Can I lower my car payments by trading for a less expensive car?
Yes — maybe.
But whether it’s a good thing to do will depend on your particular circumstances. Let’s take a look.
If you want to trade your car for a cheaper car, it probably means you are finding it difficult to afford payments on the car you now have. Or you simply want to trade down to have a little extra money each month by lowering your payments.
Let’s look at the two different possible situations, one of which will probably match your own situation.
You are “upside down” on your current loan. That is, you currently owe more on your loan than your car is worth as a trade-in vehicle. You can determine how upside down you are by first asking your bank or loan company to give you your loan payoff balance. Then compare that amount to the actual trade-in value of your car (see www.kbb.com and www.nadaguides.com). The difference in the two amounts will tell you how much you are behind in your loan (“negative equity”).