If you’re in the market for a new car, trading in your current vehicle is a common practice. But what happens if you still owe money on that car? It might be a little more complicated, but the good news is that it’s not a rare factor. Here’s a brief guide for working with a car dealership to trade in a car with a balance, whether it’s worth more than you owe or not.

What Factors Dictate Trade-in Value Before the Loan’s Paid Off?

Positive Equity

Typically when you trade in a car carrying a balance, the car dealership takes over the loan and the value is then subtracted from the total of the new vehicle. This is pretty straightforward when the car’s value exceeds the auto loan balance. To determine if this is the case, subtract the payoff amount from the trade-in value. If the car is estimated to be valued at more than what you still owe, you have positive equity. This is actually beneficial to your deal, as it means you have more money available toward your new ride. The positive equity is taken off the price of your new car, which reduces payments.

Once your paperwork is all set and the deal is sealed, you should check that the previous loan was in fact paid. You should receive an official notification from the lender that the balance has been taken care of and the account is closed.

Negative Equity

If you find that you actually owe more than the value of the car, you have negative equity, also known as being “upside down” or “underwater.” In this case, you must pay the difference in order to trade in the car.

This can be done in cash, through another loan, or rolled into the loan for the new car. The last option is best when you’re having difficulty paying your current loan and are looking to downsize to a less expensive vehicle. The car dealership will work out a deal where you hand them the old car and the negative equity is incorporated into your new deal with them.

The downside to rolling over into a new loan is that you may pay more interest on the balance. It all depends on how big the difference is between your trade-in value and the money owed. It may be better financially to pay off the loan first and then seek out a new car.

When you’re looking for a new car and need to trade in your current ride, call FacilDeal Auto Center. Located in Haines City, FL, the car dealership has offered used cars and trucks as well as certified pre-owned vehicles to suit every customer and budget. From SUVs and sedans to exotic and foreign cars, their dedicated staff will guide you through the auto sales process for a stress-free purchase. Call (863) 588-2159 to get started or visit them online for a look at their inventory.