How Does a Car Trade in Work? (2024 How To Guide)


Not everyone is considering trading in a car under normal circumstances. Below we will highlight common situations which include trading in a car with a loan, without a title, and with positive and negative equity.

How Does Trading in a Car Without a Title Work?

If your car isn’t paid off and your lienholder still has the title, the dealer can get your title from your loan servicer. But if you don’t have a way to get the title, that’s an issue. Here are a few ways to overcome this obstacle:

  • Replace the title: Contact your state’s department of motor vehicles to request a new one.
  • Write up a bill of sale: If your car was made before your state started issuing vehicle titles, you may be able to use a DMV form or your own bill of sale instead. Your state may require you to get your bill of sale notarized.
  • Look into other titling options: Some states allow you to get a title for a car that’s abandoned or has certain types of liens against it.

How Does Trading in a Car With a Loan Work?

When you trade in your car that still has a loan on it, the value of trading in the vehicle will go towards paying off your balance. If the trade-in value covers the whole car loan then you are free of debt. However, if there are still remaining payments that need to be made, your dealer typically rolls over your current loan into another when you finance a new or used car.

It is typically a better idea to consolidate your debt when going this route as you’ll end up paying more with separate loans. However, you should figure out if you can afford to buy a new car or a used vehicle before making a choice to trade in or sell your car with a loan.

Trading In Your Car With Negative and Positive Equity

Your vehicle’s equity is the difference between its value and what you owe on your car loan. Whether you have positive or negative equity makes all the difference in the trade-in value you get.

How Does Trading In Your Car Work With Positive Equity?

You’re in a good position if you have positive equity. If you have positive equity, your car’s worth more than what you owe on it. This means the value of your trade-in will likely cover what’s left of your loan with some left over to go toward your new vehicle.

How Does Trading In Your Car Work With Negative Equity?

Having negative equity means your loan balance is higher than the value of your car. This is also known as being upside down on your loan. For example, if your car’s current value is $10,000 but you still have $15,000 left to pay off on your loan amount, you have $5,000 of negative equity.

Don’t let car dealers mislead you by saying you won’t be responsible for the extra balance on your old loan. The dealer might want to roll over the remaining balance into a new car loan. In other words, you’ll still be the one paying it.

Review your paperwork to confirm that the dealer didn’t just add the $5,000 to the new car loan, subtract that from your down payment or even do both. Read the financing contract — look for specifics about your down payment and what’s being financed on the installment contract.

Steps To Take if You Have Negative Equity

First, check your car’s value on websites like Kelley Blue Book, Edmunds and J.D. Power. Here’s what to do if your car has negative equity:

  • Read the dealer’s contract to find out how negative equity is treated with trade-ins.
  • If you roll the negative equity into your new car’s financing, choose a shorter loan term to avoid paying more interest on the old debt.
  • Only sign a contract once you understand all of its terms.

Alternatively, consider selling your car online on your own or postponing trading it in until you have positive equity.


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