How does a trade in work?
Let say you want to buy a $20000 car. Your car is worth $2000 to the dealer. The difference is $18000. You give them your trade in and $18000 in cash or finance. Now if you still owe say $800 on your trade you have $1200 in equity. It's like $1200 cash. The third way it works is if you still owe more than the trade is worth say $2500. The dealer will take your trade in and pay it off.BUT now you are looking at a $20500 difference to pay in cash or finance.
That's using $2000 as an example of what your trade is worth and $20000 as the price of the car you want to get.