Car Buying

How Do You Trade In a Car You Haven't Paid Off?

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author photo by Doug DeMuro September 2018

Say you're interested in getting a new car, but you still haven't paid off your old one. This is a common problem. Can you trade in your old car before you've paid it off? And if so, how can you do it? We have some answers to help you understand how it's done.

Yes, You Can

In a word: yes. You can trade in your old car before you've paid it off. In fact, dealerships do this all the time for customers. It's so common that you shouldn't even expect a dealership to bat an eyelash when you announce that you still owe money on your current car. You certainly don't need to go to the trouble of paying off your car loan and waiting for the title to come before you go shopping for a new model.

How to Do It

So how does a dealer do it? Simple: Once you've traded in your car, the dealership deals with your bank or financial institution in order to pay off the loan for you. The result is that you usually won't even have to bother calling your bank to inform them you're selling your car; instead, the dealership will do all the legwork.

Once the dealership takes possession of the car and deals with your lending institution, the dealership gets the title. The car then becomes theirs to sell, whether to a retail buyer or -- more likely -- at a wholesale auction to another dealer.

Don't Forget

Just because you're trading in your used car doesn't mean you no longer owe any money on it. While you certainly don't have to continue making payments on a car you no longer own, drivers who are underwater on a vehicle will find that the dealership has rolled over their negative equity into the new car's payment.

For instance, if you owe $10,000 on your old car but it's only worth $8,000, the dealer will add the extra $2,000 you owe to the purchase price of the car you're buying. That money doesn't simply vanish; instead, you'll end up paying it as you pay off your new car.

This image is a stock photo and is not an exact representation of any vehicle offered for sale. Advertised vehicles of this model may have styling, trim levels, colors and optional equipment that differ from the stock photo.
How Do You Trade In a Car You Haven't Paid Off? - Autotrader