A Honda dealership with new cars sitting in the lot

Using Your Trade-In as a Down Payment

Milad Hassibi October 12, 2018

With so many options available, consumers have begun to rush to dealerships to secure the latest and greatest in automotive technology.

If you are thinking of financing your next purchase, you will be required to provide a down payment.

For many of us without disposable cash, it can be hard to come up with the cash for a down payment. However, you could trade-in your old car to help avoid paying cash for a down payment.

Using a Trade-In As Your Down Payment

A trade-in can be used as a down payment at almost any dealership when you decide to get a car loan.

As long as you have equity in your vehicle, you should expect a smooth transaction.

However, having negative equity in your car means that you will need to decide how you want to handle the trade-in process.

If you have equity in your vehicle, simply bring in the vehicle, have it appraised by the dealership, and receive a check for your equity amount in the car.

You can also choose to have the funds go towards your down payment. Before you step into a dealership to trade-in your car, have these documents in hand.

Benefits of a Down Payment

When you provide a down payment on an auto loan, your monthly payments will be lower. This is because the loan amount being issued is smaller.

You can also qualify for a shorter loan term with a down payment as well. Lastly, a large down payment of 20% can help reduce the amount you spend on interest during the life of the loan.

Negative Equity Down Payment

If you have negative equity in your car, meaning that the car is worth less than what you owe on it, trade-ins can be hard.

However, there are a few ways you can use your negative equity vehicle as a trade in


If you do not have the funds to pay the difference, take a few months to wait. You should try to at least break even on your vehicle

Roll it Over

Some lenders will allow you to roll-over your negative equity into your new car loan. However, this can lead to expensive payments since you will need to pay an additional amount each month.

Pay it off

The quickest and most simple way to go about it is to pay off the difference and get your new car.

Final Note

If you are looking to buy a new car but have less than perfect credit, CrediReady can help. Our nationwide network of trusted dealers and verified lenders work with buyers in all credit situations. Take a moment to fill out our free no-obligation loan inquiry form and start shopping for your dream car today!

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