A down payment is money you pay up front. A trade-in is the value a dealer gives you for your current vehicle. Both reduce the amount you need to borrow.
What a down payment changes
- A smaller loan, so a lower payment or a shorter term.
- Less interest over the life of the loan.
- More equity from the start, so you are less likely to owe more than the vehicle is worth.
Some lenders ask for a down payment in certain situations. A provider’s record in our directory shows its down-payment requirement where it publishes one.
How a trade-in works
- The dealer values your vehicle and offers a trade-in allowance.
- If you still owe money on it, the dealer pays off that loan.
- The allowance, minus what was owing, goes toward your purchase.
If you owe more than the allowance, the shortfall is usually added to your new loan. See negative equity explained.
Trade-ins and sales tax
In some provinces and some kinds of sale, tax is charged on the price after the trade-in is subtracted. The rules are not the same everywhere, so confirm how tax is calculated on your purchase. Our calculator lets you choose either way.
Before you agree
- Get the trade-in allowance and the vehicle price in writing as separate figures.
- Ask your current lender for a payout amount so you know exactly what is owing.
- Check the bill of sale shows your down payment and trade-in correctly.