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Can You Trade In A Financed Car? Here’s Everything You Need To Know

  • Auto Refinance
  • Renee Martin
  • 7 minutes

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You may want to trade in your car for a newer or cheaper model. But a doubt most people have is whether they can trade in a financed car i.e., one that has a pending loan amount to be paid. The answer is yes Рand we break down how to do that in this post.   

Even if the current trend among Americans is to hold onto a car for a long time (averaging 11 years), there are still many folks who see trading in their vehicle as a viable option. This is especially the case if they are stuck in a bad car loan with expensive loan payments which they can’t afford. However, will a dealership buy a partially paid off car, and what exactly is the process of trading in a financed car?¬†

TL;DR: Yes, you can trade-in a financed car Рbut things can get a bit complicated if you owe more than what the car is worth. 

What does it mean to trade in a car?

Trading in a car is the process of selling the vehicle you own to a dealership, in exchange for cash or credit that goes towards a new purchase.    

For example, if you own a car that is currently worth $3000 and you want to upgrade to a newer model worth $10,000, you can trade in the car at the dealership to either receive $3000 in cash or reduce the amount from the cost of the new car. Therefore, you will essentially pay $7000 for the new purchase. 

Trading in is also applicable when buying cheaper car models – in such cases, the dealership will pay you the difference between the trade-in value and the new car’s value.¬†

Can you trade in a financed car

Can you trade in a financed car?

Usually, those who trade in their vehicles have completely paid off their car loans. That means they are full owners of the vehicle and are legally allowed to transfer ownership.   

Things get a bit more complicated when you are yet to pay off your car loan. Here, the lender is still the lienholder and hence the legal owner, and they are owed a certain amount. However, that does not mean that you cannot trade in a financed car! As long as your car isn’t too old, the dealer will be willing to pay the lender the remaining amount while adjusting the same against the purchase price of the new vehicle.¬†

How to trade-in a financed car

How long should you keep a financed car before trading it in?

It’s best to keep a financed car for at least a year before you consider trading it in. The first year is when vehicles depreciate the most, so you won’t get any benefit from trading it in. If you’re planning to buy a new vehicle, give your credit score some time to build itself, while also building positive equity in your current vehicle.¬†

What to consider before trading in your car

Before trading in your car, it’s best to do some due diligence from your end so that you can negotiate with the dealer.¬†

  • The trade-in value of your car: While the actual trade-in value comes down to how you negotiate, you can still get a good estimate by using websites like Kelly Blue Book and Edmunds.¬†
  • Loan amount pending: Call up your lender and ask for the 14-day payoff amount (or 10-day payoff amount in some states).¬†
  • The equity you own in the vehicle: To find the amount of equity, subtract the loan amount you owe from the current trade-in value of the car. If this value is positive, then the dealership has to pay you the amount when you trade it in. If the value is negative, you will have to pay the dealership.¬†
  • Budget to buy the new car: Even if you have positive equity, it’s best to buy an affordable car as your next purchase. If you have negative equity and are rolling the debt into your next loan, you could even end up upside down on it.¬†
  • Financing methods: The trade-in value alone won’t cover the cost of the new car. You will either have to put down cash or take out a new loan for it. You can either go with dealership financing or shop around with multiple lenders before deciding on a rate that fits your budget.¬†

How to trade in a financed car: Step-by-step

1. Do a quick estimation of your car’s value

You can easily find a ballpark estimate of your car’s value using a valuation service like KBB, Edmunds, or NADA.

2. Collect all the required documents before meeting the dealer

Ensure you bring the following items to the dealership for a smooth process:

  • Payoff amount and loan account number
  • Vehicle registration
  • Driver’s license
  • Insurance proof

3. Negotiate with the lender for your trade-in value

The trade-in value is not set in stone. Even if your car is valued at a certain amount by a valuation service, dealerships can negotiate the price further. If you feel that your car is in a good condition for its age, do not settle for a lower price. Dealerships will try to lowball you, but it’s important to hold your ground.

4. Decide how you want to use the equity

If you have positive equity, you may want to put that to good use as a downpayment for the new vehicle. According to the 20/4/10 rule of car buying, the more money you pay as a downpayment, the lesser will be the interest charges in the long run.

If you have negative equity, ensure you have an equivalent amount ready to pay the dealer. An alternative is to roll this amount into your new loan – but do that only if you are sure you can afford the higher loan payments.

5. Ensure the dealership pays off the old loan

Once you agree to the trade-in value and the purchase price of the new vehicle, you should also ensure that the dealer pays the lender and closes your old loan.

Pros and cons of trading in a financed car


  • You can get rid of an expensive car that is costing you high monthly amounts and instead get a cheaper one
  • You’ll be able to score a lower APR and monthly payment on the new loan than what you’re currently paying
  • You can use the positive equity in the vehicle to pay for the downpayment or get it in cash


  • You may have to pay the dealer an amount to trade in the car if its resale value is less than what you owe on the original loan
  • If you’re trading in the car to buy a more expensive vehicle, you may end up with higher monthly payments in the long run and less in savings.

Frequently Asked Questions (FAQ)

How can I maximize the value of my trade-in?

To get the most benefit from a trade-in, follow these guidelines:

  • Know how much your car is worth before approaching the dealer
  • Always negotiate with the lender before deciding on a trade-in price
  • Shop around with several dealerships to get the best new loan rates
  • Ensure your car looks clean and well-maintained when you present it to the dealer
  • Don’t trade in a car if you are “upside-down” on the loan

What does “rolling over” a loan mean?¬†

When you “roll over” a car loan, you add the unpaid portion of an old loan into a new one. Borrowers generally do this to avoid paying two different monthly payments. However, the new monthly payment will likely be higher and offered at a much higher APR as well. If you aren’t careful, this could lead to you becoming ‘underwater’ or ‘upside-down’ on the car loan.

How soon can you trade in a financed car? 

You can trade in your car anytime once you buy it. However, it’s not a great idea to trade it in immediately after purchase, because cars depreciate the most in the first few months. It’s best to wait for a year or two before trading it in – that will give you time to build positive equity in the vehicle.

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