How to trade a car that you still owe money on.

The first thing you should do is call and get the exact payoff so that you know the exact figures everything is based on. Dealers will often estimate your payoff in order to expedite the sale and get you to sign the contract right away. If your payoff is more than the dealer's estimate you still owe the difference, and this could be hundreds or thousands of dollars more.

This is money that you may have to come up with out of pocket if you've already signed the loan documents.

Unethical dealers may even intentionally underestimate your payoff in order to reduce the amount of the transaction. This gives you a false sense of how much you are actually spending, and makes your payments seem lower. However, it forces you to come up with a down payment that you hadn't planned on paying. This is a sneaky way some dealers will force a down payment from you.

Make sure you get a firm timetable of when your car will be paid off. Most dealers will not pay off your old car until they have been funded for the new car you just bought. That is, if you just financed a new car at the dealership the dealer doesn't receive payment for the car right away. The dealer will submit all of the financial documents on your new loan, and they will receive payment on it typically within 3 to 5 days.

Basically what happens is the dealer sells you the car, sends the paperwork in to the bank, then the bank pays the dealer by check or electronic transfer. Only after the dealer has the funds for your new loan will they pay off your trade in. Just make sure all this is going to happen quickly, especially if you have a payment that will be due on your traded vehicle soon. I recommend you make the dealer put in writing when your trade will be paid off.