<prompt> Human: Im not in a situation where I need to do this, but I just wanted to find out your opinions on a couple of questions. How does this work if youve been making payments on the car? For example if you only had 6,000 left on the principle, the interest left that you are paying is likely only a couple hundred dollars if you had a good original loan rate. Wouldnt you be putting yourself in more debt to buy a 6000 used vehicle at a more than likely higher loan rate? Do you take into account the difference in warranties on new vs. used cars? I feel a the warranty vs maintenance cost could be a big issue over the life of a car, especially when dealing with cheap cars advised often here personally dealt with a 1k car that checked out fine with mechanics then the electrical system went out 3 months later.Is this advice better utilized in a long term debt pay off situation than in simple month to month budget? Am I missing something? Im pretty new to looking deeply into personal finance, so Im trying to understand where this advice comes from.Edit: This relates to all the advice I see for people having trouble with debt and monthly budgets.  <response>: The advice comes from this scenario: You bought a 20k car. You took out a loan at 3 for the full amount and youre paying 360month. After three years of paying you have 8000 left on the loan, but now your living paycheck to paycheck and making ends meet is tight. You sell your car for 15000. You pay off the rest of the loan with the proceeds and you buy a used car for 6000. Now you have 2000 left over to pay off debt, to start an emergency fund, or to start saving for something nice. Additionally, you have an extra 360month of cash flow since you dont have a car loan anymore.So the reason this works is that while a car loses value, after the first year usually you are paying down the loan faster than your car is losing value. In this way, you end up with equity equity is the value of car, minus outstanding debt, and yes you can have negative equity in your car. The example above should illustrate the advantages of doing so for someone in a tight financial position. 