How to Trade in a Car That You Owe Money on

How to Trade in a Car That You Owe Money on
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If an individual has a vehicle in which he still owes money, the vehicle still has a lien or loan on it. As a result, the existing lien or loan on the vehicle must be paid off to trade that vehicle in for another one.

To trade in a car with an existing lien, you will need to gather information and provide existing loan information to the new lender. This ensures a smooth transition and helps the buyer make an informed trade.

Call or contact the bank or finance company that has the loan on your car and secure a payoff quote valid for 30 days. You will need a hard copy of this document, so provide a fax number or pick up this payoff quote personally. The payoff quote will give you the actual amount you must pay to be relieved of any responsibilities related to your loan.

Research the current value of the vehicle you will trade in. The National Automobile Dealers Association and Kelley Blue Book are reputable publishers of used car values. Make a copy of these values to present to a car dealership. The current value of the vehicle is called the 'trade-in' value because it is the value that a car dealer is willing to give you for 'trading in' the vehicle.

Use the following calculation to determine if you have positive or negative equity. Negative equity occurs when you owe more on the vehicle than it is currently worth. Positive equity is a good thing and means you owe less on the vehicle than it is worth. Current Value-Payoff Quote=Equity If the number is positive, you have positive equity. If it is negative, you have negative equity.

Locate a car dealership that will agree to trade in your vehicle. The vast majority of car dealerships allow buyers to trade in vehicles with existing liens. When you find a car that you really like, the dealership will use your 'trade-in' value and subtract it from the new car purchase. For example, if your original vehicle's 'trade-in' value is $5,000, the car dealership will subtract the $5,000 from the purchase of your new car. This is why you should always research the price of your vehicle 'before' you go to the dealership because you will already know what the value is and you can show your copies of the stated 'trade-in' value from a respected publication.

Locate a lender. Most car dealerships also have lenders on staff and the majority of banks lend on vehicles as well. Negotiate your interest rates and make sure you receive the full 'trade-in' value on any loan agreement you accept.

Follow up with your original bank or finance company about two weeks after you trade in your vehicle to make sure your original loan has been paid off by your new lender. In some rare cases, the original loan is not paid off and your credit worthiness suffers.


  • Only sign a loan agreement to trade in your vehicle when you are completely comfortable with the terms of the agreement.