How to Trade In an Unpaid Car

by Elizabeth Balarini

If you are in the market for a new car, but still have a car that you are paying a loan on, you might think you have to completely pay off your car loan (or find someone who will pay it off as part of a purchase agreement) in order to get a loan for a new car. That's not completely true. There is a way you can use an unpaid car as a trade-in for your new car.

Contact your bank to secure a new car loan limit. Using your own bank of choice will save you money because financing through dealerships have points built into the loans as a payoff or kickback to dealerships. In other words, if Bank XYZ approves your car loan at 5 percent, if you finance through Bank XYZ at the dealership, the loan will be for 7 percent interest, with the extra 2 percent being used to pay the dealership a "finders fee" for getting you as a new customer. Do yourself a favor by contacting Bank XYZ (or whatever bank you choose) on your own. Let the loan officer know that you will be trading in your unpaid car when you purchase your new car.

Visit car dealerships to find the car you want. Shop around because dealerships can vary in price for identical cars, and this price difference can save you several thousand dollars.

Strike a deal with the dealership. Never pay sticker price. Bargain your way down to the price you are comfortable with. Do not mention that you will be trading in a car. You want it to get to the bare-bones, lowest price it is willing to accept for the car.

Make sure you are satisfied with the price before informing the dealership that you will be trading in your car. Ask for a trade-in value as close to "Blue Book" value as possible. Do not accept its first trade-in value. Bargain your way up on this number. If you are asked if the car is paid off, tell the dealership that it is irrelevant to the value of the car. At this point, you are just wanting it to put a value on the car itself.

Have the dealership give you the new price for your new car (which will be the price of the new car, minus the trade-in value of your used car). Have this in writing before you sign anything.

Inform the dealership that you still owe money on the used car. This amount will be "rolled over" into the new car loan. So you will be paying a loan that is larger than the value of your new car, which is the cost of the new car plus the amount you still owe on the old car.

Contact your bank and inform it of the price that was decided upon, and get a check for that amount to give to the dealership so that you can drive your new car off the lot.

Make payments to the bank for your new combination car loan.

About the Author

Elizabeth Balarini is a freelance writer and professional blogger who began writing professionally in 2006. Her work has been published on several websites. Her articles focus on where her passions lie: writing, web development, blogging, home and garden, and health and wellness. Balarini majored in English at the University of Texas at San Antonio.

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