Car lots that take trade ins near me

Some car dealers advertise that, when you trade in your car to buy another one, they’ll pay off the balance of your loan. No matter how much you owe. But what if you owe more than the car is worth? That’s called “negative equity,” and the dealer’s promises to pay off your loan may be misleading. Learn how negative equity works and what you can do about it.

  • How Negative Equity Works With a Trade-In
  • Dealing with Negative Equity
  • Report a Problem

How Negative Equity Works With a Trade-In

With rare exceptions, cars decrease in value with age. Depending on other factors, like accidents, repairs, or other damage, the value of a car may decrease even faster. If you borrowed money to buy a car, you might owe more on your car loan than its current value. When that happens, you have negative equity in the car. Some car dealers say you won’t be responsible for the remaining balance on your old car loan when you trade in your old car. But that might not be true. Dealers sometimes just roll over the negative equity into your new car loan, so you still end up paying it.

Example

Say you want to trade in your car for a newer model.

  • Your loan payoff is $18,000
  • Your car is worth $15,000

You have negative equity of $3,000. That must be paid if you want to trade in your vehicle. If the dealer promises to pay off the $3,000, it shouldn’t be included in your new loan.

But some dealers

  • add that $3,000 to the loan for your new car
  • subtract the amount from your down payment
  • or do both

Either way, this increases your new loan amount and its monthly payments: not only would the $3,000 be added to the principal, but you’d also be financing it (along with the new car).

Understanding how negative equity works in a vehicle trade-in can help you make a better informed decision about buying and financing a car. It also helps you recognize if claims in car ads that promise to pay off your loan are misleading.

How to tell if your negative equity is part of your new car loan

Before you sign a financing contract, the dealer must give you certain disclosures about the cost of that credit. Read them. Look for details about the down payment and the amount financed on the installment contract. Make sure you understand how your negative equity is being treated before you sign the contract. Otherwise, you may wind up paying a lot more than you expect.

Look for a section on your contract with this information:

Down Payment

A. Gross Trade-In Value

B. Less Prior Credit or Payoff by Seller

C. Net Trade-In (A less B) (indicated if a negative number)

D. Deferred Down Payment

E. Manufacturer’s Rebate

F. Other: _______________________________________

G. Cash Total Down Payment (C through G)

Dealing with Negative Equity

Here are some steps to take if you think you might have negative equity in a car you’d like to trade in:

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On This Page

  • 1. Do your homework
  • 2. Take care of known mechanical problems
  • 3. Make sure that your car looks its best
  • 4. Shop around for trade-in value
  • 5. Negotiate trade-in value separately
  • 6. Time your trade-in

On This Page Jump to Menu List

On This Page

  • 1. Do your homework
  • 2. Take care of known mechanical problems
  • 3. Make sure that your car looks its best
  • 4. Shop around for trade-in value
  • 5. Negotiate trade-in value separately
  • 6. Time your trade-in

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Car lots that take trade ins near me

Bounce/Getty Images

4 min read Published October 28, 2022

Written by

Holly D. Johnson

Written by Holly D. JohnsonArrow RightAuthor, Award-Winning Writer

Holly Johnson writes expert content on personal finance, credit cards, loyalty and insurance topics. In addition to writing for Bankrate and CreditCards.com, Johnson does ongoing work for clients that include CNN, Forbes Advisor, LendingTree, Time Magazine and more.

  • Connect with Holly D. Johnson on Twitter Twitter
  • Connect with Holly D. Johnson on LinkedIn Linkedin

Holly D. Johnson

Edited by

Rhys Subitch

Edited by Rhys SubitchArrow RightAuto loans editor

Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to take control of their finances by providing clear, well-researched information that breaks down otherwise complex topics into manageable bites.

How do trade ins work when your car is worth more?

In other words, you will lose money on the trade because you will need to pay out of pocket to cover the difference in value. On the other hand, if your trade-in is worth more than what you still owe, you will have positive equity which you can put toward the purchase of your new car.

Is it better to trade in a car or bring cash?

When buying a car, it may be better to have a down payment rather than a trade-in. A trade-in offers convenience to the car buyer, since one can walk into a dealership with a used vehicle and walk out — or rather, drive out — with a brand-new automobile.

Is it worth trading in an old car?

If your car is only a few years old, this could be a significant amount of money. On the other hand, if your car is in poor condition, or is a car in low demand, or is a car with high mileage, it might be best to trade it in to avoid a major investment of your time and money.

What is the best way to trade in a car?

Follow these steps to get the best price possible on your trade-in..
Find the trade-in price. ... .
Give your car curb appeal. ... .
Shop your trade-in. ... .
Negotiate the trade-in price separately. ... .
Don't forget about sales tax. ... .
Review the trade-in price in the contract..