Trading in a car does not automatically eliminate the existing loan. First, you need to determine how much you still owe on the current loan and compare that amount with the vehicle’s trade-in value.
If the trade-in value is higher than your remaining loan balance, the difference can generally contribute toward your next vehicle purchase. If you owe more than the vehicle is worth, you have negative equity. Depending on the transaction, that remaining balance may need to be paid separately or rolled into the financing for the replacement vehicle.
Rolling negative equity into a new loan can increase the amount you borrow and potentially make the new vehicle more expensive. That’s why it’s important to understand your current payoff amount before negotiating the trade.
Ask the lender for the current payoff figure and compare it with the dealer’s trade-in offer. You can also review auto loan affordability before deciding whether the new financing fits your budget.
