Does your car have to be paid off before you can trade it in?

In most cases, no. You can trade in your car even if it still has a loan on it -- this is called a "trade-in with negative equity." Negative equity occurs when the current market value of the car is less than the amount still owed on the loan. As a result, you'll need to come up with the cash difference between the two numbers.

Let's say you owe $15,000 on your car loan but it's only worth $12,000, according to Kelley Blue Book. In this case, you have $3,000 in negative equity. If you trade in your car, you'll need to pay off the $15,000 loan and pay the dealership an additional $3,000 for the difference.

There are a few reasons why you might consider trading in a car with negative equity. One is if you simply don't have the cash to pay off the loan in full. Another is if you want to get into a new car that's more reliable or has more features than your current car. Trading in a car with negative equity can be a good way to get out of a loan that's become unmanageable and start over with a new vehicle.

However, it's important to weigh the costs and benefits of trading in a car with negative equity before making a decision. You may find that it's more cost-effective to pay off the loan and keep your current car, or to sell it privately for a higher price than what the dealer is offering you.