Can You Trade in a Financed Car?

Have you ever wondered if you can trade in a financed car? The short answer is yes, however, there are a few important factors to consider before heading to the dealership. At Ontario Auto Center, we work with car buyers across the Inland Empire and help them navigate the trade-in process with ease. In this guide, we’ll walk you through everything you need to know about trading in a financed vehicle, including how the process works, what happens to your remaining loan balance, and key factors to keep in mind.

How Does Trading in a Financed Car Work?

When you trade in a car that is still under auto loan financing, the dealership essentially buys your car from you and applies its trade-in value toward your next purchase. However, since you still owe money on the loan, the trade-in process involves settling that balance before completing the transaction.

Here’s a step-by-step breakdown of how it works:

1. Check Your Loan Balance – Contact your lender or check your latest statement to see how much you still owe on the vehicle.
2. Determine Your Car’s Trade-In Value – Use tools like Kelley Blue Book (KBB) or visit a dealership for an in-person appraisal to estimate how much your car is worth.
3. Compare Your Loan Balance to Your Trade-In Value – This determines whether you have positive or negative equity in your vehicle.
4. Dealership Pays Off Your Remaining Loan – If you accept the trade-in offer, the dealership handles the loan payoff on your behalf.
5. Apply Trade-In Equity Toward Your Next Purchase – Any positive equity left over after paying off your loan can go toward your next car’s down payment.

What Happens if You Have Negative Equity?

Negative equity, often called being upside down on a car loan, occurs when your loan balance is higher than your car’s trade-in value. In this case, you still owe money even after the dealership buys your vehicle.

Here’s how you can handle negative equity when trading in a financed car:

• Pay the Difference in Cash – If possible, you can pay off the remaining balance out-of-pocket.
• Roll Over the Negative Equity – The dealership may allow you to add the remaining balance to your new car loan. Keep in mind that this increases your monthly payments and total loan amount.
• Wait Until You Build Equity – If possible, you might want to keep making payments until your car’s value matches or exceeds the remaining loan balance.

Trading in a Financed Car with Positive Equity

If your trade-in value is higher than your remaining loan balance, you have positive equity. This means you can apply the extra value toward your next purchase, reducing the amount you need to finance.

For example, if you owe $10,000 on your current car but receive a $14,000 trade-in offer, you’ll have $4,000 in positive equity. This amount can serve as a down payment on your new car, lowering your monthly payments.

Can You Trade in a Financed Car for a Lease?

Yes! Many drivers choose to trade in a financed car when switching to a lease. The dealership will assess your trade-in value and apply any positive equity toward your lease agreement. If you have negative equity, you may need to pay off the remaining balance or roll it into your lease payments.

Alternatives to Trading in a Financed Car

If you’re unsure about trading in your financed car, consider these alternatives:

• Sell Your Car Privately – You might get a higher price compared to a dealership trade-in.
• Refinance Your Loan – If high payments are the issue, refinancing may help you secure a lower rate.
• Pay Off the Loan Before Trading – If possible, pay off the remaining balance to maximize your car’s resale value.

FAQs About Trading in a Financed Car

What if I owe more on my car than it’s worth?

You can still trade in your car, but you’ll need to either pay the difference or roll the negative equity into your next loan.

Does trading in a financed car affect my credit score?

It can, but typically not in a major way. If you roll over negative equity, your new loan amount increases, which may impact your credit utilization ratio.

How soon can I trade in a financed car?

Technically, you can trade in a financed car at any time, but waiting until you have positive equity can help you avoid financial strain.

Final Thoughts: Should You Trade in Your Financed Car?

Trading in a financed car can be a smart financial move if done correctly. Whether you’re looking for a new car or used car, evaluating your loan balance, trade-in value, and equity position will help you make the best decision. At Ontario Auto Center, we make the trade-in process simple and transparent. If you’re considering trading in your financed vehicle, contact us today. Our team is here to help you get the most value for your trade-in while finding the perfect vehicle for your needs.