What Should I Know Before Trading in a Financed Vehicle?

By Adam Pirman, Sales Manager at Apple Chevrolet

One of the questions I hear regularly from customers is:

“Can I trade in my vehicle if I still owe money on it?”

The short answer is yes.

In fact, it happens every day. You do not have to wait until your current vehicle is completely paid off before trading it in.

But there are a few things you should understand before making that decision.

After more than 18 years in the automotive industry, I’ve helped thousands of customers trade vehicles in all kinds of financial situations. Some have thousands of dollars in equity. Others owe almost exactly what their vehicle is worth. And some owe more than the vehicle’s current value.

None of those situations automatically means you should or shouldn’t trade.

The important thing is understanding where you stand before making your next decision.

Here’s how I explain it to customers at Apple Chevrolet, your local Tinley Park Chevrolet dealership.

Start With Two Numbers: Your Trade Value and Your Payoff

When you still have a loan on your vehicle, there are two numbers we need to determine.

The first is what your vehicle is worth today.

The second is the current payoff amount on your loan.

Your payoff amount isn’t necessarily the same number you see as the balance on your most recent statement. Your lender can provide an exact payoff amount showing what is required to completely satisfy the loan.

Once we know those two numbers, we can determine whether you have positive equity, negative equity, or are roughly even.

What Does Positive Equity Mean?

Let’s use a simple example.

Suppose your vehicle is worth $25,000, but you only owe $18,000.

That means you have approximately $7,000 in positive equity.

That equity can generally be applied toward your next vehicle as part of the transaction.

This is usually the easiest situation to understand because your vehicle is worth more than what you owe.

What If I Owe More Than My Vehicle Is Worth?

This is called negative equity, and it’s more common than many customers realize.

For example:

Your vehicle is worth $25,000, but your payoff is $29,000.

You’re approximately $4,000 upside down, or $4,000 in negative equity.

That doesn’t necessarily mean you can’t trade the vehicle.

Depending on the vehicle you’re purchasing, your credit situation, available incentives, down payment, and lender approval, there may be options for handling that difference.

Sometimes some or all of the negative equity can be included in the financing on the next vehicle. Other times, putting money down may make more sense.

And sometimes my advice may simply be:

Keep your current vehicle a little longer.

Every situation is different.

Just Because You Can Trade Doesn’t Always Mean You Should

This is probably one of the most important things I tell customers.

My job isn’t simply to figure out how to get you out of your current vehicle.

I want to understand why you want to get out of it.

Maybe your family has grown and you genuinely need a larger SUV.

Maybe your commute has changed.

Maybe your current vehicle is starting to need expensive repairs.

Maybe you’re driving more miles and want something more efficient.

Or maybe you simply want something new.

Those are all different situations.

If you’re significantly upside down on a perfectly good vehicle and there’s no real reason you need to replace it, keeping it longer and paying down the balance may sometimes be the smarter financial decision.

I’d rather explain that honestly than put someone into a transaction that doesn’t make sense for them.

How Did I End Up Owing More Than My Vehicle Is Worth?

Negative equity can happen for several reasons.

You may have:

• Financed the vehicle with little or no money down
• Chosen a longer loan term
• Driven significantly more miles than expected
• Experienced a change in the used-vehicle market
• Rolled negative equity from a previous vehicle into your current loan
• Purchased a vehicle that depreciated faster than expected

It doesn’t necessarily mean you made a bad decision.

Vehicles depreciate, markets change, and people’s circumstances change.

What matters now is understanding your current position and determining the best path forward.

Be Careful About Rolling Negative Equity From Vehicle to Vehicle

This is something I think customers should really understand.

If you owe more than your vehicle is worth and that difference is added to your next loan, you’re not making that negative equity disappear.

You’re carrying it forward.

If that happens repeatedly, the amount can grow and make it increasingly difficult to get into a good equity position.

That’s why I encourage customers to look beyond:

“Can you get me into this vehicle?”

The better question is:

“Does this transaction make sense for me?”

Those are two very different questions.

Your Next Vehicle Can Make a Difference

Another thing customers don’t always realize is that the vehicle you’re buying can affect your options.

Different vehicles may have different manufacturer incentives, rebates, financing programs, and lender considerations.

That means there can be situations where moving from your current vehicle into one Chevrolet makes considerably more financial sense than moving into another.

This is why I don’t like giving customers blanket answers before seeing the entire situation.

We need to look at your trade value, payoff, equity position, credit profile, available programs, the vehicle you’re considering, and the payment you’re trying to achieve.

Then we can have a real conversation about your options.

What Happens to My Old Loan?

When you trade a financed vehicle, the existing loan still needs to be satisfied.

As part of the trade-in process, the dealership obtains the payoff information from your lender and handles the payoff of the existing loan as part of the transaction.

That’s another reason having an accurate payoff amount is so important.

Once everything is processed, your previous loan should be paid off according to the terms of the transaction.

Don’t Judge the Deal Only by the Trade Number

This ties directly into something I’ve discussed before in From the Manager’s Desk.

Customers sometimes become completely focused on one number:

“How much are you giving me for my trade?”

The trade value absolutely matters.

But so does:

• What you’re paying for the next vehicle
• Manufacturer incentives
• Interest rate
• Amount financed
• Money down
• Loan term
• Your current payoff
• Your equity or negative equity

Someone can show you a larger trade-in number and still structure a more expensive overall transaction somewhere else.

I always recommend looking at the entire deal, not just one number.

My Advice

Before trading in a financed vehicle, find out three things:

1. What is my vehicle worth?
2. What is my exact payoff?
3. Why am I considering trading right now?

Once you know those answers, the conversation becomes much easier.

If you have positive equity, great. We can talk about how that equity fits into your next purchase.

If you’re approximately even, we can evaluate your options.

If you have negative equity, don’t panic. Let’s understand how much there is and whether trading now actually makes sense.

Sometimes the right answer is to trade.

Sometimes the right answer is to put some money down.

And sometimes the best advice I can give you is to keep driving what you have for a while longer.

My goal isn’t simply to help you trade your vehicle. It’s to help you understand whether trading it is the right decision for you.

Have Questions? I’m Here to Help.

Every customer’s situation is unique.

Whether you are deciding between leasing and financing, trying to understand your trade value, researching your next Chevrolet, or simply wondering if now is the right time to buy, my team and I are always happy to have an honest conversation.

At Apple Chevrolet, your Tinley Park Chevy dealership, our goal is not just to sell vehicles. Our goal is to help customers make informed decisions they feel confident about.

If you have questions, feel free to reach out directly:

Adam Pirman
Sales Manager
Apple Chevrolet
708-429-3000
apriman@applechevy.com

Or stop by and visit us:

Apple Chevrolet
8585 W 159th St
Tinley Park, IL 60487

I look forward to helping you with your next Chevrolet experience.