What Happens When I Trade a Car in With Money Still Owed on It?

Even though many consumers are not familiar with the process, dealers are generally familiar with how to manage a car deal when you trade in a car with money still owed on it. Essentially, you are selling them one car and buying another, and your current loan payoff is important to you and the dealer.

Trade-In Basics

Trading in one vehicle when buying another is common practice in the U.S. car market. While car owners can often get more money selling their vehicles privately, many prefer the simplicity and efficiency of trading in with a dealership. A trade-in means the dealer offers you a certain value for your car as part of the deal when you buy a new one. The trade-in amount is taken from the purchase price, and the remainder is what you owe.

The Payoff

When you owe money on your existing car loan, the trade-in deal can seem a bit more complicated. However, the deal simply adds the remaining balance on your existing car loan to your total acquisition cost on the new car and pays off the loan for you. Thus, you get the new car at its purchase price, pay additional sales tax and registration fees, and pay off your loan within the purchase deal.

Formula

The formula for calculating the amount due when you close the sale on a new car is the selling price of the new vehicle, plus the sales and title fees, less the trade-in allowance for your current car, plus the payoff amount on your existing car loan. If you have any rebates or pay down any cash on the purchase, this is subtracted from the amount due as well.

Following the Purchase

When trading in a car, it is important to know its value. This is especially true when you owe money on it. Car dealers are often skilled at manipulating the negotiation by focusing on the fact that they are paying off your loan and giving you a trade-in, as opposed to the actual value of your car and the car you are buying. You should get in writing that the deal will pay off your existing car loan right away. While most do, some have been known to wait if they are cash-strapped.