Trading in a Vehicle That Isn’t Paid Off

June 21, 2018

"Trading in a vehicle is a common occurrence. Our dealership partners are all set up to handle trade-ins, even if your vehicle isn’t paid off. We welcome the opportunity to find you a new vehicle that better fits your needs." - Mike Galpin (Co-CEO, Canada Drives)

There are many reasons why a person might decide to trade in their vehicle, whether it be opting for lower rates or upgrading to a vehicle that better fits their lifestyle. Regardless of the reasoning, dealerships usually make trade in processes quick, transparent and easy.

If you have a vehicle that hasn’t been paid off in full, but you’re interested in trading in, here’s what you should know about the process:

1. Do Your Research

When you’re trading in a vehicle, you’re doing just that: making a trade. Considering this, it’s imperative to know exactly what you’re trading in. How old is your vehicle? What’s the make and model? How’s the condition? Do you owe any more money on the vehicle, or is it completely paid off?

The service department at a car dealership will do an overall inspection of a proposed trade vehicle. They’ll examine the condition of brakes, tires, fluids and other mechanical parts. If a car dealership decides to accept a trade in with a vehicle that has a bruised interior or exterior, the customer might have to pay for it on top of the new loan agreement. Any damage to a vehicle will lower its trade in value, so ensure all simple repairs are done to your vehicle before you make a trade.

Do your research about what your car is worth so that you can decide at the car dealership that will help you get the most money out of the transaction.

Read our most recent blog post on Detailing Your Car on a Budget here.

2. Be Prepared to Talk Equity

When it comes to trading in your vehicle, be prepared to talk about equity, negative equity and trade in value. If you’re still making car payments when the time comes to trade in a vehicle, the dealership will take the value of your vehicle as equity and put it towards your new vehicle.

If you owe more than what your vehicle is worth (example: if your car is worth $10,000 but you owe $12,000), the dealership will put negative the equity (example: $2,000) onto your new vehicle payment. Unfortunately, trading in a vehicle with negative equity doesn’t mean that you’ll be freed from your old payments. Canadians who have negative equity on their trade in vehicle will usually be expected to pay more on monthly payments and potentially have higher interest rates on the new car loan.

Understanding how equity, negative equity and trade in value work could help you make better car buying decisions when it comes to purchasing and financing future vehicles.

3. The Dealership Will Do the Work

Once you’ve agreed to trade in your vehicle for one that the dealership offers, they’ll handle the financials. If your old vehicle has negative equity, the dealership will contact your financial institution to consult the new loan agreement. Once this agreement is approved, the dealership will take possession of your old vehicle. Dealerships make a bulk of their profit through used-car sales and view trade-ins as replenishment to their car inventory. If your vehicle can’t be reconditioned by the dealership, they’ll do one of two things…


A dealer who doesn’t think that the car will be a good fit for their lot might opt for wholesaling the vehicle. If the vehicle is older than 6 years and has more than 80,000 miles on it, it will be put through a series of auto re-sale tests. If it doesn’t pass the requirements or has visibly worn parts that can’t be repaired, the dealership will most likely wholesale it to another dealer.

Wholesaling might also be the outcome if the dealership already has multiple models of the same car on the lot, or if the traded-in car is a different brand compared to what the dealership carries. If you’re planning on trading in a much older vehicle, you might want to consider selling it to an independent car lot.


Vehicles that have very low value and cannot be wholesaled by the dealership will most likely be auctioned off. Vehicles that are auctioned are usually in very poor condition and have high mileage. Dealerships make money off auctioned vehicles; however, the profit is very low. If you want to trade in a vehicle that is in poor condition and has high mileage, you might make more money by privately selling it yourself. Although, it’s important to note: privately sold vehicles can take a lot of effort and time to find a potential buyer. Trading in a vehicle is straightforward and handled completely by the dealership.

4. Read the Contract, Carefully

You might run into a dealership that promises to pay off all negative equity on your old vehicle. Be cautious of these dealerships – as nice as it would be to forget about your negative equity, chances are car dealerships that advertise this will sneak it onto your new loan, increasing the payments and interest rates on your trade agreement. If a dealer verbally offers you a deal, ensure that it’s written out in the contract. Ask the dealership any question you have about the loan agreement, and don’t feel pressure to trade with a dealership that won’t negotiate with you.

Ready to chat with someone about trading in your vehicle?

Give us a call today at 1-888-865-6402 or apply here and we can set you up with a local dealership close to you for free!


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