Buying a Car When You Owe on Your Trade

Worried you owe too much on your current vehicle to buy another car? You’re not alone; nearly half of all car buyers find themselves in this position. It’s important to know the value of your trade-in before visiting the car dealership. Easily check this yourself with tools available online; be sure to use one or more reputable sources like Kelley Blue Book or Edmunds.

If you’re considered “underwater” on your vehicle, most dealers and finance companies will include the difference of your trade in the new loan. For example, if you owe $8k and your trade is only worth $6k, your car loan will have an extra $2k added to cover the difference. Increasing your loan value makes negotiating the best interest rate crucial. Be sure to check your credit score before talking with the dealership or finance company. Or, even better, get pre-qualified for your new loan. Keep in mind you may want to speak with the lender to extend your term in order to maintain a more affordable monthly payment.

To avoid being upside down on your new loan, there are some things you can do to prevent transferring your old balance to your new loan.

Sell It Outright 
Consider selling your car to a third party. Generally, you will get more selling it than you would as a trade.

Delay Your Purchase 
Wait to purchase your next vehicle and focus on paying down your loan in the meantime. Can you take on a part-time job to increase your payments? Also, there are companies that will refinance auto loans, which could help you pay yours off faster with a shorter term, or lower your payments to allow you to make additional payments.

Look for Big Incentive Deals  
Keep your eye out for dealerships offering big incentives at year-end or model-end sales. If you’re lucky, you may find a deal that covers your car equity deficit.

No matter the route you choose, it’s important to know as much as possible before you go to the dealership. Visit and use the great on-line tools or get pre-qualified for an auto loan.