How to Trade In a Financed Vehicle

How to Trade in a Financed Vehicle

If you want to upgrade your current vehicle, you have more options than simply shopping from the lot. You can actually “trade in” your current vehicle and put the cost of what it’s worth towards a new vehicle. It’s still possible even if your vehicle is financed. 

We’ve done the research so you can learn how to trade in a financed vehicle including how dealerships determine trade-in value, what information you need to provide as well as how to negotiate and maximize your trade-in value. 

Let’s start with the basics!

What is a “trade-in” vehicle? 

A trade-in means you are putting the value of your current used vehicle towards the purchase of another vehicle at a dealership. In a sense, you’re selling your car to the dealership and using the money they give you to buy another vehicle. 

How does a trade-in work? 

When you purchase a vehicle, it’s worth a certain amount of money – this is its value. As soon as you drive the vehicle off the lot, its value decreases and will continue to decrease over time with wear and added mileage. This is called depreciation. Over time, your vehicle won’t be worth the same amount as it was when you first bought it. However, if you trade in your vehicle, you can take the amount it’s worth and put it towards a newer model. 


It’s important to know if you trade in your vehicle for a newer one at a dealership, you’ll likely be offered wholesale value for your used car. 


Wholesale value is the current rate for a vehicle like yours (with wear and tear) when purchased by someone who is going to turn around and sell it, like a dealership. 


Retail value is different – it’s the amount the vehicle is worth in the marketplace.


The buyer (the dealership) will determine the trade-in value of your car – in other words, what your car is worth in its current condition. Your vehicle’s trade-in value can be negotiated, but we’ll get to that later. 

How to trade in a financed vehicle

When you finance a vehicle, you are essentially purchasing the vehicle with a loan, or credit. You then pay back the loan in installments with interest and once the loan is paid back, the car is officially yours. Many people opt for vehicle financing as it’s quite expensive to purchase a car outright.


If you owe money on your vehicle loan yet want to upgrade your vehicle, you can still trade in your financed vehicle. However, the process will differ depending on how much you still owe. You will be in one of two situations: you will either have positive equity on your loan or you will have negative equity. 


So what’s the difference? 


Positive equity occurs when your car is worth more than the amount you owe on your vehicle loan.


Negative equity occurs when your trade-in value is less than what you still owe. In other words, you owe more on the vehicle than what it’s currently worth.


Let’s go over your options in both these situations.


If the trade-in value of your vehicle is more than what you still owe on the loan, the difference (positive equity) can be put towards the purchase of your new vehicle. 


For example, if you’re offered $12,000 for your trade-in and you only owe $10,000 on your loan, you can use the $2,000 difference towards the purchase of your new vehicle. Some people opt to be paid the amount in a cheque but either way, you’ll get that money back in some form. 

What happens if your trade-in value is less than your loan? 

In some cases, you may be offered less money for your trade-in than what’s left on your vehicle loan. For example, if your trade-in is worth $10,000 but you still owe $12,000 on your loan, then you’ll have a deficit (negative equity) of $2,000 which you still owe on your loan.


If this happens to you, you have a couple of options:

  1. You can clear the loan before you trade in your used vehicle. To clear the loan, you can contact the financial institution that provided your loan and ask for a one-time payment of the amount you owe. You may be charged a fee but it differs between each financial institution. Once you clear the loan, the trade-in process will go on as if there was never a deficit. 
  2. The dealership will clear the loan for you. In some cases, the dealership will accept your trade-in with negativity equity. What they’d likely do is add the negative equity amount ($2,000 in our example) to the price of your new vehicle and clear the loan on your behalf. You’ll have to pay back the $2,000 over time but the dealership will take care of the immediate lump sum so your loan is cleared. This could mean you’ll pay more interest in the long run but it may be more financially feasible for some people. 


It may work better for you to wait until you’re debt free to trade in your vehicle. However, if you’re struggling to make car payments, you could downsize to a less expensive vehicle. You also have the option of putting a down payment towards the loan to reduce the amount you’ll have to pay off over time (which could save you on interest in the long run). What you decide to do depends on your specific situation and what works best for you. 

How do dealerships determine trade-in value?

When dealerships analyze your vehicle to determine its trade-in value, they consider many things. Firstly, they want to ensure people will want to buy your vehicle in the condition it’s in. Or, conversely, they’ll need to assess how much money is needed to repair the vehicle so it could compete with similar vehicles in the market. 


You’ll want to take care of your car so it’ll pass the dealership test. To help you prepare, here’s a list of factors the dealerships will assess when you bring in your vehicle: 

  • Vehicle year, make, model and trim 
  • Special features and options
  • Kilometre value on the odometer
  • Condition of the vehicle – interior, exterior, engine, brakes, tires, etc
  • Current market value 


Once your vehicle is assessed, the dealer will give you an estimated trade-in value and explain how they reached that number. The trade-in value is the amount you can use towards the purchase of a new vehicle. 


The price of your new car and the trade-in value of your current car are negotiable so it’s best to come prepared with a number in mind and do the proper research beforehand. 

You can use RightRide’s Car Loan Calculator to estimate your new monthly car payments given the vehicle price, the loan term and your credit score.

Here are some tips on how to negotiate the best trade-in value: 

  • Know your car’s value. It’s important to research and price out your car before the dealership gives you a number. If you know what it’s worth, you’ll be better equipped to negotiate. You can estimate your car’s trade-in value using RightRide’s online tool.
  • Bring in a clean car. The nicer your car looks, the better impression you’ll make at the dealership. Wash the exterior and clean the interior of your car and remove any personal items or mess. You could even take it to a detail shop beforehand.
  • Have your records on hand. Bring any maintenance and repair records–it shows the dealer you’ve been diligent with keeping your car in good shape and you can use it as bargaining power. 
  • Negotiate the new vehicle and your trade-in separately. Your new vehicle and your current vehicle are two separate transactions and should be negotiated as such. Try to negotiate your trade-in first so you know how much you could potentially put towards your new vehicle. 

What information do you need to provide when you trade in a financed vehicle that’s not paid off? 

When you trade in your financed vehicle, the dealership or institution will need some information and paperwork to complete the transaction. 


Here’s what you should bring: 

  • Loan information (payoff amount, account number)
  • Driver’s license
  • Vehicle registration
  • Vehicle keys/remotes
  • Insurance
  • Printout of your trade-in value

How to maximize your trade-in value

Maybe you aren’t going to trade in your vehicle yet but you’re planning on doing so in the future. 


Here are some things you can do to keep your vehicle in good shape so you can maximize your trade-in value: 

  • Keep up with routine maintenance and repairs (and keep your receipts)
  • Wash your vehicle regularly to prevent rust 
  • Keep the interior clean and mess free
  • Store your vehicle in a safe place


The service department at a dealership will inspect your vehicle before assessing its value, so the better shape it’s in, the better chance you have at getting a higher trade-in value. It’s also a good idea to shop around for the best trade-in offer – you don’t have to go with the first dealer you visit. 

Check your trade-in value with RightRide

If you want to check your vehicle’s trade-in value, try our online tool. It’s easy!


Here’s what you have to do: 

  • Select the year of your vehicle
  • Select the make of your vehicle
  • Select the model of your vehicle
  • Select the vehicle trim
  • Select the vehicle style
  • Enter basic contact information including your phone number, email address and the vehicle mileage
  • See your estimated trade-in value!

Our team would be happy to work with you to get you pre-approved and help you trade in your current vehicle.
If you want to upgrade your vehicle, we can help. We rolled out our delayed payment program to offer even more financial flexibility when you need it. You can also shop from the safety and comfort of your home with RightRide VirtualBuy. To find out if you’re eligible for 180 days of no payments, apply now.

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