What Happens When You Trade in a Car You are Still Financing?

David Majedi

Jun 23, 2021

There are many great reasons to finance a car and it’s no surprise that many car owners choose this convenient option. Financing helps you to get into a car you love at an affordable and predictable monthly cost. One thing that some consumers worry about when financing any vehicle is the possibility that their circumstances may change during the financing period of their current vehicle.

 It is only natural that your life circumstances could change, and you in turn end up needing to change vehicles in the middle of your financing term. If you need a larger vehicle for a growing family, need to upgrade a work truck, or even just want a change up to a newer car that you love, you may find yourself looking to finance another vehicle while still owing money on your current car. But is it possible to trade in a financed car? Thankfully, the answer to this question is yes!

At Autorama, we are committed to helping you drive a car you love. If that means you need to trade in your current financed vehicle to finance a new one, we can help. In this article, we will help you understand what happens if you trade in a finance car. There is no need to stress about getting yourself a car you love. See our info below our apply for auto loan pre-approval online and let us help you find your perfect car.

What Happens When I Trade in a Car I Still Owe on?

The process of trading in your car while you still owe money on it is simple and also a very common occurrence. When you trade in any vehicle the used car dealership in Toronto will minus the value of your current vehicle off the price of the new one you wish to purchase. By trading in your current car that you owe money on you simply add one more step to that equation.

To trade in a car you are still financing, the dealership will consider the value of your trade-in, minus the amount you owe, and subtract that amount from the price of your new car. In some cases, this might mean that you bring forward negative equity from your vehicle, meaning that you bring forward some of what you owe on your current vehicle and apply it to the loan for your new vehicle.

What Is Negative Equity?

Negative equity can be a drawback to financing a new vehicle when you still owe money on your current vehicle. This happens when you owe more on your car than what you would be able to sell it for. For example, if you owe $15,000 on your car but your trade-in value is only $10,000, you would still be responsible for the $5000 you owe. In this scenario, rather than having your trade-in reduce the cost of your next car, the $5000 would instead be added to your purchase total.

Should I Avoid Trading in a Car I Still Owe Money On?

If you are trying to decide whether you should trade in a car you currently owe money on to finance a new one, you’ve got a few things to consider. Many consumers will choose to pay off their car or continue to drive their current vehicle until negative equity is no longer an issue. Others may not find negative equity to be a problem at all. Depending on your circumstance, getting into a newer or larger vehicle might be your only option. Consider the ups and downs of trading in your car. If you don’t have negative equity, trading in a car you owe on to get a new one can be a great idea. Always keep the length and interest rate of your auto loan in mind when deciding what the right option is for your family.

At Autorama, we are here to help you find a car you love at a financing rate and term that you can feel good about. We understand that every customer has unique needs and we are here to serve you.  For more information on the length of car loans available and things to keep in mind when selecting a term for your car loan see our previous article How Long Should You Finance a Used Car For? We are always available to answer your questions and help you get into the car of your dreams. 

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David Majedi

David brings a decade of experience to his role as Finance Manager at Autorama. Having served a diverse clientele with unique financing needs over the years, he has gained comprehensive knowledge of the market and forged created relationships with all lenders, including banks and private lenders.

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