Trading in a car that doesn't run

A trade-in is a sale with a discount attached

When you trade a car, you're selling it to the dealer. The price just shows up as a credit against the next car instead of as cash. With a broken car, that credit is the dealer's offer for the car as it sits: towed onto the lot, not running.

Two habits help here:

• Get the trade figure on its own line. If the trade credit is mixed into the new car's price, you can't tell what the broken car brought. A separate number lets you compare it with what anyone else would pay.
• Ask what happens if they won't take it. If the dealer turns the car down, you still have to get rid of it, and you still owe any loan on it.

When there's still a loan on the broken car

This is where trading a dead car gets expensive. The CFPB says that if you owe more on the loan than the car is worth, you have negative equity, and selling it won't bring in enough to cover what you owe. So before you trade a car that won't run, find out two numbers: what you still owe and what the dealer offers.

In a trade, the CFPB describes negative equity as a trade-in value below the loan balance, with the unpaid part rolled into the new loan (CFPB data spotlight). This happens a lot: the CFPB counted negative equity in 11.6% of all vehicle loans made from 2018 through 2022 (CFPB report, 2024).

Your three choices

The CFPB puts it in order: find out how much you still owe and what the car will bring, then pick one of three paths.

1. Pay off the loan. If the trade is worth more than you owe, the CFPB says to pay the old loan off fully before taking a new one. Ask your lender whether there's a prepayment penalty first, because some loans charge one.
2. Wait before buying again. Keep paying down the old loan until the gap closes, then shop.
3. Add what you owe to the new loan. It's the easy option at the desk and the costly one later. The CFPB says rolling a balance over increases the total loan cost and the interest you pay over the life of the loan.

What a rolled-over balance does to you

The CFPB's 2024 report on its auto finance data puts numbers on the third path (CFPB report):

• Loans that included negative equity averaged a payment of $626 a month.
• People who financed negative equity into a new loan were more than twice as likely to be assigned to repossession within two years.

That second number is the one to weigh. Rolling the old balance into the next loan carries that debt onto the new car, and the CFPB says it raises your total loan cost and the interest you pay.

If the dealer offers to pay off the old loan

Dealers sometimes promise to pay off what you still owe. The CFPB gives two checks:

• Make sure the negative equity isn't simply added to your new financing or final loan contract. Read the contract before you sign.
• After the deal, make sure the original loan is completely paid off. The CFPB says to wait one week and then contact the old lender to confirm.

Until that call, assume the old loan is still yours.

Selling it on its own doesn't always cost you the tax break

Sales tax is the other piece. We checked one state's rule, Arkansas, where selling the old car on its own can still cut the tax on the new one.

The Arkansas DFA gives a sales-tax credit on a vehicle bought on or after July 28, 2021 when you sell a used vehicle within 60 days before or after the purchase. Only the gap between the two prices gets taxed. So an Arkansas owner can sell the broken car to anyone and still get the credit, as long as the sale lands inside that 60-day window.

We verified this rule for Arkansas only. Other states handle trade-in credits their own way. Check your state revenue department before you count on a break, either way.

Paperwork a trade still needs

A dealer trade is still a title transfer. Some states add steps to it. In Ohio, for example, the title transfer needs a notary (Ohio BMV).

Then there's the step people forget: telling the state the car is no longer yours. Some states write this rule for every kind of sale, and a few say outright how a dealer trade fits:

• Washington requires a report of sale when a car is sold, given away, traded, turned over to an insurer or wrecking yard, or otherwise disposed of (RCW 46.12.650).
• Virginia asks the seller to notify DMV of a sale or a trade, online, in person or by phone (Virginia DMV).
• Idaho counts handing the car to a dealer as a delivery, and the seller has five days from then to file its release (Idaho Code 49-526).
• Minnesota's 10-day notice of sale does not apply to sales by or to a licensed dealer (Minn. Stat. 168A.10).
• Wisconsin's online seller notification is for a private sale from one individual to another (Wisconsin DMV).

Telling the state the car is gone, state by state

These are the seller-side rules from each state's own pages and laws. Where a state's rule is written for private sales, check the source before assuming it covers a dealer trade.

Fix it, trade it as-is, or sell it on its own?

Start with three numbers: the repair quote, the trade figure for the car broken, and any loan payoff. Then:

• Fix it first only if the repair costs clearly less than the extra value it adds to the trade, and you'd happily drive the car if the deal falls apart. Spending on a repair the dealer won't credit just moves your money to the shop.
• Trade it as-is if the dealer's figure holds up against other offers and the loan, if any, gets paid off without being rolled into the next one.
• Sell it on its own if the trade figure is low, or the dealer won't take it. In Arkansas, the 60-day window above keeps the tax credit within reach.

If the loan is underwater, the order from the CFPB still applies: know the payoff, know the car's value, and close the gap before you sign anything new. Our car loan guide walks through the payoff step by step.

Selling the broken car to us instead

We buy whole non-running and junk cars. You can sell the whole car as it sits, and pickup is free anywhere in the US. To get an offer, send us the car's details, what broke, and the lender's name if a loan is still open.

Then put our figure next to the dealer's trade credit and pick the better deal. Questions first? Call (877) 421-6008.

Two chores are left after pickup: the state notice and the plates. The table above gives your state's rule, and after you sell goes deeper.