As a first-time buyer, you may not have a loan on your current vehicle. Perhaps you were gifted your first car, or you bought it in cash from the previous owner. However, if you did finance your current vehicle and you still owe money on it, you can still go through with a trade-in. As part of the trade-in process, the dealership will take the remainder of your current loan and roll it into your new loan for your new vehicle. This way your old loan will be completely paid off.
If you have positive equity (you owe less than what your car is worth), you can apply that positive equity toward the purchase of a new car. However, if you have negative equity (you owe more than what the car is worth) you’ll need to pay the difference between what you owe and your car’s current trade-in value.
If you financed your current car, timing is key when you’re planning to trade it in for a new one. It’s a great idea to wait until you have positive equity, so you can actually put some amount of your trade-in value toward a new car.