You can trade in a car if you are behind on payments, but the process might prove difficult. Most lenders require up-to-date accounts, meaning you'll have to pay the past-due amount. Late payments also affect your credit score, which ultimately affects your chances for a new loan and fair interest rate.
How the Dealer Knows
Let the dealership know that your vehicle is about to be repossessed. Even if you bring your vehicle's loan payoff amount or arrive after bank business hours, the dealership will obtain your loan payoff directly from your lender before completing a car sale. The automated payoff system that banks and dealers use will not offer the loan's payoff amount. When your sales representative calls to obtain the information, she will be transferred to your lender's collection department.
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The dealer can require you to pay your past-due payments or tell you it won't accept your vehicle for a trade until the loan is current. Your dealer might even offer to give you cash back from your new loan to pay the past due amount. Regardless, the dealer must pay off your loan to take your car as a trade. If you can obtain a new loan through the dealer, he may speak to the bank's collection department to discuss the loan payoff date so you don't have to make additional payments.
Pursuing Another Loan
Lenders review all of your credit information, including past-due accounts. Most require up-to-date payments on any revolving accounts. If you have a poor payment history or low credit score, you might not obtain an approval from a new lender. Work with a dealer to find financing, it may be able to find you a loan, even with a high interest rate if no other options exist. Obtaining a new loan while another one is past due is likely to cause lending issues.
If you can't find a new lender to approve your loan, try to find a cosigner. Or, catch up on your old loan as soon as possible. Repossession damages your credit score and history, making it hard to receive a loan in the future. Talk to your lender to work out a payment plan so you can keep your car. Once you become current on your car loan and maintain a positive payment history again, trading your vehicle is a possibility.