How does trading a car work?

How does a trading in a car work?
I just bought a 2013 Honda but I want to trade it in for a different car.

Hi simple if you own it you just trade it in. However if it has outstanding finance that needs to be paid off when it is sold on.

You trade it in, the dealer pays off the loan adds any outstanding loan balance (payoff amount less trade-in value) and tacks the price onto your new car putting you even more underwater on the loan than you were with the Honda. If you understand how compounding interest works with a savings account - well this is just the opposite.

In your case, it probably doesn't work unless you enjoy losing thousands of dollars.

Here's how it works. A dealer offers you a wholesale price for your trade vehicle. That money is used as a down payment credit on a new vehicle, which the dealer offers to you for a retail price.

This is nice and simple -- expect if you have an outstanding loan on the old vehicle. More than likely, you are upside down on the old loan -- you owe more than the car is worth. In that case, forget the simple trade that I described above. The important thing to know is that the loan on the old car must be paid off before you can get a new loan on a new car.