Can I trade in a car with a loan?

Trading in a car that's not paid off and has negative equity

If you trade in a car worth less than what you owe on it (typically due to your car's depreciation as well as your loan interest adding up), it will have something called "negative equity." In other words, you'll still owe money on the vehicle even after you sell it. Often, the negative equity may become part of your new car's loan or part of the negotiation on the price of your new car. Otherwise, you'll need to continue paying your old car's loan until it's paid in full.

Keep in mind that your vehicle might be traded in for even less than its depreciated value, increasing the gap between what you owe and what your car sells for. If you apply for a loan when buying a new car, your owed amount might be added to your down payment or applied to your new loan's overall amount.

If you're concerned about your trade-in's negative equity, speak with your dealer and/or lender. Verify your remaining loan balance and your options for trading in the car before you get a new one. Otherwise, you could find yourself on the hook for a larger amount than expected. You might also consider selling your car independently rather than trading it in since this may get you more for the vehicle. You can also compare your options for car trading and selling online.

Can I trade my car in if I still owe and I have bad credit?

Bad credit shouldn't affect your ability to trade in your car. However, getting a new car loan with bad credit could be difficult. Having a car to trade in can help your case for a new loan, though, as the trade-in can count toward your down payment. Talk with your dealer and lender about how your credit will affect your ability to qualify for a new car loan.