When the amount you owe on the car is less than the trade-in value, the process is pretty straightforward.
Say you still owe $5,000 on a car, and a dealer offers you $6,000 for it as a trade-in.
The dealer pays off the $5,000 loan for you, which releases the lien.
Then, you transfer ownership of the car to the dealer.
Should I trade in a car that is not paid off?
Some car dealers advertise that when you trade in one vehicle to buy another, they will pay off the balance of your loan – no matter how much you owe. But some people owe more on their car than the car is worth. If the dealer promises to pay off this $3,000, it should not be included in your new loan.
How soon can you trade in a financed car?
When you trade in a car with a loan, the dealer takes over the loan and pays it off. When you trade in your car to a dealership, its value is subtracted from the price of the new car.
What to do if you owe more than your car is worth?
Keep the car you’ve got until you’re above water (until the car is worth more than you owe). Roll the negative balance into your new car loan — this costs you nothing out of pocket, but be aware that you’ll likely be making higher monthly payments and you’ll still have to pay off the negative balance.
Is it better to pay off a car loan before trading in?
There are some exceptional dealerships that will accept your trade-in and truly pay off your old loan balance. But, in general, you’re probably better off just paying off the old loan on your own before you decide to get a new car. Instead of adding to your debt load, keep driving your car until it’s paid off.
Photo in the article by “Flickr”