Trading in a car with a loan
Understand payoff quotes, trade-in equity and what happens when old car debt enters a new loan.
Get the payoff amount before shopping
A loan statement balance may differ from the amount needed to close the loan on the trade date. Ask the lender for a payoff quote and its valid-through date. Confirm how the dealer will send the payoff and when the title can be released.
Calculate the equity yourself
Trade-in equity equals the dealer’s offer minus the payoff amount. A $15,000 offer with a $19,000 payoff means negative equity of $4,000. That shortfall does not disappear when the dealer handles the paperwork.
See the effect on the new loan
If the lender permits rolling the shortfall into financing, the new principal rises. You then pay interest on debt associated with the old car. The negative equity calculator separates that added monthly payment and interest from the rest of the purchase.
Verify the old loan closes
After the transaction, confirm with the original lender that the balance has been paid and the account is closed as expected. Keep records of the trade agreement and payoff. Continue following your lender’s payment instructions until the payoff is confirmed.
Further reading: FTC guidance on financing or leasing a car and CFPB auto loan resources.