Can you trade in a financed car for a lease?

Can you trade in a financed car for a lease

If your car doesn’t have a lease on it, or you’ve paid the lease off in full, buying a new car is a relatively straightforward process. You pick a vehicle from the dealership, negotiate the best price for the new car with the dealer, negotiate a trade in value for your old car, then fill in the paperwork and drive away in your new car.

But what if you car is leased and you’re still paying off the loan?

This guide will talk you through the process.

Positive or negative equity

When trading in a car you still owe money on, you’ll be faced with one of two scenarios.

In the first scenario, the dealer will give you an estimate of the value of the vehicle which is higher than the amount you still owe on the car. This is called positive equity.

Alternatively, the dealer may offer you a value which is less than the amount you still owe on the car. This situation is called negative equity.

Trading in a car with positive equity

Trading in a car with positive equity is quite a straightforward process.

For example, say you still owe the lender $10,000 towards your old car. If the dealer values the vehicle as being worth $12,000, then $10,000 of this will be used to cover the outstanding loan and the remaining $2,000 would be used towards the down payment for your new car.

Trading in a car with negative equity

Trading in a car with negative equity can be a bit trickier.

Say you still owe the lender $10,000 towards your car loan, and the dealer values your car at $8,000.

In such a case, the dealer will adjust the $8,000 against the price of the new car, and the remaining $2,000 you owe on your old car loan will be rolled over and incorporated into your new car loan.

Trading in a car with negative equity means you will have to pay off two loans at the same time – the outstanding loan for your old car as well as your new car loan – so this is something you will have to keep in mind.

Do your research

When trading in a vehicle, you want to make sure you’re getting the best price for your old car. Go online and compare your car to other vehicles with the same make and model and similar mileage. Make sure you’re aware of any additional details and features your car has which could impact the vehicles valuation. The condition of the vehicle will also be an important factor in terms of determining what your car is worth.

To get a quick sense of what your car is worth, you can use a free online pricing guide such as Kelley Blue Book. Simply enter your cars details and receive an instant valuation. Comparing the valuation of your car to the amount you still owe on the loan will give you a better idea what you will still owe towards your previous loan.

You should also have a record of any maintenance and repair work you’ve had done to your car for the time that you’ve owned it. If you’re aware of any issue with your vehicle, it’s a good idea to have these repaired before you seek a trade in. While the concept of spending money on a car you don’t intend to keep may not sound appealing at first, it can prove to be a smart investment when it comes to your trade in deal.

If you feel the deal offered to you for your trade in isn’t the best deal possible, first see if this is negotiable. Often times the dealer will offer you a better price without much trouble. If not, you can approach another dealership for a better price. It’s okay to compare a few different offers before you decide which deal is best for you before you sign a contract.


Not only is your trade in deal negotiable, but so it the price of the new car you are leasing.

it’s important to remember that there are two deals which have to be agreed upon in this situation. In addition to finding the best price for your trade in in order to cover or minimise your outstanding loan, you also want to make sure you are getting a good deal on your next car too. This will ensure your payments remain affordable for the duration of the lease.

Study the contract

Before signing a new agreement, make sure you are fully aware what you are agreeing to. Don’t feel pressured to make a decision straight away.

You can even bring the paperwork home with you and look over it in your own time to make sure you are fully aware of the terms and conditions before you sign the agreement.

Don’t agree to a verbal deal if you’re offered one. If a dealer offers you a great deal verbally, make sure you ask for it in writing.

When to trade in

Now that you understand the process of trading in a financed car, you can consider if trading in your car is the best decision for you.

Reasons to trade in your car

If your car is expensive to own and operate, it might be best to trade it in for something which is less expensive to run. You will save money in the long run on gas and maintenance costs. In such a case, it is smart to trade your car in even if it has negative equity on it.

Reasons to hold onto your car

If the car you want to trade in is brand new, it is not a good financial decision to go for a trade in. This is because new cars lose approximately 20% of their value in their first year.

In monetary terms, a $40,000 car will lose around $8,000 of value as soon as you drive it off the lot. If you’re still determined you want to trade in your new car, keep in mind you’ll be taking a financial hit by doing so.

If you’re in the fortunate position to be able to afford a new car without the trade in for your old one, hold off for now. By buying or leasing your new car without trading in your old one, you’ll be able to sell your old car separately.

Generally, a trade in won’t offer you the best value for your vehicle, so an independent sale will ensure you get the best deal possible.

Websites such as CarMax make it easy to list your used car for sale in order to get the best price.

If a new generation of the car you have has been released, it may not be the best time to trade in your car. An older generation of a model will decrease in value when a new generation is released. This means you won’t get the best deal for your car, so hold onto it for a while until you can get a better deal.

Many people still choose to trade in their old car rather than sell it privately as it is quicker and more convenient than a private sale.

Can you trade in a financed car?

If you’re wondering whether you can trade in a financed car which you still owe money on, the answer is yes.

However, there are factors to consider before you go ahead with the trade in to make sure you are making the best financial decisions for you.

You need to ascertain wether you will be in positive equity or negative equity before you trade in your car.

If you want to know exactly what a car dealer sees when they run your credit, you can read about this here.

Make sure you are getting the best deal for your used car before you accept an offer.

Consider whether it’s wise to be trading in your car right now or if it might be better to hold onto it for a while.

An independent sale will generally get you more cash for your old car which you can put towards your down payment.

Make sure you study the agreement carefully before signing so you know exactly the terms you’re agreeing too.

Find out more here about how leasing a car can impact your credit score.

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