Yes, you can trade in a car you still owe money on, but the process involves settling the existing loan with the proceeds from the trade-in. The key factor is your car's loan-to-value ratio. If your car is worth more than the loan balance, you have positive equity, which can be applied to your new vehicle's down payment. If you owe more than the car's worth—a situation known as being upside-down or having negative equity—the dealership will typically roll the remaining debt into your new car loan, increasing your monthly payments and overall cost.
The transaction is handled directly by the dealership. They will pay off the existing loan to your lender and apply the difference to your new purchase. You'll need to provide your account number and lender information to facilitate this. It's critical to know your exact payoff amount, which is often slightly higher than your current balance due to accrued interest.
| Scenario | Vehicle Trade-In Value | Remaining Loan Balance | Financial Outcome | Impact on New Loan |
|---|
| Positive Equity | $18,000 | $15,000 | +$3,000 Equity | $3,000 down payment |
| Break-Even | $16,500 | $16,500 | $0 Equity | Standard new loan |
| Minor Negative Equity ($1k - $3k) | $14,000 | $16,000 | -$2,000 Equity | $2,000 added to new loan |
| Significant Negative Equity | $10,000 | $18,000 | -$8,000 Equity | Challenging to finance; large payment increase |
Before visiting the dealership, obtain a payoff quote from your lender and research your car's current value using sources like Kelley Blue Book or Edmunds. If you have significant negative equity, consider pausing the trade-in to pay down the loan faster or look for manufacturer incentives that specifically help cover negative equity.
