You can sometimes trade in a vehicle if you’re behind on your loan payments – but it may depend on how far behind you are. If the lender is already trying to recover what you owe them by taking the car, chances are you won’t get the financing you’re looking for.

Falling Behind on Auto Loan Payments

When it looks like you may fall behind on your car loan, the best course of action is to talk to your lender as soon as possible. Depending on the situation, most lenders are willing to work with borrowers who are facing temporary difficulties. If it looks like you may fall behind, your lender may be able to arrange a grace period, or allow you to skip one or two payments and add them to the end of your loan term to enable you to catch up.

However, if it's going to be a long-term problem, there are other options you’ll want to explore – including trading your vehicle in. You should still talk to your lender first, because it won’t do you any good to attempt to take care of the issue without your lender being in the loop.

Trading in a Car When You’re Behind on Payments

Can You Trade in a Car When You’re Behind on Payments?If you’re already running from the repo man, getting rid of your car in order to prevent them from taking it, or to avoid paying what you owe, is considered fraud. Any attempt you make to defraud a lender can spell big trouble for you.

If you’re in a repossession situation and plan on trading in your vehicle to a dealer, there’s really no hiding the fact that you’re behind on the payments. A few things are going to stand out to any above-board dealer right away: late payments showing on your credit reports (which typically happens around 60 days late), and the fact that a lender is listed as the first secured interest on the title. If these aren’t enough of a giveaway, the dealer will certainly find out when the lender is contacted for a 10-day payoff amount (a standard practice for trade-ins).

However, if you speak with your lender before they’ve begun the repossession process, they might allow you some time to trade in your car and pay off the loan, but you’ll probably need to act fast. If this is the case, there's one of two ways the situation can work out:

  • If there’s equity in your vehicle – If your vehicle has equity, it means you owe less on your loan than the car is worth. When trading in a vehicle in this situation, the dealer buys your car for the actual cash value (ACV), pays off the lender, and gives you any money left over. You can take it with you as cash, or apply it as trade-in equity toward the down payment on your next vehicle.
  • If you’re underwater with your car – When there’s negative equity in your vehicle – also known as being underwater or upside down – it means you owe more on your loan than the car is worth. Trading in a vehicle in this situation means you’ll most likely have to pay the difference out of pocket. In some cases, if you can’t pay out of pocket, a lender may consider rolling the difference into your new loan. This means the original loan contract gets paid off, but the difference between the amount your car is worth and the amount you owe gets tacked onto your new loan. It may seem like a good idea in order to solve your current situation, but the added cost will leave you even further upside down on your new loan.

Before you Jump into a Trade In

If you’re behind on car payments, suffering from credit issues, or know you need to find a more affordable vehicle, it can be stressful searching for a dealership that meets all of your needs. Working with Auto Credit Express can help you minimize the struggle. We'll work to match you with a local special finance dealer that has lenders available to work with people in all sorts of credit situations.

Let us help you find a dealership. Simply fill out our auto loan request form online, free of charge, with no obligation to buy. Don’t stay stuck in a vehicle you can’t afford. Click here to get started on a different path today!