Can I Trade My Car in If the Balance Due Is More Than the Car Is Worth?


If you owe more than your car is worth, also known as being “upside-down,” you might still find you can trade your vehicle. Ultimately, your credit is used to determine the amount of a vehicle’s value you can borrow, so excellent credit buyers may find this process easier.

The selling price of the vehicle plays a big part in loan determination. Consider the overall costs before you decide to trade in an upside-down vehicle.

Balance Due Is More Than


Money Down

You can put the excess money you owe as a down payment. Whether you keep your car and pay off the loan or come up with the cash difference after the car’s trade value, you still end up paying the excess amount. If you purchase a new car, shop for one with sufficient rebates, or manufacturer discounts, which helps to cover your negative equity.

In most states, when you have a trade, its value is deducted from the new vehicle’s cash price, which also saves money. For example, if you have a trade worth $10,000 and live in an area with an 8 percent tax rate, you’d save $800 in taxes.


Interest Rate

Consider your current and potential interest rates, as well. If you have a high interest rate on your current loan and can lower it substantially, you’ll save money by carrying over some of your loan’s balance. Manufacturers sometimes offer as low as zero percent for new-car loans, so you won’t pay any interest at all.

Your current loan is likely charged interest every day, also known as the loan’s per-diem amount. Trading in your loan immediately saves you interest charges; transferring to a lower rate may prove beneficial.


Vehicle Value

Not everyone can obtain a loan approval when attempting to carry over a balance. Banks use the vehicle’s market value to determine how much to lend, known as a loan-to-value ratio. Banks offer a range of 60 to 120 percent of vehicle value based on credit.

Poor credit customers who fall into the lower lending percentage would have to put money down even without a trade in. Excellent credit borrowers might be able to carry over taxes, fees and the excess loan without a problem, but the lender ultimately determines approvals based on this ratio.



It is not advisable to carry over excess money to a new car loan. Unless you put money down to eliminate the negative balance, your vehicle’s value and loan payoff amount will take longer to level out. This can make selling or trading your car in the future difficult because the negative equity will continue.

Some borrowers may also decide to borrow for a term longer than 60 months to lower monthly payments, which costs more money in interest (rates increase after a 60 month term).


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