How Do You Trade in a Car That’s Not Paid Off?

There are a lot of factors to consider when buying a car from a dealership including the price of the car you’re buying, how you’re going to pay for it, and what to do with the car that you currently have. But what if the car that you currently own isn’t paid off and you want to trade it in? Don’t worry, there’s a way to do it while getting the most money possible for it.

Can you trade in a car that’s not paid off?

You certainly can. However, how much you get for the car is a different story and it’s not uncommon for many car buyers to get less money than they should for their trade-in. For those not in the know, if the car that you have is worth less than what you still owe on it, then that’s called “negative equity.” But if it’s worth more than what you still owe, then that’s referred to as “positive equity.”

For example, let’s say that you have a Honda Accord that you still owe $15,000 on and you’ve checked Kelley Blue Book, which told you that the car is worth $12,000 as far as its trade-in value. But when you get the car appraised at the dealership that you’re working with, they might offer you $10,000 for it. If that’s the case, then you have a few options.

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Pay the difference that you still owe

The first option that you have when trading in a car with negative equity is to pay the difference that you still owe on the car. Of course, not everyone might have an extra $5,000 (or more) laying around, but if it works for your case, then that would be all the better.

Roll over the amount onto the new loan

The second option, and probably the most popular one, is to roll over that remaining balance onto the new loan. In the case of our example, that means that you would be rolling over the extra $5,000 that you still owe on the current car onto the new loan that you’re taking for the new car. So if the new loan is $20,000, then you will now owe $25,000 for that new car.

This option could raise your monthly payment by a considerable amount and the main drawback is that you’re still paying for a car that you already traded in. On the financial front, this really isn’t the best option, however, if you don’t have the extra cash and can afford the higher monthly payment, then this could be your best option.

A used Honda car dealership with cars on display
A Honda car dealership | Getty Images

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Get your trade-in appraised by a third party

The third option is to get your car appraised by a third-party company like Carmax, Carvana, or Vroom. We always recommend doing this because third-party used car dealers like these will typically appraise your car at a higher rate than the average dealership. So according to our example, if the traditional dealership is willing to give you $10,000, then a Carmax or Carvana may actually offer you $11,000 or $12,000, for example.

If that’s the case, then you’ll get more for your trade overall, but you’ll still have negative equity. So, how do you make up the negative equity despite the higher offer?

Dead car key batteries can create car issues
Key fob Dmitry RogulinTASS via Getty Images)

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Ask the dealer for a check

The solution might sound far-fetched, however, according to Ari Janessian – an auto broker and Youtuber – you should be able to show the offer from Carmax or Carvana to the dealer that you’re working with, and if they are unable to match the offer, then you can ask them for a check for the difference that you still owe.

That means that if you still owe $15,000 on your current car and Carmax offers you $12,000, then you can ask the dealership that you’re working with for a check for $3,000 so that you can sell your car to Carmax outright so that nothing is owed on the car, and then have that extra $3,000 rolled onto the new loan of the car that you’re buying.

It almost sounds too hard to believe, but the dealer has the money to do this type of transaction and it doesn’t really matter to them since you’ll be paying the difference back on the loan anyway.