Should You Trade in Your Vehicle if You Haven’t Paid It Off?



It Depends...


So you've decided to say goodbye to your current vehicle.

Maybe you have your eyes set on a newer, shinier model.

Or maybe you want to downsize to a smaller car and lower monthly payments.

There's a small challenge, though. You still owe money on the auto loan.
So, will you be stuck with the vehicle (and payments)? Or is it possible to trade in your vehicle when you still owe money on it?

The good news is that you can trade in a vehicle you haven't paid off yet for a new set of wheels.

The bad news is that the whole process can sometimes be quite confusing, especially if you've never traded in a vehicle before.

Here's a guide to help you navigate the process.


Find Your Ride's Value

If you're in the market for a brand new (or new-to-you) vehicle, finding your vehicle’s current value is the first step in the trade-in process.

A good starting point can be going to Kijiji or Facebook Marketplace to get an idea of what similar vehicles are being priced for. But keep in mind that the price that these listed vehicles end up being sold for is likely quite lower.

Be honest with yourself about your vehicle's condition. The cleaner and better maintained your vehicle is, the more you'll get for it.


Find How Much You Owe on Your Auto Loan

Next, find out the payoff balance from your lender. Payoff balance is the amount you still owe on your vehicle.

Knowing how much your vehicle is worth will tell you where you stand financially with it.


Understanding Vehicle Equity

When you trade-in your vehicle, you're actually selling the vehicle to a dealership.

Equity is the difference between your trade-in vehicle's value and the amount you owe on it. It can be either a positive or negative value…


Positive Equity

When the amount you owe on the vehicle is less than the trade-in value, the dealer pays off the loan for you then you transfer ownership of the vehicle to the dealer.

As the name implies, positive equity is a good thing. If you already know what you want for your next vehicle, the whole thing can be taken care of in less than a day.

We handle all of the paperwork for you. You’ll just need to provide things like your ID, financial documents, driver's license and vehicle registration.


Negative Equity

When the amount you owe on the auto loan is more than the value of the vehicle that you’re trading, your old loan becomes part of your new loan.

Negative equity is very common, so no need to get worried. In fact, Edmunds' data estimates that more car shoppers are in this position with their vehicle than ever before.

In this case, your negative equity from your trade-in will be rolled into your financing on the next vehicle you get.

For example, if you owe $10,000, but your truck is only worth $7,000, you'll be tacking that $3,000 difference onto your new loan.


Trading in a vehicle with a loan might be the smartest thing if:

  • Your vehicle has high ownership costs (like high fuel consumption or no warranty)
  • You find a great deal on a vehicle that makes it worth trading for
  • You can lower your interest rate and maybe even your payment


You might want to consider delaying your trade-in if:

  • You're too "upside down" (if the amount you owe on the loan is way more than the value of your vehicle)
  • Your loan is still fairly new


If you want to trade in a financed vehicle that isn't paid off yet, now you know how the process works.

Trading in a vehicle (whether trading up or trading down) has many factors to consider. That's why it's important that you find a great lender and dealer to work with.

Want to find out what position that you’re in with your current vehicle? Click here to discover your options.