Trading in a car you still owe on can be a convenient way to move on from your current vehicle while applying its value toward your next one. And yes, you can trade in a car that is financed.

That said, it’s important to understand how the process works, what documentation you’ll need, and the impact your current balance will have on your new financing.

How it works when you still owe on your car

When you trade in a vehicle that’s still financed, the dealership typically pays off your existing financing. They’ll do so by contacting your lender and asking for the payoff amount. If your car is worth more than what you owe, you can use this positive equity as a down payment on your next vehicle.

However, if your car is worth less than your balance, you have what’s called negative equity. In this case, you’ll need to either pay the difference out of pocket or roll the remaining balance into your new auto financing.

Knowing whether you have positive or negative equity can help you make a smarter decision. You can estimate your vehicle’s value using Kelley Blue Book or Edmunds, and compare that to your payoff amount.

What to know about negative equity

Rolling negative equity into your new auto financing is possible, but it can result in a higher monthly payment and a longer timeframe to build equity in your next car. That’s why many financial experts recommend reducing or eliminating negative equity before you trade in. There are a few strategies worth considering.

You could continue making payments until your balance drops below the vehicle’s value, allowing you to trade it in with positive equity. If you can’t wait, you can pay the difference in cash to avoid adding debt to your new financing. If you’re willing, you can even trade down to a less expensive vehicle to make the math work more in your favor.

What you should bring to the dealership

To complete a trade-in of a vehicle with an outstanding balance, you’ll need to come prepared. The dealership will require a few documents to process the payoff and finalize your new purchase. These include the payoff information (such as lender name, account number, and payoff amount), vehicle registration, your driver’s license, and proof of insurance.

You should also bring the car keys, remotes, and accessories that came with the vehicle. Maintenance records and service history aren’t necessary, but they could help boost your trade-in value by showing you’ve taken good care of the car.

How to find a dealer to discuss your trade-in with

If any of this sounds confusing to you, any of the 15,000 dealers within the Credit Acceptance network can break everything down for you while also providing an accurate trade-in value. If you’re curious about the monthly payment you might be approved for, we can help there, too. Simply start the pre-qualification process on our website before visiting a dealer.