Many car dealerships claim to offer top dollar for your trade-in when you're ready to upgrade, but the exact terms of a trade-in can be a bit confusing. For instance, when you're ready to buy a new car, you may wonder if you can trade in your older one even though you still have a running loan balance.
Trading in a Car
When you trade in a car you give the car dealer the vehicle in exchange for a quoted value that the dealership deducts from your new car purchase. The amount that a dealer offers is commonly less than what the car is worth on the private market, but it saves you time and the headaches of trying to sell it on your own. You can determine the estimated trade-in value for a car at the Kelley Blue Book website. However, the ultimate decision on what to offer for the car is up to the dealer.
What If You Still Owe ?
You can trade in a car if you still owe money on your current car loan. In this case, the dealer has to complete the extra step of paying off your lender before completing the sales transaction. The dealership simply deducts the leftover value (if any) after you pay off the existing car loan from your new car sale. So in short, the dealer's offer less the loan payoff balance is your credit toward the purchase.
Calculating New Transaction
It is sometimes confusing to understand how the dealer calculates your trade-in credit when determining your final amount due for the new car. The dealer takes the sales price you've negotiated for the new vehicle, deducts the trade-in estimate and then adds the loan payoff amount to determine your amount due. The dealer also includes financing costs (if you're seeking a new car loan), sales taxes and any applicable rebate offers into the equation.
Concerns
Though a car dealer may quote you at or above the Blue Book value of the car, that is no guarantee that it will be enough to satisfy the outstanding loan. If the loan payoff figure exceeds the amount of the trade-in offer, the dealership will commonly either try to roll the deficit over to your new loan or require you to pay the difference in cash. In this case, it is wise to consider trying to sell the car on your own to get a better price for the vehicle to payoff the loan and possibly have money left over.
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