How To Trade In a Car That Isn’t Paid Off

Experienced salesman selling a car to a young couple.
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If you’re planning to trade in a car that isn’t paid off, what should you know about the process? GOBankingRates spoke to several automotive professionals about key considerations for trading in a car and information to provide the dealership. Plus, we take a look at reasons when it may be more advantageous to consider holding on to the car.

How Does the Trade-In Process Work?

It’s not uncommon for many car owners to choose to trade in their vehicle early, whether it’s because their needs change or they want a change of pace. 

Ian Lang, senior car advice editor at, said the idea of a trade-in is either to trade your vehicle in for another that is paid in full by the trade-in value of your old car or the money can be put toward a higher-priced vehicle. You can also sell the vehicle outright to the dealer, but you still may owe money on the payment plan.

“If you still have payments left on your car but want to sell it, a trade-in may be a more attractive offer, especially if you still need a vehicle,” Lang said. “A seller can apply the value of their trade-in to a newer or different vehicle. Essentially, the dealership is purchasing the trade-in car and applying the payout to the new vehicle and the buyer is responsible for the remainder of the vehicle’s cost.”

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When Should You Trade In Your Car?

Lang said determining when to trade in a financed car comes down to how long your loan agreement is. You can trade in a car at any point in the loan, but the remaining balance will determine whether you’ll have positive or negative equity.

“You must keep in mind that you are financing the car’s price and taxes as well. If you want to walk away, you’re paying those taxes. And if you walk away early on a 60-month loan, let’s say, then you are in negative equity, only paying the taxes so far,” Lang said.

Strati Papageorge, auto lending senior vice president at PNC, recommends keeping in mind how much equity you have in the vehicle you’re trading in. This is the difference between how much you owe on the car and how much it’s worth. 

If you have negative equity, which means you owe more than it’s worth, Papageorge said you may want to wait until you pay down more of the principal or get a better deal on your trade-in. However, used vehicle prices are now at all-time highs. It’s possible you may be more likely to be in a strong equity position and use that to put down a bigger down payment toward a new vehicle.

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What Should You Bring to the Dealership?

If you’re planning on trading in a car to the dealership, come prepared with the following paperwork:

  • Vehicle registration
  • Any past work statements from the garage if work was done to the car
  • Vehicle title
  • Your driver’s license
  • Proof of insurance
  • All keys and key fobs
  • Your own loan paperwork

While this is not always necessary, Papageorge also recommends bringing along a payoff letter from your existing lender. Customers trading in vehicles at a dealership when they’re still making payments on the vehicle should be able to provide the dealer with basic information about their loan, including the current lender, the approximate amount they owe and account number. 

After agreeing on a trade-in price, Papageorge said the dealer will generally handle paying off the existing loan and the paperwork like getting the title released.

Are You a Good Candidate for a Trade-In?

How do you know if you’re an attractive candidate for a trade-in? Lang said trading in a financed car might be a good idea for you if any of the following scenarios are applicable.

  • Your vehicle has high ownership costs, ranging from gas prices to maintenance fees.
  • You can no longer afford a large loan. “Even if you are in a negative equity situation, sometimes bringing your financed car back to the dealer is the smarter financial decision,” Lang said.
  • Your dealer is offering incentives at the end of their financial year to clear out stock. It’s possible you might be able to trade in your financed car for a vehicle you may not have thought you could afford before with a lower loan rate and reduced prices. 
  • You have positive equity. Depending on the value of your vehicle, Lang said your trade-in could be enough to fully cover the cost of a new vehicle.
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When Should You Hold On to a Car Instead of Trading It In?

There are also situations in which it may be smart to hold on to your car instead of trading it in. Lang said this includes those with new loans, negative equity, vehicles that have been in accidents or situations in which your loan is almost paid off or the car has low ownership costs.

Pro Tip: Speak To a Bank Before Trade-In

If you know you will owe money on the trade-in, Lang recommends speaking to the bank in advance. Dealerships that see you owe a significant amount on your trade-in may try to roll that into a new loan for you, which could result in a larger loan for the new vehicle.

“Come prepared with a solution from the bank,” Lang said. “Speak to a financial adviser at the institution linked to the car loan for options and bring those options to the table when you speak to the car dealership about the trade-in.”

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