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.
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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 is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. 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. One of the main ways she’s built good financial habits is by budgeting and tracking her spending through the YNAB budgeting app. She also automates her savings so she never forgets to put aside a portion of her income into her TFSA. She believes investing and passive income is key to earning financial freedom. She also uses her Aeroplan TD credit card to collect Aeroplan points so that she can save money when she travels.

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