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Trade-in a Financed Car
Personal Finance

Can You Trade-in a Financed Car?

The estimated reading time for this post is 341 seconds

If you find yourself in a situation where you still owe money on your car but desire to purchase a new one, trading in your current vehicle can be a viable option. However, it’s essential to recognize that trading in a financed car doesn’t automatically absolve you of your loan obligations. 

In this article, we will explore the key points you need to consider when trading in a financed car, including determining your car’s value, understanding your outstanding auto loan balance, creating a new car budget, and comprehending how the trade-in process works. 

Additionally, we will examine the concept of “rolling over” a loan and provide specific examples to illustrate these points. Finally, we will weigh the pros and cons of trading in a financed car to help you make an informed decision.

What’s Your Car Worth

Determining the value of your car is the first step in assessing the feasibility of trading it in. Factors such as the make, model, year, mileage, condition, and demand for your specific vehicle influence its value. 

Online tools and resources like Kelley Blue Book, Edmunds, and NADAguides can provide estimated values based on these criteria. Before you trade-in a financed car, you must know its value before you go to the dealership.

What’s Your Outstanding Auto Loan Balance

To accurately evaluate your financial position, you must understand the remaining balance on your auto loan. Contact your lender or review your loan documentation to determine the exact amount you owe. 

This balance will affect the feasibility of trading in your car and may impact your ability to negotiate a favorable deal.

Create a New Car Budget

A car budget helps you determine the affordability of your desired vehicle, explore financing options, and make informed decisions that align with your financial goals. 

Evaluate Your Financial Situation:

Before diving into the car-buying process, evaluating your current financial situation is essential. Take an in-depth look at your income, expenses, and financial obligations. 

Determine how much you can comfortably allocate towards monthly car payments, considering rent/mortgage, utilities, insurance, groceries, and savings. 

Understanding your financial position will provide a realistic starting point for creating a feasible car budget.

Set a Target Price Range:

Once you know the monthly payment you can afford, set a target price range for your new car. Research various models and makes that align with your needs, preferences, and budget. 

Consider the size, fuel efficiency, maintenance costs, and potential resale value. Online car shopping platforms and dealership websites are valuable resources for gathering information on prices, incentives, and available financing options.

Consider Additional Expenses:

When creating a car budget, it’s vital to consider additional expenses beyond the purchase price. These include insurance costs, fuel expenses, regular maintenance, repairs, and licensing fees. 

Insurance rates can vary significantly depending on the vehicle’s make and model, your driving history, and geographical location. 

Research insurance options and obtain quotes to understand the potential costs better. 

Additionally, estimate fuel expenses based on your daily commuting distance and the average fuel consumption of the vehicle you are considering.

Explore Financing Options:

Unless you plan to pay for the car outright, you’ll likely need to explore financing options. Research different loan providers, such as banks, credit unions, or online lenders, to find the most competitive interest rates and loan terms. 

Consider factors like the loan duration and the down payment required. A higher down payment can reduce the loan amount and lower your monthly payments. Remember to factor in the interest charges over the life of the loan to determine the total cost of financing.

Factor in Trade-ins and Down Payments:

If you have a vehicle to trade in, assess its value using online resources or consulting with local dealerships. Subtract the trade-in value from the purchase price to determine the net cost of the new car. 

Similarly, consider making a down payment to reduce the loan amount further. You can decrease your monthly payments by utilizing trade-ins and down payments and potentially secure a better financing deal.

Prepare for Unexpected Expenses:

While budgeting for your new car, preparing for unforeseen circumstances is crucial. Allocate a portion of your budget for emergency repairs, roadside assistance, and unexpected maintenance costs. 

Setting aside a small percentage of your monthly budget can help safeguard your finances and mitigate the impact of unexpected expenses.

How Does Trading In a Financed Car Work

When trading in a financed car, the dealership typically assesses the value of your current vehicle and offers you a trade-in amount. This trade-in value is then applied toward the new car’s purchase price. 

If the trade-in value exceeds your outstanding loan balance, the dealership pays off the loan on your behalf. However, you must cover the remaining loan balance if the trade-in value is lower.

What Does “Rolling Over” A Loan Mean:

“Rolling over” a loan refers to a situation where the remaining loan balance on your current car is added to the loan for your new car. 

While this can seem like a convenient solution, it may lead to a negative equity situation, where you owe more on your new car loan than the vehicle is worth. This can impact your financial stability and limit your options in the future.

Pros of Trading In a Financed Car:

  • Convenience: Trading in your financed car allows you to streamline the car-buying process by handling both transactions at the dealership.
  • Potential Loan Payoff: If the trade-in value exceeds your outstanding loan balance, you can eliminate your existing loan and start fresh with a new car loan.
  • Reduced Sales Tax: In many jurisdictions, you only pay sales tax on the difference between the trade-in value and the new car’s price, potentially saving you money.

Cons of Trading In a Financed Car:

  • Negative Equity: If the trade-in value is lower than your loan balance, you’ll need to cover the difference or roll it over into your new loan, potentially resulting in negative equity.
  • Lower Trade-in Value: Dealerships may offer a lower trade-in value compared to selling your car privately, reducing your potential return.
  • Limited Negotiation Power: When trading in a financed car, you may have limited negotiation power as the focus shifts to the overall deal rather than the individual trade-in value.


Trading in a financed car can be a viable option to purchase a new vehicle. However, it’s crucial to consider the value of your car, the outstanding loan balance, and your overall budget. 

Understand how the trade-in process works, including the possibility of rolling over a loan. 

While trading in offers convenience and the potential for loan payoff, negative equity and a reduced trade-in value are potential drawbacks, carefully considering the pros and cons will help you make an informed decision that aligns with your financial goals.

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