Can You Trade In a Financed Car?

October 11th, 2018 by

Beautiful young couple signs documents

If you’re like a lot of our Portsmouth customers, you’re ready for a new car before you’ve paid off your old one. A lot of those same customers come in wondering if trading in a financed car is even possible. We’re here to tell you that it is, and the friendly finance department at Dover Honda of Dover will be happy to walk you through the process. There are things you should know, however. So, let’s answer the following questions: How does trading in a financed car work? Can you trade in a financed car when you owe more than what’s it worth? Can you trade in a financed car for a leased car?

How Does Trading in a Financed Car Work?

Trading in a financed car can be a breeze if you owe less on the car than what it is currently worth. Basically, the dealer takes over your loan and puts your positive equity towards the down payment. For example, say you owe $4,000 on your old car, but it is worth $5,000. The dealer will pay off your loan and apply the remaining $1,000 towards your down payment for your new car. But a lot of our Rochester area customers find themselves in the opposite position – their old car is worth less than what they still owe on it. How does trading in a financed car work if you owe more than what it’s worth?

Can You Trade in a Financed Car When You Owe More than It’s Worth?

You can trade in a financed car, even though you owe more than what it’s worth. But you’ll want to crunch the numbers to determine if it makes financial sense. How does trading in a financed car work in that case? You have two options: the dealer will take over the loan, but you will have to pay the difference between what you owe and what it’s worth, or the dealer will take over your loan, but roll your negative equity into the loan on your new car. So, for example, you owe $4,000 on your old car but it’s only worth $3,000. You either pay the $1,000 difference to the dealer, or the dealer will add $1,000 to your new loan. This last option often means you start your new car loan underwater (owing more than what it is worth).

Can You Trade in a Financed Car for a Lease?

It is possible to trade in a financed car for a lease. In this case, the dealer takes over your loan and applies your positive equity to the down payment on the lease. But how does it work if you owe more than what the car is worth? Much the same way as if you were buying the new car. You can either pay the difference upfront or the dealer will add your negative equity to the amount of the lease, resulting in higher monthly payments.

Ask Us About Your Financing Options

You have questions. We have answers. So, contact us, we’ll be happy to help. We aim to make it easy for you to get into your next car. You can even apply for financing online. Even though we’re conveniently located not too far from Somersworth, you can explore our entire inventory of new and used cars from the comfort of your home.

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