How To Trade In A Car That Is Not Paid Off?

Want to trade in a car for a new one? If so, you can easily do so if the car is paid off. However, if it is not paid off, it is not that straightforward. In that case, you have to find the answer to the question, How to trade in a car that is not paid off?

In our post below, we will answer this question in great detail. We will analyze this problem from various angles to understand how to trade in a car that is not paid off.

How To Trade In A Car That Is Not Paid Off?

You can trade in a car that is not paid off. To do so, you have to find out regarding the equity which you have in your car.

When you’re gauging the same, there can be two outcomes. We will highlight both of these below.

1. Car with positive equity

This is when the loan amount that is outstanding on your car is lesser than the value of the car. The difference between the car’s value and the loan amount is positive and is known as positive equity. This is your ownership of the car.

2. Car with negative equity

In case your car is worth less than the loan amount, the difference between the car value and the loan is negative. In that case, your equity in the car will be negative.

However, the good news is that you can certainly trade it in despite the type of equity you have in your car.

We will highlight how to trade in a car with positive equity and negative equity below.

Trading In A Car With Positive Equity

The primary thing that you need to do in this case is to contact your lender. The lender will let you know the payoff amount. The payoff amount is generally a bit higher as compared to the outstanding amount. That is why you have to contact your lender first.

After that, you have to check the trade in value of your car. You can contact the dealership for the same. The difference between the value of the car and the outstanding amount will be positive in this case. That is your positive equity.

For example, if your car’s outstanding is $5000 and your car’s value is $7000, you have positive equity of $2000.

Once you are sure about the positive equity, you have to contact the dealer to finance the new car. The trade in value and the new car’s cost will be listed in the contract that you sign with the dealer.

In the case of positive equity, there are not many hoops through which you have to jump. You can easily trade-in your car, which is not paid off.

You need to keep in mind to trade in a car that is not paid off; you have to provide the dealer with some documents like:

  • Payoff amount letter by the lender
  • Driver’s license
  • Vehicle documents
  • Vehicle keys
  • Insurance documents
  • Trade in value documents

Only when you provide these to the dealer while trading in the car can you go ahead and trade it in easily.

Now that you know how to trade in a car with positive equity, it is time to look at the other scenario.

Trading In A Car With Negative Equity

Many times, when you have bought a car with a maximum loan and minimum down payment, it might have negative equity. We will share with you such an example below.

For example, if your car’s outstanding is $9000 and your car’s trade-in value is $8000, it means that you are down by $1000.

The question then is, can you trade in a car with negative equity?

Of course, You can!

We will share the step-by-step way in which you can trade in a car with negative equity.

Most dealers will allow you to roll over the negative equity into the loan you take for your new car. It is the most convenient option which you have. However, it will result in more interest and also a higher loan amount. Only when you’re okay with the same can you go ahead with that option.

You need to keep in mind that your payments will be higher in that case. You have to ensure that you can handle those payments. Only then can you go ahead and trade in your car with negative equity.

When you have negative car equity, the documents you need are almost the same as those with positive car equity. That is why the list of documents will not change much.

However, when you have negative equity in your car, you have a few other options.

We will highlight all the options below.

What Are Your Options When You Have Negative Car Equity?

We will highlight below all the options which you have when it comes to negative car equity. With the help of these options, you can still trade in your car with the more convenient option.

1. Roll over the balance into a new car loan

The 1st and the most obvious option is the one which we have highlighted above. You can rollover the negative equity to a new loan.

There are a few requirements to do the same. These include:

The dealer should allow you to do so. Generally, lenders will roll over the negative equity into a new car loan only if you have an excellent credit score. If you are late on your previous car payments, most lenders will not allow you to do so.

Some lenders might require you to opt for a bigger down payment as well. It is to compensate for the risk of rolling over negative equity into the new loan.

These are generally the two requirements that you need to fulfill. Only then can you go ahead and roll over the negative equity into the new car loan.

2. Get a third-party appraisal

There are chances that your dealer might have quoted a lower trade-in value for your car. In that case, you end up having negative car equity.

You might be thinking, what’s the solution in that case? Going with a third-party appraisal is the best option that you have in this case. However, you need to get a third-party appraisal from reputed companies like

While the dealership has an incentive in converting you to lower trade-in value, these third-party appraiser is to not? That is why often, they will provide you with a higher appraisal value.

Once you get a higher appraisal value on paper, you can quickly contact the dealer. You can opt for another dealer who might offer you a better deal.

In that case, you might not have to deal with negative car equity at all.

However, this tip can only work when the negative car equity amount is on the lower side. If the gap between the car’s trade-in value and the payoff amount is huge, even getting a third-party appraisal will not help you much.

Nevertheless, this is a tip which can help you.

3. Negotiate with the dealer

Another option which you have is to negotiate with the dealer. Many times, the 1st trade quote which the dealer might provide you will be lower than the actual trade-in value of the car.

However, you can negotiate a better deal with the dealer.

With the help of the 2nd tip above, you can easily get a competing appraiser of the car. Once you get so, negotiating with the dealer becomes easy.

If getting a higher appraisal from a 3rd party appraiser is not possible, you can contact another dealership as well. If the dealership provides you with a higher trade-in value, you can negotiate with your dealer.

Negotiating with your dealer can undoubtedly reduce the negative equity or eliminate it. It is another tip that can help you trade in a car with negative equity.

4. Sell to a private buyer

Not always; trading in the car is the best option. There is another alternative. You can sell it to a private buyer.

The private buyer can undoubtedly provide you with a higher value. It might be a bit cumbersome, but it can certainly help you avoid dealing with negative equity.

The private buyer will close or take over the loan for you. You will no longer have negative equity.

After you sell your current car or transfer the loan to a private buyer, your credit score is likely to improve as well.

When that happens, you can approach the dealership for a new car purchase. However, you need to keep in mind that the price of trading a car for a more expensive one is different from buying an expensive car through direct financing.

You have to keep this factor in mind. If you negotiate a deal with a similar price when buying directly, you can undoubtedly opt for this method.

However, for the same, you will have to find an interested private buyer who is willing to pay the price which you want.

Nevertheless, if none of the other tips work out, this is an option which you should certainly consider.

5. Wait it out

A simple solution is to wait it out. When you wait it out and continuously pay the car payments, the interest component and the principal component will reduce.

In that case, the payoff amount of the car will come down as well. Since the car’s trade-in value does not depreciate at the same rate and the payoff amount is coming down, you’re likely to convert your negative equity into positive equity.

Once you have positive equity in your car, trading in your car for a more expensive one is easier than ever.

Even if you break even, you can think of trading it in. If you manage to reduce the negative equity but not eliminate it, you can still think of paying it off. Since the amount will now be lower, you can pay it off. Another option is to roll over the reduced negative car equity into a new loan.

Once you wait it out and reduce the negative equity or eliminate it, you can certainly trade it in.

6. Go with a less expensive car

The option we are highlighting now is not convenient for everyone. However, if you want to reduce your car payment burden, you can certainly choose this option.

Many times, you might fall behind on car payments. In that case, instead of trading in your car for an expensive one, you can trade it in for a less expensive car.

In that case, you’re likely to have positive equity in your car. Not only that, your car payments will reduce as well.

Since you are already dealing with a higher loan amount, getting a loan for a less expensive car is also easier. It means that financing will not be an issue for that car.

The only bit of issue which you will face is that the dealer will mark down the trade-in value of your expensive car. The dealer is likely to gauge that you are in need, and that is why you might not get a good deal from the dealer at first.

However, when you get a 3rd party appraisal or competing trade in value quotation from another dealer, negotiating with your dealer becomes easy. In that case, you can easily trade-in for a less expensive car.

By doing so, selling your car with negative equity can undoubtedly become easier for you. Not only that, you can reduce your financial burden as well, which is another advantage.

While this tip might not be preferred by many but it certainly works.

As you can see, even when you have negative car equity, trading in your car is certainly possible.


So, if you want to trade in a car that has not been paid off, our guide above can come to your aid. The guide covers every scenario. Once you follow the guide, trading in your car becomes easy.

CarsPlan Admin

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