How to Trade in a Car That Didn’t Pay Off (and When You Shouldn’t)

So, you are in the market for a new car. Trading your car is a great way to apply the value of your old car to a new one while avoiding the hassle of selling it yourself. The only problem? You have not paid for your current trip.

Swapping a car that you still owe money for is more difficult than just swapping an old car for a new one. Here’s what you need to know to trade in a car that isn’t paying so you don’t run into large car payments that you can’t afford.

Find out how much your car is worth

Your first step to trading a car is to find out how much it costs. You’ll want to do your own research and not rely solely on what your dealer says. There are plenty of free online appraisal tools like Kelley Blue Book or Edmunds where you can get an idea of ​​your car’s current value by comparing average points of sale in nearby areas.

It’s safe to say that you will probably never get as much out of a rental as you would if you sold your car privately. However, it is important to do your research so that you are not scammed during the exchange.

If you owe less for a car than it’s worth…

Once you know how much your car is worth, you need to compare it to how much you owe for it. If your car is worth more than you owe, congratulations! You have positive capital, which makes trading your car quite easy. When you trade your car, you get the difference (your positive equity) and you can use that money to buy a new car.

If you owe more than the cost of the car…

With negative equity, things get more complicated. If you owe more than your car is worth, you will have to pay the rest out of your own pocket. Your dealer may offer to include this difference in your new loan, but you probably won’t want to take this deal: you’ll be putting negative capital into the new loan, which means you’re still paying for a car you don’t need. longer driving. In addition, you doom yourself to the future when you start trading this new car in a few years.

bottom line

If your car is worth more than you owe for it, you have positive capital to use for your next trip. If you owe more than your car is worth, you have negative equity that you will have to make up.

In most cases, you should aim to pay off your car loans before trying to sell it. If paying off the loan is not an option for you, then focus on saving up enough to at least break even when you go to sell your car. . Otherwise, you could be trapped in a cycle of negative balances from one car loan to the next.