Trading in your old car is part of the car-buying process. And with 60- and 72-month payment terms available, so is buying a new car before the old one is paid for. Dealer finance departments regularly pay off an existing auto loan and finance the new purchase, often rolling negative equity into the new loan. You have negative equity when your loan balance is greater than the value of your car. Trading a car with an existing loan might be expensive, but it will not, in most cases, keep you from getting a new car.
Contact your lender to find out the remaining balance on your auto loan. It is good to know exactly how much you owe before you begin negotiating the new car's purchase price.
Determine the current value of your car. Websites such as edmunds.com and kbb.com, Kelly Blue Book, will give you an estimate based on your car's model, mileage and condition.
Subtract the loan balance from the car's value. Equity will lower you final price, while negative equity will increase the amount financed, unless you pay the difference before financing.
Negotiate the new car's sales price before you mention the trade. Salespeople often boost the sales price when they know that you have trade-in equity.
Inform the salesperson of your trade-in after you have agreed on a sales price. Someone from the dealership will appraise your car's value based on model, mileage and condition. Condition is subjective, so the appraiser's value may differ slightly from your determination; ask the appraiser to explain how he arrived at his estimate. Take the car to another dealer if the appraiser's estimate is significantly lower than yours and you are not satisfied with his explanation.
