You can trade in a buy here pay here vehicle much like if you had financed it from a bank, credit union, or other lending company, but how this process works depends on what you still owe on the loan compared to your car’s value.
Car dealerships accept trade-ins that aren’t paid off. In a typical scenario, the dealership takes your trade-in and pays any remaining loan balance to the buy here pay here dealer, and you can either keep what’s left over or use all or part of it as a down payment on your next vehicle. For example, if you owe $3,000 on your loan and a dealer is offering you $5,000 for your trade-in, they’ll pay off the buy here pay here loan and you’ll have $2,000 remaining to either keep or put down on your new car. If you’ve already paid off your vehicle, you can keep or apply all or part of its entire value toward a down payment.
However, this process is more complicated if you owe more on your loan than the car’s actual cash value – a situation known as having negative equity. In a scenario where you owe $5,000 on your loan but a dealer is only offering $3,000 for your trade, you have to find a way to come up with the $2,000 difference. You can cover any negative equity out of pocket, wait until you have equity or have paid off the loan, or roll the difference into your next auto loan. Rolling over negative equity is expensive – it means you’re paying for part of your old car in addition to your new vehicle, including interest – so it should be avoided.
While you can trade in a buy here pay here car, you’ll want to make sure you know how much you still owe on the loan, get an idea of the trade-in value of your current vehicle using online estimators, and get a few offers from different dealerships to compare before making any decisions.