How to Trade in a Car With Bad Credit

Know the value of your trade-in vehicle before heading into a dealership showroom. Sites like Edmunds and Kelley Blue Book can give you a range of approximate values based on the year, mileage and wear-and-tear on your car. Negotiate the value of the trade-in before negotiating the new car price or allowing the dealership to pull your credit. This puts you in a better position to bargain.

If you have bad credit, you're going to have a difficult time trading in a vehicle that you still owe money on, especially if the loan is underwater or upside down, meaning you owe more than it's worth. The only way a lender might consider financing you is if you're concurrently making a down payment that negates the difference.

If you're able to put cash down, in addition to using your trade-in, you become a better credit risk. Not only does this approach increase your odds for getting financed, but you may be able to negotiate a better interest rate as well.

Be wary of so-called, "bad credit lenders." They often charge excessive interest rates that result in getting you into debt and further damaging your credit. They may also tell you you have to buy life insurance or extended warranties to qualify for a loan, or that you need a co-signer. Read all contracts carefully to ensure you know what you're agreeing to. The lender should clearly spell out, in writing, the value of your trade-in as well as the price of the car, the interest rate and length of the note. Any promise to pay off an existing lien also should be in writing.