Can I Keep My Auto Loan and Change the Car?

Can I Keep My Auto Loan and Change the Car?

Yes, in some cases, you can transfer your existing car loan to another car. In this scenario, the lender or dealership allows you to trade in your current car and roll the remaining balance into a new loan. It's an option gaining popularity, with Edmunds reporting that nearly 25% of trade-ins toward new car purchases in late 2024 had negative equity (where the remaining loan amount was more than the car was worth); the average amount rolled into new loans hit a record $6,838.

While this option helps you get a new set of wheels without paying off your current loan, be aware it also increases your total loan amount. You'd start off your new loan upside down again—only this time with even more debt. As a result, you'd likely pay higher monthly payments and more interest over time.

Learn more: How to Get Out of an Upside-Down Car Loan

How Does Trading In a Car With a Loan Work?

When you roll over a car loan, your remaining loan balance is added to the new car loan, but that usually doesn't mean you get to keep the terms of your existing loan. So if your current loan has a 3% annual percentage rate (APR) and the new loan's APR is 5%, your new loan will have the 5% APR.

If you're thinking about rolling over your car loan, here's what you'll need to do:

1. Find out your loan payoff amount. Your payoff amount is the exact amount you owe on that day to fully pay off the loan, which may be different from the balance listed on your printed statement or online dashboard. That's because the posted balance may not include accrued interest, fees and other charges. Your best bet to get an accurate payoff amount is to ask your lender directly by phone or check your online account for a line that shows the payoff amount.
2. Research your car's potential value. Dealers have a negotiation advantage over car buyers because they bring more information and experience to the table. As a result, you'll want to research as much as you can about your car's value. Use tools like Kelley Blue Book and TrueCar to get a ballpark value for your car. Consider getting quotes from CarMax and Carvana to strengthen your bargaining position.
3. Calculate your equity. Next, compare your vehicle's trade-in value against its payoff amount. If you owe less than your car's payoff amount, you have positive equity. In this case, you might get more money selling the car on your own than trading it in. If you owe more than the trade-in value, you have what's called negative equity. You could forego the new car and work on paying down your balance, or the dealer may offer you the option to roll your payoff balance into a new car loan.
4. Negotiate the trade-in offer. After researching your car's value and obtaining multiple quotes from dealerships and online retailers, it's time to negotiate with the dealer. Show them the highest offer you've received and see if they can do better. It's wise practice to negotiate the trade-in value before discussing the new car's price. This can help you negotiate a fair deal based on your offers without the dealer rolling your trade-in savings into the price of the new car.
5. Check the loan terms and sign the loan documents. Before signing on the dotted line, take your time reading through the paperwork and make sure the terms match what you agreed to. That includes the trade-in value, loan amount, interest rate and any extras you've opted for. If something looks off, don't sign. Always ask questions and clear up any issues before putting pen to paper.

Learn more: How to Trade In a Financed Car?

Should I Roll Over My Car Loan?

Deciding whether you should roll over your car loan may depend on whether you have positive or negative equity.

It's usually not a good idea if doing so causes you to start your new loan upside down, owing more than the new car is currently worth. That can make it harder to sell or trade in later, and you'll likely pay more interest overall.

Example: Let's say you owe $15,000 on your current loan, but your car is only worth $12,000. In this case, you have $3,000 in negative equity. If your dealer rolls over your car loan, that $3,000 is tacked onto your loan amount on the new car. So if the new car costs $25,000, you'd end up with a $28,000 loan, which is more than the car is worth. Don't forget, that value drops even lower the minute you drive it off the lot—roughly 9% on average, according to Edmunds.

On the other hand, if your car is worth more than what you owe, you have $3,000 in positive equity. In that case, the dealer can apply it as a down payment, lowering your loan on that $25,000 car to $22,000. Run the numbers based on your car's value and loan payoff amount to see if you have equity in your vehicle and whether it makes sense to roll over your car loan.

Risks of Rolling Over a Car Loan

You might consider rolling over your car loan if you have positive equity, you can comfortably afford the new payments and your long-term income outlook is strong. Financially speaking, however, rolling over a car loan is usually a risky move, because:

• Starting off upside-down on a loan can make it harder to sell your car, trade it in or refinance down the line.
• If your car is totaled, your insurance company will typically cover the car's value, not your loan balance. You'd be on the hook to pay any remaining difference out of pocket (unless you have gap insurance).
• You'll have less wiggle room in your budget for unexpected expenses if you're making higher monthly payments on your new car loan.
• You'd be adding more long-term debt while paying interest on a car you don't even own anymore.

It might be smarter to wait on the new ride and focus on paying off your current loan first. You'll be in a much better position when you're ready to buy again.

How Will Rolling Over a Car Loan Affect My Credit?

Rolling over a car loan may affect your credit either positively or negatively, depending on your current credit profile and how you manage the new loan.

When you apply for a new car loan, the lender will perform a hard credit inquiry, which can cause a small, temporary dip in your credit score—typically no more than five points. Taking out a new loan also raises your amount of debt owed, which is factored into your FICO^® Score^☉.

On the other hand, if you consistently make on-time payments, a loan can help strengthen your payment history, which is the most important credit scoring factor. Adding a new car loan might also help your credit mix, another scoring factor, which demonstrates how well you manage different types of credit.

Learn more: What Affects Your Credit Scores?

Alternatives to Rolling Over a Car Loan

If you're not keen on rolling over your car loan, consider these alternatives:

• Pay off the negative equity first. Your best move may be to pay off your existing car loan, or at least reduce the balance enough to reach positive equity so you don't have to roll over a balance. Consider exploring strategies to pay off your car loan faster.
• Refinance your existing loan. If your credit has improved or rates are lower than when you first financed your car, refinancing your car loan could make it more affordable. You might qualify for a lower interest rate and reduce your monthly payment.
• Sell your car privately. Selling your car on your own could net you hundreds or even thousands more than trading it in. You can use that extra money to pay down your balance and potentially avoid needing to roll it over.
• Get a cheaper car. You could trade in your current vehicle for a cheaper one to lower the amount you need to borrow for a new ride. A less expensive car might also offset some or all of your negative equity.

The Bottom Line

It's possible to keep your car loan and change the car, usually by rolling over your existing loan into a new one. Before doing so, review your budget and assess whether you can handle the larger debt load and potential higher monthly payments.

Whether you're paying on your existing loan or a new one, make sure to make your payments on time to protect your credit. You might sign up for free credit monitoring through Experian to track your score and monitor your spending.