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I owe more on my current loan than my current vehicle is worth. Can I still get a new car?

If you buy a new car while you still owe money on your old car, your new car loan may not cover both the amount you still owe on your old car and the amount you will owe on the new car. This could lead to a big debt.

If you owe more than your current car is worth – sometimes referred to as being “underwater” or having “negative equity”  – you should consider whether you can afford a new car.

You should look up the value of your current car using websites such as the Kelley Blue Book and Edmunds.com. You may also find the Kelley Blue Book and other resources at your local library. Look up the “private sale” value, because that’s what you can get if you sell your car to an individual. Then call your lender to find out how much you still owe on your loan.

A car dealer will probably offer to “roll in” the balance of your old loan into a loan for a new car. This is called a “negative trade-in,” because the trade-in adds to the cost of the new loan, rather than reducing it. This might make the new loan unaffordable. Be very careful to make sure you understand the total cost of the new loan and the monthly payments – and the loan term (in months) – before you agree to anything.

TIP: Be sure to talk to your dealer about any outstanding loans or financing and ensure that your dealer pays off your current loan if you trade in a car with a balance due on your current loan.

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