How trade-in equity works
The dealer values your old car and settles any finance on it. If the car is worth more than the settlement figure, the difference is equity and it works like a deposit. If it is worth less, the shortfall is negative equity and it is added to the new loan.
Cash you put down is separate from the trade-in and is also taken off the amount financed.
Worked example
A £32,000 car, a £10,000 trade-in with £6,000 still owed on it, and £2,000 cash leaves £4,000 of equity. The amount financed is £26,000.
At 7.5% over 60 months the payment is £520.99 and the total interest is £5,259.20. The loan-to-value is 81.25%, because £26,000 is 81.25% of the £32,000 price.
Check the settlement figure first
Ask your current lender for a settlement quote, which can differ from the balance on your statement because of daily interest. The dealer's valuation should be compared with a private sale price, not just accepted.
Keep the paperwork for both transactions. If the trade-in settles the old loan, get written confirmation that the finance is cleared.
Inputs for the auto loan trade-in calculator
New car purchase price
The price of the car you are buying.
Current car trade-in value
What the dealer will allow for your current car.
Current loan balance
The settlement figure on the car you are trading in. Enter 0 if it is owned outright.
Cash down payment
Any cash you are adding on top of the trade-in.
Term
How many months the new loan will run.
Interest rate
The yearly rate on the new loan, before monthly compounding.
CALCULATOR QUESTIONS
Auto loan calculator with trade in questions
What if my trade-in is worth less than I owe?
The shortfall is negative equity and is added to the new loan, raising the amount financed and the payment.
Does the trade-in count as a deposit?
Yes, but only the net equity after settling any finance on the old car.
What loan-to-value will I get?
In the example, 81.25%. A higher LTV usually means a higher rate or a requirement for GAP insurance.
Should I sell privately instead?
A private sale often fetches more, but you must settle the finance yourself and handle the paperwork. Compare the net difference.