial knowledge that can lead to informed decisions, whether it’s about savings, investments, or managing debt.

If your debt has become unmanageable and you have difficulty making your debt payments each month, then you should consider a free consultation call with one of our certified Debt Consultants, who can provide personalized advice tailored to your specific needs.

By taking proactive steps today, you can put an end to your financial stress and work towards a brighter financial future. 

Remember, there is always hope for debt relief, and our team of experienced professionals are ready to guide you on your journey to regaining control of your finances.

For more information on Americor’s debt relief services, contact us today to see how we can help you eliminate your debts, and get on the fast-track to becoming completely debt-free!


Minh Tong

Minh leverages decades of experience in marketing, sales management and technology to provide high-level advice and lead new initiatives. Minh has a Bachelor of Science in Business/Managerial Economics from University of California at Irvine. He brings over 20 years of sales and executive management experience to the company and his responsibilities include customer service improvement, professional development, and carrying out communications and marketing. Originally from the east coast, Minh resides in southern California and enjoys spending time with his family, going to the beach, and playing a variety of sports.