How Does Trading in Your Car Work?

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.


, - June 28, 2019

If you have need to trade in a vehicle before taking out your next auto loan, you should be aware of how the trade-in process works and what you should do to get your trade-in ready. As long as it has equity, you shouldn’t have any issues trading it in.

Steps to Take before You Trade Your Car In

First, determine if your car has equity. If it does, great! If not, you need to understand how negative equity – when your vehicle is worth less than the loan balance – works.

The first step you need to finding out if you have negative equity is to request a 10-day payoff quote from your lender. The payoff lists your current loan balance including principal and interest accrued 10 days past the date you requested the quote.

Once you have your payoff amount, you can determine if you have negative equity by getting your vehicle’s actual cash value (ACV). To find out how much your car is worth, you should first visit vehicle valuation sites such as NADAguides to see roughly how much your car is worth.

Then, you need to visit at least two dealerships and it get it appraised. Getting your vehicle appraised is the most accurate way to know its ACV since the dealer tells you exactly what they’re willing to pay you for your car, but you can use NADAguides and other valuation sites to get an estimate and use it to negotiate the trade-in value.

Next, you need to subtract the vehicle’s ACV from the payoff quote. If your car is worth more than what you owe on the loan, you have equity and trading it in is going to be easier. If it’s worth less, you have negative equity and are going to have to deal with it one way or another when trading it in.

You can either pay the difference in cash, roll over the amount into the new loan, or wait until your current car is worth at least as much as the loan balance. Although some lenders may let you roll over negative equity into the next loan, it’s best if you eliminate it, or simply wait.

Trade in Dos and Don’ts

Did you know that there’s a right, and wrong, way to trade in a vehicle? If you want to get the best deal on your trade-in, you need to know the dos and don’ts of the trade-in process.

Some dos include:

  • Bringing in service records – You could increase its resale value by bringing in copies of service records, plus this shows you took care of the car while you owned it.
  • Cleaning it inside and out – Wash it, buff out any small scratches, vacuum, remove any stains, and make sure it’s in good overall condition before you take it to the dealership.
  • Get multiple appraisals – You should get at least two appraisals from different dealers, with one of them being a same-make dealership. This way you can compare the amounts and pick the best deal.

Some don’ts include:

  • Detail your vehicle – Detailing can be expensive, and it may not make a huge difference in its resale value. Just giving it a good cleaning inside and out works.
  • Fix expensive repairs – If it costs more to repair your trade-in than its ACV, you shouldn’t bother fixing it. Most dealers can fix expensive repairs at a much cheaper cost, plus repairing it isn’t likely to help increase its value over what you paid to have it done.
  • Negotiate your trade-in right away – You should discuss your trade-in and negotiate on it at the very end of the car buying process. Focus on the new vehicle first.

The Bottom Line

Trading in a car is a relatively simple process, as long as you have equity in it. It’s not the end of the world if your trade-in is upside down, although it’s better if you can cover any negative equity before you start looking for a new vehicle.

If you have a trade-in you want to use as a down payment on your next car, but worry your credit is in the way, we want to help. At CarsDirect, we work with a nationwide network of special finance dealerships that can help people like you get the bad credit auto loans they need.

Get connected with a local dealer that has the lending resources you need today. Just fill out our free and easy car loan request form to start the process.

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.


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