Trading In a Car You Owe Money On

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


, - September 5, 2017

Owing money on a car you want to trade in shouldn’t stand in your way of trading it in for a new vehicle. But doing that will mean paying off your current lender or lien holder. Here are two situations consumers can find themselves in when they trade in a car they owe money on.

Owing More than the Value

If the trade-in value of your car is less than you owe on your auto loan, you have negative equity, also known as being up-side down or under water on your loan.

When this happens, you can pay the difference between the trade-in value and the amount owed to the lender out of pocket. But if you can’t do this, the remaining balance can often be added to your new loan. This is known as "rolling over" a loan.

Though rolling over a loan is a viable option, it may not be the best choice for every borrower. This is especially true if you have bad credit or you are trying to lower your monthly payments. When you add an existing balance to a new loan, you end up paying more in interest charges over the term of the new loan.

You Have Equity in Your Vehicle

If the trade-in value of your vehicle is more than the amount you owe, you have equity. This is a best-case scenario and makes the trade-in process simple, since the dealer will simply pay off the current loan. You can either keep the equity or use it as a down payment on your new vehicle.

Trade In is Possible

Even if you owe money on your current vehicle, it’s possible to use it as a trade, but only if you pay off your current loan. Whether you have the funds to help with a down payment on your new vehicle or you end up paying out of pocket to cover the difference, at trade-in time, it all comes down to equity.

Speaking of trade-in time, if you need a new car and you are looking for a dealership, CarsDirect wants to help. We work with an extensive network of dealers across the US that have the lending resources available to help people in many credit situations. Let us help guide you to a dealer in your area. Take the first step by filling out our no obligation auto loan request form today.

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


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