Can You Trade in a Vehicle That isn’t Paid off?

Can You Trade in a Vehicle That isn’t Paid off?

Written by Caitlin Wood
Last Updated October 13, 2020

If you’re currently looking to trade in your used vehicle for something new, updated or something simply better suited for your lifestyle then you probably have a lot of questions. Equity, negative equity, trade in value and how all of that is calculated can be quite confusing especially if you’ve never traded in a vehicle before or if your vehicle isn’t fully paid off. To help you navigate the process with ease, we’ve put together everything you need to know about how to trade in your vehicle, whether it’s fully paid off or not.

Learn how to check the history of a used car

How to Trade in a Used Vehicle

If you’re in the market for a new, or new to you vehicle then you’re also probably looking to trade in your current vehicle. Trading in your used vehicle can provide you with some extra cash to put towards paying off your new vehicle.

Trading in your used vehicle is a great option for most consumers, but there are a few tips and tricks you should know so that you get the best return possible.

  1. Do your own research. Your dealer will give your used vehicle a certain value, doing a bit of research beforehand will allow you know whether or not you’re being taken advantage of.
  2. Be realistic. While we want you to get a good deal, it’s also important that you be realistic. The value you’re dealer is going to give you will be significantly less than you paid for it.
  3. Get organized. When you go to speak with your dealer about trading in your current vehicle make sure you bring all the information and documents you need.
  4. Be honest. Do not lie about the condition of your vehicle, your dealer will more than likely find out later.
  5. Let it be known that you’ve researched the value of your car. While the majority of car dealers aren’t going to try to take advantage of you, you still want them to know that you’ve researched the value of your car and have a good idea what its worth.
New vs. Used Cars

Trying to choose between a new or used car? Check out this infographic.

What Documents do You Need to Trade in Your Car?

When trading in a car that hasn’t been paid off yet, you’ll need to provide the dealership with certain documents before you can begin the process. 

  • Driver’s license and Vehicle Registration – This is generally required in order to transfer ownership from you to the dealership.
  • Personal Identification – To prove your identity and ownership of the vehicle. 
  • Financial Documents –  If you’re financing a new car with the dealership, you’ll need to provide proof of income. 

How is the Trade in Value of a Used Vehicle Calculated?

If you’re currently still making payments on your vehicle then a dealer will take the value of your vehicle as equity and put it towards your new vehicle. 

Positive Equity 

When your car is worth more than what you still owe on your car loan, you’ll have positive equity. Having positive equity is advantageous as the difference between what the car is worth and what you owe on it can be used towards purchasing a new car. For example, if your car is worth $15,000 and you still owe $10,000 on the loan. This means you have $5,000 worth of equity that can be put toward your new vehicle. On the other hand, you may have what dealers call negative equity.

Find out which cars have a high trade in value

Negative Equity

Negative equity is when you owe more on your vehicle than it’s worth. For example, if you still have $8,000 left to pay off on your loan but your vehicle is only worth $7,000, you have $1,000 in negative equity. Here’s the catch, some dealers will say that they take trade-in vehicles that have negative equity but more often than not they’re not being completely truthful. What these dealers do is take the vehicles but then add on the negative equity to your new loan thus increase the amount you owe and the interest you’ll pay.

Find out if you should trade in your used vehicle or not?  

What Should You Do If Your Car Has Negative Equity? 

If you know that your vehicle has negative equity you should consider the following before you decide to trade it in:

  • Postpone purchasing a new vehicle until you’re able to pay back more of your loan, this way you’ll have positive equity and it won’t affect your new loan.
  • Try privately selling your vehicle; you’ll more than likely be able to get a higher price from an individual than you would get from a dealer.
  • If you still want to trade your vehicle in, make sure you ask your dealer how your negative equity will be treated. If your dealer verbally offers or promises you something, make sure that it’s included in the written contract.
  • Make sure the negative equity from your previous vehicle isn’t going to affect your new vehicle loan too much. Consider making your new loan term as short as possible, this way you’ll be able to pay it off sooner and have positive equity sooner.

Learn how to avoid car loan debt

Vehicle Financing 101

Purchasing a new vehicle of any kind is both a huge investment in time and money, that’s why it’s so important that you find a great dealer and lender to work with. If you’re currently looking to speak with someone in your area about financing a new car, van, truck or even recreational vehicle give us a call. We can put you in contact with someone right away.

Rating of 5/5 based on 3 votes.

Caitlin Wood is the Editor-in-Chief at Loans Canada and specializes in personal finance. She is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. Caitlin has covered various subjects such as debt, credit, and loans. Her work has been published on Zoocasa, GoDaddy, and deBanked. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security.

Click on the star to rate it!

How useful was this post?

Research & Compare

Canada's Loan Comparison Platform

Largest Lender Network In Canada

Save time and money with Loans Canada. Research and compare lenders before you apply. Share your experiences with Canada's top lenders.

Save With Loans Canada

Special Offers

Up to $1,500 Cash Back

Up to $1,500 Cash Back
Mortgage offer

Frank Mortgage is Canada’s one-stop shop for mortgages. Get up to $1,500 cash back on your mortgage.

View Offer
Improve Your Credit With Fidem

Improve Your Credit With Fidem

Great unsecured credit card for customers currently in, or recently discharged from, a consumer proposal or bankruptcy

View Offer
Earn 5% Cashback With Neo

Earn 5% Cashback With Neo
No annual fee!

Earn an average 5%¹ cashback at thousands of partners and at least 0.5%² cashback guaranteed with Neo.

View Offer
Build Credit For $10/Month

Build Credit For $10/Month

KOHO’s Credit Building Program helps you build a better credit history with easy to manage payments for just $10/month.

View Offer
Best Personal Loan Provider by Greedy Rates

Confidential & risk-free

All consultations and conversations with Loans Canada and its partners are confidential and risk-free. Speak with a trusted specialist today and see how we can help you achieve your financial goals faster. Loans Canada and its partners will never ask you for an upfront fee, deposit or insurance payments on a loan. Loans Canada is not a mortgage broker and does not arrange mortgage loans or any other type of financial service.

When you apply for a Loans Canada service, our website simply refers your request to qualified third party providers who can assist you with your search. Loans Canada may receive compensation from the offers shown on its website.

Only provide your information to trusted sources and be aware of online phishing scams and the risks associated with them, including identity theft and financial loss. Nothing on this website constitutes professional and/or financial advice.

Your data is protected and your connection is encrypted.

Loans Canada Services Are 100% Free. Disclaimer

Build Credit For Just $10/Month

With KOHO's prepaid card you can build a better credit score for just $10/month.