Using your car as a trade-in comes with many benefits, including possibly covering a down payment requirement and decreasing the overall cost of the new loan. But, can you trade in a vehicle that’s not paid off? It really depends on the new lender and your equity situation.

What is Vehicle Equity?

Trading in a Car that’s Upside DownEquity is the difference between the amount you owe on the loan and your vehicle’s actual cash value (ACV). You can either have equity, or negative equity in a vehicle. When you have equity, your car is worth more than the amount of your loan. On the flip side, if you have negative equity, your vehicle is worth less than the loan amount.

Calculating car equity is simple: you just need the current balance of the loan and the ACV of your vehicle. Get a monthly statement from your loan provider or call them to see what your current payoff amount is. As for determining your vehicle’s ACV, you have two options: you can use online trade-in car value calculator tools to get an estimate, or you can get an appraisal directly from a dealership.

To calculate equity, take your vehicle’s ACV and subtract it from your loan payoff balance. If your car is worth $17,000 and your loan payoff amount is $15,000, you have $2,000 in equity. This amount can be applied as a down payment when you trade in, or you can cash it in and pocket the money.

How to Trade in Your Car with Negative Equity

Negative equity on your car is when you owe more than the vehicle is worth. This isn’t necessarily a bad thing, but it can create issues if you want to trade in your vehicle. When you have a car with negative equity and want to trade it in, there are three options to consider:

  1. Wait it out – If you don’t need a new car right now or can wait a little longer, postpone trading the vehicle in. It’s best to eliminate any negative equity before financing a new car.
  2. Pay off the difference – If you’re able to get rid of the negative equity when you plan on taking out a new loan, you can pay the difference out of pocket. Double check your finances to see if this is viable option before jumping the gun.
  3. Roll it over – Not all lenders will let you do this, but if you can’t afford to pay off the negative equity and need a new car, you may be able to roll over the amount into the new loan. This is never the best option, though. Rolling over negative equity won’t remove it – it'll be added to the new loan balance, so the negative equity will increase your payment and you'll have to pay interest on it.

Get Ready to Trade in Your Car

It’s important to know how much your trade-in is worth and where you stand with equity. Even if you aren’t ready to trade your car in right now, it’ll give you an idea of how much equity you have so you can plan ahead.

If you’ve crunched the numbers on your trade-in and need help finding a dealer who can work with you because you have bad credit, let Auto Credit Express help. We work with a network of dealerships all across the country that have the right lenders for these situations. Get started today by filling out our free online auto loan request form.