By John Campbell

No automobile lasts forever. At some point you’re probably going to want to get rid of your current vehicle and trade it in for another one. If you owe more than your own vehicle is worth when you’re ready to trade it in you may want to reconsider your decision.

There are many valid reasons for wanting to trade in your current vehicle. Maybe your vehicle is an unreliable lemon. Your warranty may be at an end and you’re facing the prospect of costly repairs if your vehicle breaks down. You may also want a vehicle with better gas mileage as gas prices continue to skyrocket.

The problem with trading in a vehicle you’re upside down on is that you’re going to be fully responsible for paying off your old vehicle when it’s traded in. If you’re applying for another auto loan your remaining balance on your old loan will probably have to be rolled over into your new loan. If your current loan has any prepayment penalties you’ll also be responsible for paying up to several months of additional interest payments, which will be added to your debt load. Making matters worse, you’re already going to be upside down in your new loan when you drive your new vehicle off the lot as it will immediately depreciate in value. In this scenario, the amount of money you’re upside down for may be doubled.

You may also need to extend the length of your loan to account for the extra amount being financed. Otherwise your new loan payments may be too high to afford. This will keep you upside down in your next loan for a longer period of time. In a worst case scenario you’ll always end up owing more than any of your vehicles is worth and you’ll never fully pay them off. Unless you can afford to start making larger payments on your vehicles at some point, you could be trapped in perpetual auto financing debt.

You need to carefully consider the potential long-term impact on your finances any time you consider rolling over an upside down auto loan into a new auto loan.

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John Campbell is the writer and editor of CashBuzz, A financial portal for the rest of us. Check out cashbuzz.com for the latest articles on money management and tips and tricks that can help improve your finances. This article may be reprinted on your Web site if the copyright, author information and active link are included.