Key takeaways If you owe more than the car is worth, try to pay off your car loan before trading it in — or consider alternatives like selling the car privately for a higher price. If you have positive equity on the car, meaning you owe less than the car is worth, you can trade it in and use the positive equity towards a new vehicle. Always check prices in your area to ensure the trade-in offer from the dealership is competitive. You can trade in a car that is not paid off — dealerships are used to handling vehicles under liens. But whether it’s a good idea depends in part on whether you have positive or negative equity. Equity is the difference between something’s value and how much you owe on it. If the thing you own is worth more than you owe, you have positive equity. If you owe more than what it is worth, you have negative equity. Why vehicle equity matters Often, it’s best to pay down or pay off your auto loan before selling it or trading it in.…