How to Trade in a Vehicle With a Loan

There were 275.9 million registered vehicles in the United States in 2020, including new and used cars. That same year, 88.85% of new vehicles had outstanding auto loans, and owners were still making payments on 45.09% of used cars. 

Since most vehicle owners have outstanding vehicle loans, many people in the market for a new vehicle may wonder how to trade in a car with an outstanding loan. Suppose you’re wondering how to trade in a vehicle you still owe on. Fortunately, you can follow some simple steps to complete the transaction and upgrade to a different vehicle.

Can you trade in a financed car?

You can trade in your vehicle before you finish making payments. If you have positive equity, it can be advantageous to trade in a vehicle with an outstanding loan. However, trading in a vehicle can be more complicated if you have negative equity.

What is positive equity? 

Equity is determined by comparing the total owed on an item with the item’s value. Positive equity refers to items with a greater value than the total owed. When a vehicle has positive equity, the trade-in value of the vehicle exceeds the balance of the owner’s auto loan. 

What is negative equity? 

Negative equity refers to items with a lower value than the amount their owner owes. When a vehicle has negative equity, the trade-in value of the vehicle isn’t enough to pay off the existing auto loan. 

How to Trade In a Vehicle

Although significant financial transactions can be stressful, following these steps enables you to simplify the process of trading in a vehicle with an outstanding loan.

1. Gather Essential Documents

You’ll need to qualify for a new loan and establish vehicle ownership to complete the trade-in. Documents you’ll need to complete your trade-in include the following:

• Driver’s license
• Vehicle title
• Vehicle registration
• Vehicle loan account information
• Proof of income
• Proof of residency

2. Calculate Your Vehicle’s Value

Enter your vehicle’s make, model, age, condition, and mileage into a vehicle appraisal tool to calculate the approximate value of your vehicle. When you compare the appraised value with your outstanding loan, you can determine whether you have positive or negative equity. 

3. Prequalify For Financing

You can handle your financing application with your car dealer when you’re ready to trade in your vehicle or prequalify first. Prequalifying ensures you know how much you can afford and simplifies the purchase process.

4. Choose A New Vehicle

Start your search online when you’re looking for a different vehicle. Dealer websites can filter search results by price or vehicle features, making it easy to find the perfect vehicle. Identifying your preferred models and determining which models are in your price range before you head to a dealership ensures you focus on ideal replacement vehicles when making a purchase.

5. Trade In Your Vehicle

Visit your local dealership and complete the paperwork for your trade-in. Your dealer will either transfer the funds to your creditor to pay off the loan or give you a check made out to your creditor for the balance owed. If you have positive equity, you can apply the extra funds to the vehicle you’re purchasing. If you have negative equity, you have two options. You can come up with the cash to pay off the balance owed to complete the trade-in, or you can add the balance owed to your new loan.

Why Replace Your Vehicle Before It’s Paid Off?

Vehicle loan terms vary, with most vehicle owners taking 68 months or more to pay off their auto loans. Since 68 months is almost six years, a lot can change in your life. Suppose you’ve gotten married or had children. You may need a larger vehicle to transport your family. It’s also possible your commuting needs have changed, and you’d benefit financially by investing in a fuel-efficient vehicle.

Some families may reduce the number of vehicles they own, prompting them to invest in a newer vehicle still under warranty. You may also consider upgrading your vehicle before your loan’s discharged if the vehicle had mechanical issues or was damaged in an accident. 

How can your car dealership help you with your trade-in?

Experienced car dealers are committed to helping buyers find the right vehicle. At Newport Motors, our sales team will help you find a vehicle you can afford that fits your needs and lifestyle. Contact our experienced sales team today to find out how we can help you trade in a vehicle with an outstanding loan and help you finance your next vehicle.

Sources 

Cross, R.J. et al. (2023). Driving into debt: The hidden costs of risky auto loans to consumers and our communities. 

Number of motor vehicles registered in the United States from 1990 to 2020. (2023). 

Share of used and new vehicles with financing in the United States from 2017 to 2022. (2023).