Should I trade in my car if it’s not paid off?
If you have a balance on your loan, find out how much you still owe and what the trade-in value is so you can decide whether to pay off your loan, wait before you buy again, or add your current amount to a new loan.
Trading in a car generally helps you reduce how much you’ll need to borrow when buying another vehicle, but if you have a balance on your current auto loan, you may be encouraged to roll your existing balance into a new loan, which will increase your total loan costs and the interest you’ll pay over the life of your loan.
To make the best decision for you, find out the following information first:
- Find out the “payoff amount” on your existing auto loan. This is the amount remaining on your existing loan, and it might be different from the outstanding balance listed on your statement or coupon book because of the way interest is calculated, any outstanding late fees or charges, or for another reason.
- Research the potential trade-in or actual cash value of your current vehicle. You can find estimated trade-in values through Consumer Reports, Edmunds, Kelley Blue Book, and NADA Guides. You can also look at online classified ads for similar vehicles in your area. Like shopping for an auto loan, you can get trade-in estimates from multiple dealerships and negotiate your trade-in value to get the best price.
If you owe less than your estimated trade-in value, make sure you fully repay your existing auto loan before getting a new loan. In some cases, there may be a prepayment penalty for paying off your loan early.
If you owe more than your trade-in value – often referred to as “negative equity” – a dealer or lender may offer to roll the balance of your existing auto loan into a new auto loan, but this will make your new auto loan more expensive.
With this information, you can better decide if you want to pay off your existing loan now, wait until you pay off your loan, or include the amount that you still owe on your current vehicle in your new auto loan.
Rolling your existing auto loan balance into a new loan
If you move forward with trading in your vehicle and rolling your existing auto loan balance into a new loan, ensure your original loan has been completely paid off and you don’t have any outstanding payments:
- Find out which department at your existing lender can confirm that your old loan has been paid off once you’ve finalized the agreement for the new auto loan.
- Wait one week and contact the old lender to check that your previous loan has been paid off.
- If your old loan has not been paid off, contact your new lender to learn more. If, after reasonable efforts, your loan has still not been paid off, you can submit a or the CFPB. You can also contact your .
Dealers occasionally have vehicle trade-in offers, and if the dealer promises to pay off your negative equity, make sure it’s not included in your new financing or your final loan contract. Before finalizing a loan, read the contract carefully, and don’t sign anything until you understand and are comfortable with the terms.
Know before you shop
There are several important financial decisions to make before you shop for a car. Learn what questions to ask so you can make the best choice for you.