Values

• Before you try to trade in an upside-down vehicle, know your values. Call your bank and find out your payoff amount. Ask for the per-diem, or amount of interest added daily (add this to the payoff amount every day). Go to an appraisal website, such as Edmunds, NADA or MSN Autos, to determine your correct trade value. Check more than one site, since values differ. Come up with a median of values provided by the sites. Make sure the dealer you're working with is giving you the right value for your car. Figure out if you can come up with the difference in value and loan amount to ease the process.
  
  

Considerations

• Because banks determine loan-to-value ratios (a percent of the vehicle's value that you can borrow based on credit risk), you may have to put money down. If you are approved for 100 percent of the new vehicle's value, you'll have to find a new car that is reduced in price below value and pay off the balance owed on the car after the trade amount. If you are only approved for 60 percent of value, you will have to create enough equity in your vehicle over time before selling on your own or trading. Either improve your credit or come up with the difference in value to trade in this case. If working with a car dealer, he can let you know your loan-to-value ratio.
  
  

Warning

• If you can get approved without putting money down, purchase guaranteed auto protection insurance. GAP insurance covers the 'gap' between what you owe on your vehicle and what the insurance company determines as the vehicle's value in the event of a loss, which is most likely less than your loan amount because you carried over money. Ask your lender or dealer for details.