You can trade a vehicle if it is still has a loan on it. In fact, this is common at dealerships and it is how they get most of their used car inventory. If you owe more than your car is worth, you'll have to work with a dealer who can cover up negative equity. Or, you can always put money down towards a new loan. The dealership that you purchase from will pay off the balance of your old car and take care of the financing for your new one.
Call your lender to ask for the vehicle's payoff amount. While the dealer must do this again to confirm the correct amount, you should know if you are upside down or if you have equity in your car. Write the amount down.
Check your car's trade-in value using the NADA Guide website or Edmunds. Make sure you put in the correct level, mileage and all options for an accurate value. Combine the value from both sites and use the median figure to determine value.
Check your funds and decide if you will put money down to cover up any negative equity. Paying off negative equity can help you start your new loan without having to pay for your old car, too. If you have equity in the vehicle, consider the extra amount as automatic money down.
Go to a dealership you want to work with and bring your title if you have it (some states send the title to the lien holder). Tell the dealer what you hope to accomplish by letting the representative know how much you plan to put down (if any at all) with your trade in. The dealer will work with you if you have negative equity and will help you find a suitable car.
Shop the dealers lot and find a car you want to purchase. Once you do, have the trade appraisal done. The dealer will show you the value of your car, the new car and the balance that you will finance including tax and fees.
Fill out a credit application information to secure a new loan through the dealer. Sign your title, your state motor vehicle paperwork and loan contracts with the dealer. He will transfer your insurance or instruct you to do so.
Call your bank and let them know you've sold your vehicle. Although you are still responsible for payments until the complete payoff is sent from the dealer, you should check back in about a week's time to confirm that the vehicle has been paid off.
