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Trading in a Car in 5 Easy Steps

How to Trade in a Car in 5 Easy Steps
Kelly Boyer Sagert
Kelly Boyer SagertUpdated November 15, 2022
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Wondering how to trade in a car? This article takes you step by step through the process, from figuring out the vehicle’s value to sealing the deal. Plus, it also shares the pros and cons of trade-ins, red flags at dealerships, alternatives to trading in a car, and more.

Deciding Whether to Trade in Your Car

This is largely a personal decision. Many factors can play into your decision about whether this is the right time to get a new vehicle. When deciding whether you can afford a new car and shopping for a car loan, consider:
  • The purchase prices of cars you like
  • How much you owe on your current vehicle
  • How much cash, if any, you can offer as a down payment
  • Additional costs: for example, taxes, title fees, and dealer fees
  • Any likely increases in car insurance premiums
If you decide to further explore how to trade your car in, here’s help!

5 Steps to Trade in a Car

How to trade in your car: here are five steps:
  1. Figure out the car’s value.
  2. Prep your vehicle for trade-in.
  3. Get quotes on its value from different dealerships.
  4. Negotiate your trade-in price.
  5. Complete the transaction.
So, more specifically, what do you need to trade in a car? Here’s more info:

1. Figuring Out the Value of Your Car

Fortunately, plenty of online resources exist to help you determine your car’s value. They include:
  • Kelley Blue Book
  • Consumer Reports
  • JD Power

What If I’m Upside Down on My Car Loan?

With an upside down auto loan, you owe more on your vehicle than it’s currently worth. People can end up with this type of loan when buying a vehicle without making a down payment or by taking an extended term. Or, the loan may have a high interest rate, causing the person to pay more on interest than the principal.

How Do You Trade in a Car That’s Underwater?

This can make the transaction more challenging because you may need to pay off the old loan before buying a new one or fold the two loans together. So, it’s important to find a lender that is willing to work with this situation.

2. Prepping Your Car for Trade-In

Take care of easy fixes — from handling any current recalls to seeing if there’s a simple way to address the check engine light if it’s on. The dealer will make a trade offer based on the current condition of the vehicle. While you may decide not to invest in any major repairs at trade-in time, taking care of easier ones can help. Clean the car inside and out as well so you can present it to best effect. Also, have receipts handy for any work you’ve had done so that you can show the dealer how well you’ve maintained the vehicle. Keeping your vehicle clean and well-maintained may increase the value of your car or slow its rate of depreciation. Recommended: How to Calculate Car Depreciation

3. Getting Quotes from Different Dealerships

To ensure that you get the best price for your vehicle, take it to multiple dealerships that sell the make and model you want to buy. Taking it to a used car dealership can be a good strategy, too, because it may be in the market to buy vehicles, especially ones that are in good condition with low mileage. Do your research before going to any dealership, and ask questions, especially if the offer sounds either too low or too good to be true. Read any fine print carefully. Compare the offers you get to see what works best for your situation.

Warning Signs of a Predatory Dealer

After you’ve estimated your vehicle’s value through online resources, you may notice that the dealership quotes are different from the figures on valuation websites. That can be a natural part of the process. But if the price is significantly different, that can be a red flag. Another red flag is pressure from the dealer for you to make a deal right now. A salesperson may tell you that if you don’t agree to a deal right now, there’s another buyer ready to take the car. Or they may say that you need to agree right now or the deal is off the table. Or the salesperson might keep changing the offer, which can be confusing, making you unsure what you’d really be agreeing to. Additional red flags to look out for: If the salesperson doesn’t seem to want you to inspect a car too closely, that’s a bad sign. And if the deal seems too good to be true, that’s also a sign to be wary.

4. Negotiating Your Trade-In Price

Negotiate your trade-in separately with a salesperson rather than as part of the purchase of another car. That way, they can’t offer you a great price on the new vehicle but then lowball your trade-in value to make up the difference. Bear in mind that if you can’t get the trade-in value that you think your current car deserves, another strategy you could try is to sell the vehicle to another dealer and then use the cash toward the down payment on your new car.

5. Completing the Trade-In

This process will vary, based on whether you still owe money on the trade-in vehicle and, if so, whether it’s more than the value of the vehicle. If you don’t owe any money on the car, then the process can be pretty simple. The trade-in value is subtracted from the price of the new car and you can either pay that with cash or apply for a car loan. In the unlikely event that the value of your trade-in vehicle minus any loans is more than the price of the new vehicle, the dealership will give you the difference. When you owe money on the vehicle you’re trading in, then the dealer will calculate the difference between what it’s worth and what you owe on it. If the number is greater than zero, then that amount is deducted from the price of your new vehicle. If it’s less than zero, then the trade-in car loan is underwater. In that case, to complete the trade-in, you’d need to pay the difference (the amount you’re under water).

Pros and Cons of Trading in Your Car

Pros of Trading in Your CarCons of Trading in Your Car
You don’t have to sell the car yourselfYou’ll likely get less money than if you sold your car yourself
You can trade in your old car and buy your new one at the same placeYour options for the new vehicle will be limited to what’s available at the dealership
Let’s dig in deeper:

Pros of Trading in Your Car

If you trade in a car, you won’t have to find a buyer and go through the stress of selling the vehicle yourself. Selling the vehicle yourself involves setting a price, marketing your vehicle to catch the attention of potential buyers, negotiating the price, and handling paperwork. A dealer does most of that work for you. You can then sell a vehicle and buy your next one all in the same place, saving you time. Plus, in many states, tax is only charged on the difference between the value of the vehicle being traded in and the price of the vehicle being purchased. This can save you money.

Cons of Trading in Your Car

You will probably make less money if you trade your car in than if you sold it yourself because dealers want to make a profit and may therefore offer less. Plus, your options for your next vehicle are limited to what’s available at the dealership where you traded in your current vehicle.

Does Trading in a Car Affect Your Credit Score?

Trading in a car may affect your credit score if you have an auto loan on the car and the dealership is slow in paying it off. Late payments can hurt your credit score, and this is one of the risks of trading in a car with a loan that is not paid off. A dealership typically pays off any outstanding loan balance on a trade-in vehicle and gets the title of the car. But you remain on the hook for the debt until the loan is paid off in full. If you stop paying the loan and the dealership takes too long in covering the outstanding balance, the creditor may report you as late, which can hurt your credit score. A lower credit score can impact your ability to borrow new money on terms that are right for you. Getting approved for auto financing can be difficult if you have bad credit, but you don’t necessarily need a good or prime credit score to buy a car. Trading in a car generally has no impact on your credit score if you have 100% equity in your car and intend to buy a new or used vehicle using all cash and no financing. How do trade-ins work with a loan? We address that below.

Trading in a Car That Is Not Paid Off

How to trade in a car that is not paid off may depend on whether you have positive or negative equity in the car. Positive equity means the appraised value of your car is greater than the outstanding balance on your car loan.  How to trade in a car with a loan may be easier if you have positive equity. You simply go to a dealership and trade in your existing vehicle to help yourself purchase a new or used vehicle. That’s how to trade in a car with positive equity. Negative equity, meanwhile, means the outstanding balance on your car loan is greater than the appraised value of your car. How to trade in a car with a loan may be more complicated if you have negative equity. The dealership may require that you pay off the negative equity upfront, or you may have to borrow more money when financing the purchase of a vehicle. Below we further elaborate on how to trade in a car with negative equity.

Trading in a Car With a Loan

How do trade-ins work with a loan? As mentioned above, how to trade in a car that is not paid off may depend on whether you have positive or negative equity in the car. The car loan needs to be paid off in full for the dealership to get the title and full ownership of the vehicle. Trading in a car with a loan is more complicated than trading in a car without a loan. How to trade in a car with a loan may require that you make arrangements with the dealership to pay off your auto loan in full. How to trade in a car that is not paid off means you have to give the dealership the necessary details concerning your vehicle and car loan. How to trade in a car with negative equity may require that you go to a dealership with the necessary funds or apply for larger financing. You may pay off the negative equity upfront, or you may agree to a larger auto financing package to cover your negative equity and finance the purchase of a new or used car. Trading in a car with a loan may not always be a smooth process. When trading in a vehicle with a loan, you may want to continue making payments on your car loan until you get official confirmation of your auto loan being paid off in full. That can help you avoid getting a surprise late payment notice if the dealership takes too long to pay off the outstanding balance.

Factors That May Increase Your Trade-In Value

As mentioned earlier, keeping your vehicle clean and well-maintained may increase the value of your car or slow its rate of depreciation. Modifying your car with a new engine or making other enhancements can also increase the value of your car. Any steps you take to preserve or increase the value of your car can translate into a higher trade-in value.

Alternatives to Trading in Your Car

Perhaps you’re deferring buying a new car because the payments on it would be too high. In that case, paying off your current car loan faster could be a good idea for these reasons:
  • It can remove a payment from your list of monthly bills more quickly and you can enjoy some time without a car payment
  • You’ll have a better asset to trade in once you decide to get another vehicle
Refinancing your car loan can be another route to consider. That means you’ll take out a new loan to pay off what you still owe, ideally at a lower interest rate. Getting an auto refi loan doesn’t replace the car you own but may give you a lower monthly payment. That’s something you may want to consider when comparing auto loan refinance vs. trade in. Wondering about the cost to refinance a car? That can vary by lender. Fees to compare include early termination fees (with your current lender), transaction fees, registration fees, and title transfer fees. Find out what applies in your circumstance and continue to make payments on your current loan to avoid any late payment fees.

The Takeaway

Trading in a vehicle to get another one typically involves evaluating your current vehicle, prepping it for the trade-in, getting quotes from dealers, negotiating the trade-in, and sealing the deal. If you decide to refinance instead, Lantern by SoFi can help. Just enter a few details in a simple form, and it won’t affect your credit score.* Compare auto refinance rates with Lantern.  

Frequently Asked Questions

How long should you keep a car before trading it in?
Does cleaning your car increase the trade-in value?
How much money do you lose when you trade in a car?
Photo credit: iStock/skynesher

About the Author

Kelly Boyer Sagert

Kelly Boyer Sagert

Kelly Boyer Sagert is an Emmy Award-nominated writer with decades of professional writing experience. As she was getting her writing career off the ground, she spent several years working at a savings and loan institution, working in the following departments: savings, loans, IRAs, and auditing. She has published thousands of pieces online and in print.
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