The Ultimate Guide: How To Trade in a Car That’s Not Paid Off

If you've grown tired of your current vehicle and want something new, you can always trade it in and get something more suitable. What if you have an outstanding loan balance on your current car? Does that disqualify you from trading it in? 

No, but it makes the process a little more complex by introducing payoff amounts and negative or positive equity. 

Below, you'll learn how to trade in a car that's not paid off and drive away in a more suitable new or used car

Can You Trade in a Car That's Not Paid Off? 

Yes, you can. It's not as simple as a car that's paid off, and you could end up with negative equity, meaning you owe the lender more on the car than its trade-in value. In some cases, rolling over a small amount of negative equity into your new auto loan is possible. Keep in mind, rolling over negative equity can increase your new loan amount and result in a higher monthly payment. 

You can also pay down some negative equity with a down payment or any incentives from a new car. 

How To Trade in a Car That's Not Paid Off

Trading in a vehicle with an open car loan is possible, and trading it with Clutch makes it even easier. 

Step 1: Determine the Car's Trade-In Value

Using a trusted vehicle valuation site, such as Canadian Black Book (CBB) or Kelley Blue Book (KBB), you can get a rough estimated trade-in value for your vehicle.

When using these systems, don't confuse this with the private-party or retail value. The trade-in value will be slightly lower than the private party or retail value to cover reconditioning costs, profit, and other variables.

The trade-off for the lower value is the convenience of not selling your car on the open market, which can be stressful and time-consuming, and the potential tax savings that come with trading a vehicle.

When checking the trade-in value of your car, be as accurate as possible with the features, mileage, and vehicle condition. As any inaccuracies here can lead to a significantly higher or lower estimate. 

You can skip all the guesswork and get an estimate using Clutch’s trade-in vehicle estimator. Simply enter a few bits of information on your vehicle to get an estimated trade-in value. If the value looks good, enter only a little more information to get a firm trade-in value in just hours. 

Step 2: Get Your Loan Payoff Statement

Next, you need to know the remaining balance on your loan. Sure, you can see the principal balance online, but that is just for today. You want to get a payoff statement, which is generally good for 15- or 30-days. Some lenders offer this online, but others may require a more formal phone request.

The payoff statement is critical because most loans charge interest by the day, slightly increasing the loan balance each day. You must include these small interest charges that accrue from today until the day your current loan is paid off. If your check arrives early, and you end up with a small credit balance, the lender will send you a check for the difference.

Compare the payoff amount to the estimated trade-in value. If your payoff is lower than the value, you have positive equity that'll work as a down payment toward your next car. If you have negative equity, check your finances to see if you can pay this down with cash. If the negative equity is less than a few thousand dollars, you may be able to roll that into a new loan.  

Step 3: Get a Fair Deal on Your Next Car

Separate from the trade-in transaction, negotiate the best cash deal for your next car. Not that you're paying cash, but you should always negotiate like you are. This means negotiating the final price initially -- nothing else. 

When you allow the dealer to negotiate from multiple factors at once -- interest rate, price, and trade-in value -- some will pay with the number to make a deal look good when it's really not great, such as dropping the vehicle's price but increasing the interest rate. 

You may even want to negotiate with some dealers that couldn't meet the trade-in value. These dealerships may have special deals or better pricing than the dealer that gave you the best trade value. 

After settling on a total price, begin negotiating the interest rate, also referred to as the annual percentage rate (APR). 

While negotiating at a traditional dealership is an option, it’s often a time consuming and frustrating experience.   Clutch’s great prices have eliminated the need to spend hours at a dealership haggling with a salesperson. Simply choose the vehicle you like, and know that you’re getting the best deal.

Plus, Clutch’s 100% online car-shopping experience means you can find the car you love from the comfort of your home. We’ll then deliver  it to you for a risk-free 10-day or 750-km test-own period. 

Step 4: Prepare Your Trade

Prepare to trade in your vehicle by clearing out all your personal belongings and placing them in a box or bag. 

Collect your proof of insurance and registration from your trade-in vehicle, as you may need to disclose  this information. Also, contact your car insurance company to add your new vehicle to the policy and delete the trade-in vehicle. 

It's also wise to contact your lender to verify the payoff address. At Clutch, we’ll handle this for you, giving you one less thing to stress over. 

Step 5: Complete the Paperwork

Get that signing hand ready because here comes the paperwork. Review and sign off on all the paperwork for your trade-in vehicle and the loan on your replacement new or used car. 

It's easy to get lost in the sea of paperwork and just start signing without reading. However, you want to review each document carefully, especially those concerning the vehicle's price, APR, and trade-in value. Ensure these and your monthly payment match what you agreed upon before signing. 

You'll also pay any down payment at this point to tend to any negative equity you may have. 

Clutch shakes up this process by delivering your vehicle and paperwork to you — no need to come to a dealership. We’ll even pick up your trade-in car!

Skip the Runaround and Trade Your Financed Car With Clutch

At Clutch, Canada's first online pre-owned vehicle retailer, we make it easy to trade in a car that's not paid off. Simply head to our trade-in vehicle estimator and enter your current vehicle's information. We'll send you a rough estimate. 

If the estimate looks good to you, simply submit a little more information for a firm trade-in offer. 

From there, you can apply this trade-in offer to any of our quality pre-owned vehicles. They all have been through a 210-point inspection and reconditioning process and include a 90-day or 6,000-km warranty. We also include a 10-day or 750-km test-own period. If you don't love your new Clutch vehicle in the first 10 days or 750 km, you can return it for a full refund or exchange it for another vehicle. 

If you don’t find a vehicle you love in our inventory, you can still sell your vehicle to Clutch for the agreed-upon price. We’ll pick it up and you’ll get paid. 

Plus, virtually the entire purchase process is online with Clutch. There's no dealership to drive to or salespeople to negotiate with. It's simply a no-hassle, no-haggle car-buying experience. Plus, we'll deliver the vehicle to you and take away your trade, making the process even more streamlined.