Your trade-in can be used as a down payment on your next car loan. As long as there’s equity, you shouldn’t have an issue trading in your current vehicle. If you have negative equity, you need to decide how you want to handle the trade-in process.

Trading in for a New or Used Car

Use Your Car Trade In as a Down PaymentWhether you’re planning on financing a new or used car, if you have a trade-in, it can help with any down payment requirement. The trade-in process is simple if you have equity in your vehicle: you bring in the car, have it appraised by the dealer, and the dealer can either cut you a check for the equity you have in it, or you can use it toward the down payment.

There are a number of the advantages to a down payment if you’re financing a vehicle. For one, a down payment lowers your monthly payment. Secondly, it might allow you to shorten the loan term (although a shorter loan term results in a higher monthly payment). Finally, whether you lower the monthly payment or decide on a shorter loan term, both lower the overall interest charges on your auto loan. This means your overall cost of financing is lower.

If you have negative equity, however, it can be tricky trading a car in. But you have a few options to choose from:

  • Pay off the difference – If you have the available funds and/or aren’t too underwater, you can pay the difference out of pocket.
  • Roll the balance over – If the lender allows it, you can take the negative equity and roll it into the new loan. But when you do this you end up paying for the new loan plus the negative equity of the old loan.
  • Wait until there’s equity – If you can’t afford to pay the difference, you should consider waiting until there’s equity, or at least until you break even, in your current vehicle.

Trading in for a Lease

While you can trade in your car on a lease, using it as a down payment won’t lower the overall cost. Since interest charges are already built into the lease payment, putting money down won’t reduce these charges. All it does is lower your monthly payment by acting as a prepayment. It won’t reduce the overall interest charges and you won’t be saving any money on your lease.

The Bottom Line

If you need a car loan, Auto Credit Express wants to help even if your credit is less than perfect. Our free, no-obligation service can match you with a local special finance dealership.

We work with a large network of these dealers that have the lenders available to help people in almost all types of credit situations – including bad credit, no credit, and even bankruptcy. Fill out our online auto loan request form today, and we’ll get to work finding a dealership for you.