How to Trade in Your Car in 5 Easy Steps

Getting a new car can be exciting, but the process generally involves figuring out what you’re going to do with your old ride. Knowing how to trade in your car to maximize the value you get is important, and for first-timers, this can be tricky. This guide breaks down the process step-by-step to help you get top dollar and save as much as possible on your new vehicle purchase.

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    What is the process of trading a car?

    Dealerships are always on the lookout for quality used cars that they can purchase and flip to sell back to other customers as a used car or certified pre-owned vehicle. Depending on your situation, this may be a great way to lower the cost of the new car. How to trade your car and take advantage of this opportunity depends on whether you own your vehicle or still owe money on a loan.

    If you own your car outright, you can trade it in with no issues. Generally, dealerships will try and pay as little as possible for the car to preserve future profits. While this method may net you less cash than selling the vehicle privately, it can be a more streamlined, less-headache process.

    For people who still owe on a car loan, the process of trading in a car is a little more intricate. If your car is worth more than you currently owe, you can trade it in and keep the difference. For example, if you owe $1,000 on the car and the trade-in value is $2,000, $1,000 will go to pay off the loan and the other $1,000 is yours to keep or put towards a new car purchase.

    If your car is worth less than you owe, known as being underwater, you’re going to have to pay out of pocket, which will increase the cost of the new car purchase. For example, if your car is worth $1,500 and you owe $3,000 on the loan, you can still trade in the car, but will still need to pay the $1,500 difference out of pocket.

    Regardless of which of these situations you are in, the steps on how to trade in the car are the same.

    1. Find out your car’s trade-in value.

    Step one of how to trade in the vehicle starts by figuring out what your car is worth. You can use online tools like Kelley Blue Book or similar sites to gauge your used car’s value. You can also pull up classified car ads and see what your vehicle is selling for, compared to other listings.

    There are two things you have to be aware of here, though. First, the price a dealership or a private seller has a car listed for will be higher than what you get from a trade-in. You lose some of that value in trade for simplicity when you trade vs. sell. Second, most people’s cars are not as nice as they think they are. Yes, it’s probably a beautiful car that you’ve taken good care of, but the dealership is going to nit-pick every scratch, dent and sign of wear-and-tear as much as possible.

    2. Determine an ideal price.

    Collect the data from step one and determine what you think a fair price is. You should determine an ideal price as well as a floor price — the lowest you are willing to go on your trade-in. Expect to be offered way less than what you think is fair at most dealerships. You can always negotiate, but the dealer as the buyer is in the position of power.

    3. Seek quotes.

    Start visiting and talking to dealerships to see what they are willing to give you on a trade-in. Remember, you do not have to trade your car in at the same place that you buy your new one. Taking the time to shop around for different options can get you an extra few hundred or even a few thousand dollars in some cases.

    4. Choose an offer.

    Once you’ve collected your different offers, choose the one that is best for you. In most cases, this will always be whichever dealer is willing to offer you the most money for your trade-in. Make sure that if you’re trading your car into the same dealer you are buying from, you are not getting squeezed by getting more for your trade-in and paying more for the car. Many professional car buyers recommend waiting to mention you have a trade-in until you’ve finalized a purchase price on the vehicle you want to buy.

    5. Close the deal.

    The last step of the process is closing the deal. Make sure to review all of the paperwork before signing over your car. Additionally, make sure you time things correctly, so you don’t end up with a gap between the old car and new car, where you have no way to get around.

    Paying the remaining amount with an auto loan

    For most people, trading in a car won’t cover the cost of the new vehicle you are looking to purchase. The most popular way to cover the remainder of the purchase is through an auto loan. Either the dealer, your bank or an online lender will give you the remainder of the money you need upfront in exchange for regular payments over the life of the loan.

    The best auto loans can get you the money you need at an affordable rate. Keep in mind that your car will be collateral on an auto loan, which means you will lose your car if you default. The one perk to using collateral is that people with bad credit may be more likely to get approval.

    Answering the question of how does trading in a car work when you’re underwater, gets a little trickier. If you’re upside down in your car loan (owe more than the car is worth), you will need to square up with your initial loan first. A few quick tips when this happens:

    • Contact your current lender to get your payoff amount.
    • You may be able to roll the difference into your new loan, but this will increase the total cost of the car purchase.
    • Consider waiting until you have your existing car paid off before buying something new.

    Best auto loans of 2021

    If you’re ready to look for an auto loan, our comparison table below can help you compare most major lender’s rates, maximum loan amount and key benefit.

    LenderAPRLoan AmountTermsKey Benefit
    LightStream2.49%–11.89% APR w/AutoPay$5,000 – $100,00024 – 84 monthsNo restrictions on age or model of vehicle
    ClearlaneVaries$5,000 – $100,00036 – 72 monthsCheck offers from multiple lenders
    Bank of Americaas low as 2.19%$7,500 – $100,00012 – 75 monthsInterest rate discount for Preferred Rewards members
    BlueSkyas low as 3.99%$7,500 – $30,00024 – 72 monthsFree dealer match

    Check Your Auto Loan Rates

    View our top-rated lenders and find the best rates today. It’s quick and easy.

    Pros and cons of trading a car

    Before you decide whether to trade in your vehicle, weight in your options and be aware of a few disadvantages that might affect your wallet.


    • Don’t have to go through the hassle of selling
    • Lowers the out-of-pocket costs of buying
    • Speeds up the car transition process


    • May get less money than with private selling
    • Could leave you without a car if the trade and purchase aren’t timed correctly
    • Getting a new car increases your debt obligation

    FAQ: Trade-in

    Although it’s not a smart financial move, you can trade in a leased vehicle. Hesitation can grow once you realize that most times the trade-in price will not be higher than the buyout cost. To get more money through this negotiation, your car’s mileage will have to be significantly lower than the lease allows, and your vehicle will have to be in high demand, and not have any damages.

    If you need more cash than what the trade-in is offers you, you might consider visiting a used car superstore, selling it yourself or filling out information about the car on an instant cash offer website. Once your offer is live, you usually get quick responses from interest dealerships.

    We welcome your feedback on this article. Contact us at with comments or questions.

    Jason Lee

    Contributing Writer

    Jason Lee is a U.S.-based freelance writer with a passion for writing about dating, banking, tech, personal growth, food and personal finance. As a business owner, relationship strategist, and officer in the U.S. military, Jason enjoys sharing his unique knowledge base and skill sets with the rest of the world. Follow Jason on Facebook here

    Reviewed by

    • Andrea Perez
      Andrea Perez
      Personal Finance Editor

      Andrea Perez is an editor at The Simple Dollar who leads our news and opinion coverage. She specializes in financial policy, banking, and investing.