Should I pay off my car loan before trading it in for a new one?

[flimpGooey]

Buying a new car while I still owe on my loan?

I owe $,7000 on my car, and it needs replacing. I planned to pay it off with my refund check, but I'm not sure how to handle what I want to do.

For a trade-in, they estimate my current car at around $2,500. I need that money back to pay off other debt. So, should I pay the loan down to $0 or leave $2,500 on it and then trade it in? I'm afraid if I pay off the loan, they'll just apply the trade-in to the new car, and then I'm out that $2,500. But if I leave the $2,500 on the loan, I'm assuming they won't give me a fair APR since I still owe.

Can someone explain the best way to handle this?

 

[RedAkiraBenji]

They’ll put the trade in value toward the new car it’s not cash they’ll give you. Sell the car privately, and then you’ll get the cash.

 

[QuantumOtter]

Negative equity on a trade in won’t affect your rate unless it pushes your LTV (loan to value) into a higher rate bracket. But negative trade equity alone doesn’t automatically raise your rate. It does get added to your new loan, though.