How to Trade In Your Car with an Outstanding Loan
Thinking about trading in your car, but still have a loan balance hanging over it? You’re not alone. Many Canadians find themselves in this exact situation, especially when they’re looking to upgrade or adjust their monthly costs.
Here’s the good news: you can trade in a car with an outstanding loan. But it takes some strategy—and a little math. Whether you’re exploring auto finance in Canada, looking to refinance your car loan, or just want to calculate car payments before heading to a dealership, this guide lays it all out for you.
Step 1: Know Your Payoff Amount
First things first—you’ll need to find out exactly how much you still owe on your current loan. This is called your loan payoff amount, and it’s the key number in this entire process.
You can get it by:
Calling your lender directly
Checking your most recent loan statement
Using your online lender portal
This number may be slightly different from your remaining balance—it includes any interest owed up to the payoff date.
Step 2: Determine Your Car’s Trade-In Value
Next, you’ll need to figure out what your vehicle is currently worth. This is how much a dealer might give you as credit toward your next car.
You can get an estimate by checking:
Canadian Black Book
Kelley Blue Book Canada
Local dealership trade-in tools
Be honest about the condition of your car—dealers will inspect it, and mileage, wear and tear, or accidents will affect the offer.
Step 3: Calculate Your Equity
Now comes the math:
Trade-In Value – Loan Payoff Amount = Equity
There are two possible outcomes here:
✅ Positive Equity
If your car’s trade-in value is more than what you owe, you’re in a great spot! That extra value can go toward your next down payment—or reduce how much you need to finance on your new ride.
❌ Negative Equity
If you owe more than the car is worth, you’re dealing with negative equity—also known as being “upside down” on your loan. It’s common, especially with longer loan terms or high-interest loans.
Step 4: Decide What to Do with Negative Equity
If you have negative equity, you’ve got a few options:
1. Roll It Into Your New Loan
Some dealers will let you add the leftover balance from your current loan into your new auto loan. But be cautious—this increases your total debt and monthly payments.
Use a car loan interest calculator to see how this affects your new loan over time.
2. Pay the Difference Out of Pocket
If you can swing it, covering the negative equity upfront avoids inflating your next loan. This saves you interest and helps keep your monthly payment in check.
3. Refinance Before You Trade
Not ready to trade but still want to lower your monthly costs? You might consider a refinance car loan to get a better interest rate or extend the term. This can make your current loan more manageable while you wait for the equity to improve.
Step 5: Shop Smart for Your Next Loan
Once you’ve handled your current loan situation, it’s time to focus on the next one. Look for:
Low used vehicle financing rates
Flexible terms
No-pressure online platforms
Tools like AutoPlug make it easy to compare lenders, calculate car payments, and apply online without stepping foot in a dealership. Whether you're looking to keep payments low or rebuild credit, the right financing plan makes a huge difference.
Bonus Tip: Use a Car Loan Interest Calculator Before You Sign Anything
Before committing to any new financing offer, plug your numbers into a car loan interest calculator or monthly payment calculator. You’ll be able to:
See how different interest rates affect your payments
Choose a loan term that works for your lifestyle
Understand the real cost of rolling in negative equity
Knowledge = negotiating power.
Final Thoughts
Trading in a car with an outstanding loan doesn’t have to be stressful. Once you understand your equity position and explore your financing options, it becomes a manageable process—whether you're upgrading, downsizing, or refinancing.
Need help getting started? AutoPlug makes it easy to apply for car loans, compare offers, and trade in your vehicle—all while getting expert guidance every step of the way.
