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What happens when I trade my car in for a less expensive one?
"What is the process for trading in a car for a cheaper one? I have a car financed right now, but the payments are too much. I want to trade in the car for a less expensive one to help save money."
Eric Schad · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
“The dealer will give you whatever trade-in
value
for the car. They would then apply this amount to the loan you currently have. Hopefully, this will pay off the loan in its entirety. If it does, you might have some money left over that you can use as a
down payment
for the car loan of the cheaper vehicle, or you can take cash in hand.If the
trade-in
value is less than what you owe on the vehicle, the lender will pay off the loan, but the remaining balance will get rolled into the new loan on the cheaper car. This is what’s known as negative equity and something that you’ll want to avoid.
As a general rule, only trade in the vehicle if you’re going to break even between the trade-in value and the price of the car. By doing so, you can avoid negative equity.”
View full answer
- Gregory R.
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