In most cases involving poor credit, individuals vie for the option of trading their current vehicle in as a down payment.
In order to avoid unnecessary problems and potential complications, it is vital that your previous vehicle be paid in full prior to the trade in and that certain rules are met.
The alternative would be to buy from a "no credit needed" car dealer, but that option won't help restore your car credit because these dealers usually don't notify the credit bureaus about a loan or loan payments.
Also, with this kind of loan option, there is a higher risk of repossession.
The best way to avoid these types of dealers is to come into a bad credit auto loan with a down payment.
Trade In value determinants: The trade in value of a car can be determined in several different ways, such as: test driving it, performing a physical inspection and then consulting auction reports like NADA or Kelley Blue Book values.
It is often a shock to many customers that their car isn't worth as much as they thought it might be.
NADA and Kelley Blue values, that most consumers have access to on the web, should be thought of as only a guide.
Most car dealers use auction values that are only available to dealers, as their main trade in value determinant.
It also important to remember, the dealer might have to replace tires and recondition and detail your car, which add to the costs that will reduce a car's trade in value.
Trade equity If you're planning on trading in a vehicle, you need to know the importance of trade equity.
Trade equity can best be described as the difference between what your car is worth and how much you owe on it.
Once the value of your trade in vehicle has been assigned, you need to know if you have equity in the vehicle.
Here are a few ways to determine trade equity:

• If your car is paid off entirely, then the previously determined trade value would be the trade equity.
  
• If you still owe money on your car and the trade value is more than what you owe, then the difference is trade equity.
  
• If you still owe money on your car and the trade value is less than what you owe, then the difference is known as negative trade equity, or simply, trade equity.
  

Negative equity: Most credit lenders require an equity down payment for bad credit; therefore you'll usually need enough equity in the trade to cover the down payment.
If the trade equity isn't enough then the difference is usually paid in cash.
Even if the lender allows you to trade in a car with negative equity, you will end up paying finance charges on two cars.