Work out the difference
If the payoff is more than the trade-in value, the difference is negative equity. For example, a $9,000 payoff and a $7,000 allowance leave a $2,000 gap.
Ask where the gap goes
A promise to “pay off your car” does not necessarily mean the remaining debt disappears. Ask whether you must pay the difference or whether it is being added to new borrowing.
Check the new deal
Review the trade allowance, payoff, cash due, and new amount financed separately. A larger balance can increase repayment costs. Keep the written figures and confirm payoff completion with your old lender.
Does trading in a car automatically erase the old debt?
No. The payoff must be accounted for in the transaction. Read how any shortfall is handled.
Go to the official source
Requirements and lender terms can change. Use the source below for current details.
FTC: Trade-ins and negative equity