Is there a way to trade in your car if you are upside-down on the car loan?

Yes, but the money you still owe (negative equity) must still be paid. Example: you owe $10k on a car and the dealer will only offer you $8k in trade - the $2k difference must be paid. In some cases, your lender or dealer financing will allow you to roll the negative equity into the new payment as long as the loan to value (LTV) does not exceed a certain percentage. Therefore, it is difficult to get into a less expensive vehicle because of the LTV threshold. Dealer advertisements claiming to pay off your trade are simply doing as described above, and this can be dangerous for those with eyes bigger than their wallets.