Can You Trade in a Financed Car in 2022? Guide to Car Trade-Ins & Financing

By Alexi Falson on 31 Mar 2022
image for Can You Trade in a Financed Car in 2022? Guide to Car Trade-Ins & Financing If your current car was purchased with the help of some vehicle financing, but your current situation means that your needs have changed, or you simply want to upgrade your current car, there are a number of options available to you, but you'll have to do some homework first.

Thankfully, that’s exactly what we’re going to break down in this article, as we take a look at all the information you need to know to make an informed decision if and when you’re looking to trade in a financed car. While the process of upgrading your current vehicle to a newer model, or something completely different to accommodate a growing family or your need for speed is no doubt exciting, you want to avoid any costly mistakes. 

With that in mind, let’s take a look at your best options while trading in a financed car, and how you can save yourself potentially thousands of dollars down the line. 

What Happens if I Trade in a Financed Car? 

Trading in a vehicle that was purchased with the help of car finance is common, but it can become complicated, depending on how much you owe your lender for that vehicle, and the type of loan it was purchased with.

Whether you’re trading in that vehicle or selling it privately, you need to get a few things in order before it leaves your possession, if the vehicle was financed.

The first step is to check your loan terms to see if the financed vehicle was obtained with a secured loan, which the lender lists as a form of collateral in the case that you fail to make repayments for the vehicle. In a secured loan, the lender will register your vehicle with the Personal Properties Securities Register, which means that the lender will have to approve any of your plans to sell the vehicle or trade it in for an agreed market value.

This will likely result in paying some extra fees to sell or trade-in the vehicle. 

If and when you’ve obtained permission from the lender, it’s time to visit a dealership to see what the market value is for that car, which allows you to compare this figure with the amount outstanding on your loan. Typically, the vehicle dealer will agree to pay the outstanding loan amount on the vehicle that you’re trading in, and with a financed vehicle, dealerships often have the ability to communicate with your finance provider to finalise any debts owing for that vehicle. 

In the case of an unsecured loan, you need to ensure that the value of the trade-in or private sale exceeds that of the money you owe for the vehicle, because your lender is unlikely to budge unless you have repaid the car loan, as well as any fees, in full. Make sure you contact your lender to see if there are any costs attached to ending your loan term ahead of schedule.   

Keep in mind you can request a free quote on your vehicle if you’re looking to upgrade, or simply want to get an idea of how much your vehicle is worth using our request a quote tool here.   

What Steps Need to be Taken Before Selling a Financed Car? 

  • Determine whether the vehicle is part of a secured, or unsecured loan 
  • Calculate how much you owe your lender for the original loan
  • Factor-in any fees and interest rates
  • Talk to the lender about any fees or costs for ending the loan period early 
  • Contact multiple car dealerships to get an idea of your vehicle’s agreed value 
  • Ensure the dealer is informed the vehicle is financed 
  • Determine whether paying more of the original loan before trading in could land you with more cash in your back pocket 
  • If upgrading to a larger, more expensive car, ensure you can cover the new repayments

For more information on the process of trading in your vehicle, we’ve covered it comprehensively in an article you can read here.  

What Happens If I’m Offered Less Money for a Trade In Than I Owe For a Financed Vehicle? 

If you’re in a position that the money you owe for the vehicle you’re planning on trading in is less than the value the dealership is offering you for a trade in, this is called negative equity. In the case of negative equity for a vehicle trade in, you have a couple of options. 

The first option is to go ahead with the trade-in, and settle any outstanding debts for that vehicle with either some of your savings, a personal loan, or a combination of both. The second option is to contact finance lenders to see if you’re able to add that slice of negative equity onto a new car loan, in the case that you’re upgrading. One thing to keep in mind, here, is that lenders have limits to how much negative equity you can package into another loan, and may sometimes result in less than desirable interest rates, payment terms and fees over the course of that loan. 

Does My Car Loan Disappear When I Trade in My Car? 

If the amount of money that a dealer has agreed to pay you for a financed vehicle is larger than the amount you owe, this effectively removes the debt owing for that vehicle and makes that car loan disappear. This is only the case if you have factored-in all the applicable fees and extra charges that your lender might add to your loan terms if you’re ending the loan ahead of the payment schedule. This is why it’s essential that you contact the vehicle’s finance provider to ensure you’re aware of all the costs, and you can confidently cover these with either the money that the dealer is paying you for the vehicle once the trade-in is finalised, or some of your savings. 

What are the Risks Trading in a Loaned Car? 

There are a number of risks associated with trading in a loaned or financed car, namely coming in contact with the concept of negative equity that we’ve covered above, as well as ensuring you’ve contacted your lender ahead of attempting to trade in a vehicle financed on a secured loan. It’s also essential that if, in the case you’re upgrading to a larger or more expensive vehicle, you have contacted lenders ahead of time to get a clear picture of the repayment schedule and interest rates. It’s easy to get carried away in the spirit of the moment, especially with new cars, but ensuring that you’re purchasing within your means and able to meet the payment terms of your upgraded vehicle are essential before trading in your financed vehicle for an upgrade. 

How Do I Trade in a Car Purchased with Vehicle Finance? 

The process of trading in a car purchased with vehicle finance is a relatively straight-forward task, so long as you’re open and transparent with your financial lender, and the dealership that you’re trading it in with. Ensuring that the vehicle is not tied to a secured loan is one of the most important steps, as well as informing the dealer that the vehicle was obtained with finance are two essential boxes to tick.

To get a simple, straight-forward and hassle-free quote on your vehicle’s potential trade-in value, click here to discover OnlineAuto’s range of services.  

Does Trading in a Car Hurt Your Credit Rating? 

The process of trading in a car doesn’t necessarily hurt your credit rating, so long as you’re meeting your obligations as a borrower ahead of the trade-in. If you have obtained permission from the lender to sell or trade-in your vehicle ahead of contacting a dealership, and that dealership is aware of the fact the vehicle is financed, this in and of itself won’t impact your credit rating. 

There are, however, a number of important considerations like ending a loan period early and attempting to transfer any negative equity to a new or refinanced car loan that may have an impact on your overall credit rating. As per usual, it’s recommended that you contact your lender to get an idea of your obligations as a borrower, as well as the things that might impact your credit score. 


Alexi Falson

Alexi is an automotive journalist and road tester hailing from Byron Bay. He has an affection for both cars and motorbikes, a great admiration for the simplicity of old-school engineering, and a fascination of new technology making its way to modern cars. When he's not road testing, you'll find him surfing, hiking or helping people find their dream cars.

Have any questions? Call us on 1300 719 925

car icon
close sticky hub button


Maximum of 3 vehicles