First Car Guide for First Time Car Buyers

Yes, although you should examine some figures first to decide if trading is a good thing to do in your particular situation.

First, contact your loan company or bank and request your current loan payoff amount.

Then use Edmunds.com and Kelley Blue Book to determine the trade-in value for your car.

If the trade-in value of your car is higher than your loan payoff amount, the difference is credit that the dealer can apply to reduce the cost of your new car. It's like making a down payment. Just be sure the dealer is giving you fair value for your trade-in.

On the other hand, if your loan payoff amount is more than the trade-in value of your car, you are "upside down." If you trade, the dealer pays off your old loan, gives you credit for the value of your trade-in, and adds ("rolls over") the difference ("negative equity") into the cost of your new car. If you only have a small amount of negative equity, it's not a large problem.

However, if you have a large amount of negative equity, it can significantly increase the cost of your new car, and increase monthly payments. It also means you will be "upside down" again in your new loan. In some cases, a bank or loan company will refuse to loan you the full amount.

Rolling over negative equity is not a good idea. It's better to continue paying off you your old loan until you are no longer upside down, at which time you'll have the option to do anything you want.