Can You Trade In A Financed Car?

Can you trade in a financed car? Yes, you can trade in a financed car. But you still have to pay off the remaining sum of our loan when you do this. Trade-in value is usually enough to pay a loan’s debt, although this depends on a range of circumstances, such as the vehicle’s condition and age.

can you trade in a financed car

Trading In a Financed Car

Your loan is taken over and paid off by the dealer when a car is traded in with a balance owed. In most cases, they also take care of the transfer of the title.

If the vehicle’s trade-in value is more than the remaining loan balance, you have positive equity and may use that value to lower the purchase price of the new vehicle.

As you consider your alternatives, bear the following points in mind:

  • Your vehicle’s trade-in value: Websites like NADA Guides and Kelley Blue Book may help you make an educated guess. Keep in mind that the dealership will give you a price range, so you have some wiggle space while haggling.

  • Amount of debt: Find out how much you still owe on your automobile by logging into your lender’s online account and comparing it to its trade-in value. You’ll need to look at the payout amount, which includes the interest that has accumulated since you last made a payment.

  • Your spending limit: Consider your budget for the new car once you’ve determined whether or not you have positive or negative equity. If you must take out a new loan because you owe more than your home is worth, avoid doing so. Consider the monthly payment and interest rate on the new auto loan as well to see whether they are within your budgetary constraints.

  • You have the following choices when it comes to loans: In terms of funding, you’ll have a few possibilities. The first option is to let the dealer handle it. Several lenders will be notified of your application, and you will be given several choices.

  • You should be aware of the fact that dealerships could make money off of financing, which might raise your interest rate. Directly contacting lenders might also be an option if you like. It’s more effort, but it might save you money in the long run.

Also, remember that selling your automobile to a private party might net you a higher profit, but the procedure can take a long time. Keep reading if you’re interested in a trade-in for convenience’s sake.

How to Trade in a Financed Car?

As intimidating as it may appear to trade in your financed automobile, the process doesn’t have to be. The following steps will guide you through the procedure:

Organize your Documents

All previous work statements from the garage and the title of the car, together with your vehicle registration, are required. Make sure to include your loan documents even if you’re taking your car back to the dealership from when you purchased it. Be wary of their advice. All keys and fobs should be kept in a safe place.

Calculate your Debt

When selling a financed automobile, this is a critical step. As a customer, you may contact the dealership’s finance department to find out your specific loan rate, how many months are left on your term, and your total outstanding sum.

Contact your Bank to Owe Money on the Trade-in

For this reason, if your trade-in is worth more than you owe on your current loan, the dealership will want to apply the difference to a new loan you take out. Be ready with a financial solution in case this means a greater loan for the new car.

Consult with a financial advisor at the institution that issued the auto loan to learn about your alternatives, and then bring those possibilities up when you discuss the trade-in with the dealership.

Identify your Car’s Worth

Take the time to study. The residual value of certain automobiles is higher than the worth of others. Resale values for Toyotas and Subarus are both quite high. You may check out J.D. Power and Associates’ yearly list of the best-resale-value automobiles.

Recognize When Not to Trade-in

People in a tight financial condition may not be able to afford to invest all of their negative equity toward another loan. When it comes to financing a new automobile, it’s preferable to pay back a $3,000 debt than take out another $30,000 loan. Until you’re in a better financial position to buy a new car, your best option may be to keep driving your present vehicle.


You may either trade in your old automobile for a new one that is paid in full by the value of your trade-in, or you can use the money to buy a more expensive vehicle. However, you may still owe money on the payment plan if you sell the car to the dealer. For those who still owe money on their automobile, a trade-in may be a better option than selling it, particularly if they need a new one. The value of a trade-in might be applied to a newer or different car by the seller. However, the dealership is essentially acquiring the trade-in automobile, then reimbursing you for the remaining cost of your new vehicle.

Pros & Cons of Trading In a Financed Car

In certain cases, trading in a financed car and purchasing a new one has both advantages and disadvantages. Consider the following:

Pros Cons
You may buy a cheaper car and save money. Trade-ins for higher-priced cars might hurt your budget.
Maybe you may get a better deal on a new car. If you have negative equity, your new loan may need a significant cash payment.
If you have equity, you may utilize it to reduce the purchase price.

When can you Trade a Financed Car?

The length of your loan arrangement is the single most important factor in determining whether to trade in a financed automobile.

“You need to remember that you are financing the price of the vehicle plus the taxes,” said a finance and insurance manager. And if you default on a 60-month loan early, you would have a negative equity position and will only be responsible for paying the taxes that have already been accrued.

Whether or not you have positive or negative equity at the end of your loan depends on whether or not you’ve traded in your automobile.

Negative Equity

In layman’s terms, this implies you owe less on your automobile than its market value. A negative equity indicates that you still owe more than the automobile is worth on the market, and you are still responsible for the rest of the payment plan’s balance.

Observe how far along you are in the repayment of your loans. “Manufacturers are pushing for longer and longer financing, which lowers monthly payments, but it’s not the greatest idea,” said the expert. “It’s a declining asset,” as the saying goes.

Positive Equity Trading

When you trade in a financed automobile, here is where you want to be. The goal is to have positive equity, which indicates that the automobile is worth a lot less than what you owe on it.

Making additional payments or making sure you’re far enough ahead in the payment plan on a vehicle that keeps its residual value effectively will help you generate positive equity. If you owe less than the car is worth, you may either keep the money or use it toward a new car loan.

Negative Equity Trading

For most individuals, this is a bad predicament to be in, but that’s because most automobiles lose value after they’ve been driven off a lot, so you may find yourself in this circumstance. It’s still possible, but you’ll need to keep track of where you are in the loan and how much you have left to pay back.

This vehicle will be repurchased at its market value. That $2,000 is still your responsibility even if you owe $20,000 and the automobile is only worth $18,000, according to the expert.

Knowing how much is left on the loan might make or break the trade-in procedure for people in a less financially secure condition.

As a result, as the seller, you must make certain that you have the funds to cover the remaining balance of the loan. No matter which dealership you go through, you’re still stuck with a debt to pay back, even if you no longer have the car.

In terms of negative equity, it is crucial to keep in mind how recently the loan was issued. Often, dealerships impose fines on customers who want a loan pause or closure.

To guarantee that they don’t lose out on any interest revenue from the remaining months, the bank may require a one-time payment or a charge payable for each month the loan is outstanding. Depending on the banking institution and the original conditions agreed upon when acquiring the car, this may or may not be the same.


Even if you’re still paying payments on your current vehicle, you may still trade it in for a new one. However, knowing how much equity you have in the car is a necessary first step. Your car’s current worth is less than what you owe on the loan. You may have either positive or negative equity based on these two characteristics.

Frequently Asked Questions

Here are some FAQs related to finance car trading:

1. Once the loan is paid off, when may you trade in your car?

Trade-ins are possible at any time, although you may want to hold off for at least a year if you have purchased a new vehicle. A car’s value diminishes with time. In the first year of ownership, the value of a brand-new automobile might drop by as much as 20% or more and then declines more slowly in subsequent years.

2. Can you trade in a financed car to a different dealer?

Yes, that’s exactly what I’m saying! Even if you trade in your financed automobile, you’ll still owe the dealership the rest of the loan, even if you’ve paid off the whole sum.

3. Does a financed vehicle with damage qualify for trade-in?

Yes, in many circumstances! Your trade-in value may be greater if you trade in your vehicle with unrepaired body damage. They may also benefit from conducting their repairs since they can see the issue.

4. Can you trade in a financed car under someone else’s name?

Once you have it, you can do with it anything you want. Until the loan is paid in full, the lienholder on the title of the vehicle is identified as the lienholder and you cannot do anything with it.

5. Can you trade in a financed car for a cheaper car?

If you have equity in your trade-in, the dealer will pay off the remaining loan and remove it from the price of the less costly automobile you are purchasing. A cheque for the difference will be sent to you if your trade-in value exceeds the price of your new vehicle.

6. Does leasing a car allow you to swap in your financed vehicle?

Definitely! The down payment on a new car might be reduced by trading in an old one. On the other hand, if you default on your loan, you’ll be “underwater.”

7. Can you trade in a financed car Toyota?

If you want a new Toyota but can’t get rid of your financed vehicle, don’t worry! A trade-in is an option, but you’ll still be responsible for the loan on your present vehicle.

8. Can I trade in my car after 3 months?

It’s best to hold off on trading in a brand new car until at least the third year of ownership since this is when depreciation tends to slow down. The significant depreciation decline has already taken place, and you can generally trade it in after a year or two if it’s utilized.

9. Can you trade in a car that isn’t paid off?

Even if you still owe money on your car loan, you may trade it in. Dealers, on the other hand, are more than happy to take care of customers’ previous finance arrangements. If you have a trade-in, they’ll pay off the outstanding loan sum and get the car’s title from the lender immediately.

10. Is it bad for your credit to trade in a financed car?

If you sell your automobile, it won’t vanish from your credit report. If you trade in your automobile, you’ll get credit for the trade-in value. This credit may be enough to pay the whole debt. This means that if you do not have enough money to pay off all of your debt, you will be forced to take out a new loan from your dealer.


If you owe more than the property is worth, the procedure might be a little more difficult. You may want to think twice before trading in your current vehicle if you still owe money on the loan. In addition, it’s vital to prepare your funds and your credit for the purchase of a new automobile. Before making any decisions, check your credit score and report to see where you stand. If you need to repair your credit, do so now. You may be able to get lower interest rates and payment arrangements if you work on improving your credit.

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