Trade a Car You Still Owe Money On

Car sales were declining long before the coronavirus pandemic struck. In Q2 2020, auto sales plunged by over 30% in the United States. That was the largest drop in the sales of new cars since 2009, the time of the global financial crisis. There are numerous factors to explain this drop in sales. And it is not just the pandemic, but the economic crisis caused by the pandemic. The average cost of a new car is $36,700. $36,700 is a lot of money to pay for a new car in this economic environment. Even so, over 64% of Americans still need to drive almost every day. And more Americans are buying used cars than ever before. So, can you trade a car you still owe money on?

Let’s first consider the embarrassment of option riches relative to buying a used car now available to Americans.

Over $1.2 million worth of used cars were sold in June 2020. While that may only seem like a modest sum, it is still a 22% increase from the previous year.

Sales of used vehicles were up by almost 6% by the end of May 2020. Of course, that is a modest percentage, but it sure is not a 30% drop either.

Almost 70% of Americans are more likely to buy a used car in the near future instead of a new one. The survey respondents also stated that they would also be vigilant about only buying a used car without any reliability issues.

The point is the getting is really good if you want a used car right now.

And if you want to trade a car you still owe money on, you can do that too.

Trade a Car You Still Owe Money On – Leveraging Negative Equity

If you want to trade a car you still own money on, it’s important to first differentiate between positive and negative equity.

Positive equity means that your car has a financial value that is worth a lot more than the amount you still owe on your car loan.

If your car is certifiably worth $32,000 and your outstanding loan amount is $8,000, then you have positive equity. This means that you can leverage $24,000 worth of positive equity.

Your positive equity gets deducted when you negotiate the price for a new car.

So, you can get a new car for $24,000 and a new car loan to pay down the $8,000. O you can buy a $20,000 car and reduce your loan by $4,000 or more when adjusting the financing.

Negative equity is the reverse situation.

Negative Equity

Imagine that you have a car that is worth less money than you owe on it. The amount of money you owe on the car is worth a LOT more than the current trade-in value of the car.

That situation is called negative equity. It is also known as being “underwater,” or “upside-down on an auto loan.

If you want to trade a car you still owe money on, you’ll pay the difference between the trade-in and loan value.

So, you can pay this difference in cash or taking out a new loan to satisfy the old one. You can even roll over your old loan amount into a new one.

Now, imagine that owe $15,000 on your car, but the trade-in value is only worth $13,000. The trade-in value of your car will cover the cost of a new car loan.

Still, you will have to pay the car dealership $2,000 to cover the trade-in value and loan amount difference.

These are just ballpark estimate amounts – how much negotiate depends on your own exacting circumstances.

You may resort to trying to trade a car you still owe money on if you do not have enough funds to pay off the negative equity. Or you may not be able to continue the upside-down loan payments.

Now that you know the basics of how to trade a car you still owe money on, let’s discuss how to do it.

Compare Trade-In Prices

The reality of the situation is that negotiating leverage is not exactly on your side if you are dealing with negative equity.

This is especially true if you want to trade a car you still owe money on.

Try to increase your trade-in quote odds as much as possible. Shop around online and compare prices as much as you can.

Compare the trade-in prices of every car dealership in a 10-mile, 20-mile, or 30-mile radius.

Call or email car dealerships. Describe your vehicle and state its current value as a trade-in vehicle to get a quote.

You can learn your vehicle’s trade-in value on these online auto pricing guides:

With this information, you just subtract the trade-in quote amount from your vehicle’s current value.

Estimate Potential Financing

After you have predetermined your potential negative equity, you will be prepared to visit or directly contact a car dealership.

Whatever the amount, you will have a negative balance. So, you will pay out of pocket to satisfy that balance.

What is more likely is that you will pay more for a rollover loan to satisfy trade-in requirements.


Life is all about negotiation. You want to try to get as much as possible in a deal while giving the illusion the other party got as much as they wanted.

Consider trading-in for a cheaper quality car that can alleviate your negative equity issues. I am not telling you to settle for the cheapest car on the lot.

However, if you are upside on your car loan, your options are limited. Consider as many trade-in alternatives as you can, relative to your budget, before you step on the lot.

As you negotiate, you will need to bring this information with you:

  • Auto registration information
  • Driver’s license
  • Trade-in value certification proof
  • Vehicle keys, fobs, or remotes
  • Proof of auto insurance in the US. Wondering where you can find auto insurers in the US?  Visit the site for the best results.

Trade a Car You Still Owe Money On

It should also go without saying that your negative equity vehicle should be in optimal performance condition.

Make sure your vehicle is in as good condition as possible before trying to trade a car you still owe money on.

If you want to trade a car you still owe money on, stack the odds in your favor as much as possible before negotiations begin.

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