You pay both loans. My advice! Pay off your existing loan before purchasing another vehicle. Talk to you bank's loan officer for more information. When trading in a car the dealer agrees to pay off the old loan as much as the vehicle is worth and valued to them, many times any difference between what you owe and what they will give you is added to the new vehicle loan. It happens a lot and puts you in a serious upside down condition meaning now you owe much more on the new car than it is worth and it will be a few years before you start to gain on the deficit. When the car is a recent purchase you will most likely be upside down still unless you put a large amount of money down, it is the difference between the retail price of the car which is what you pay and wholesale or trade in value which is what a dealer will give for it, this allows them to make a profit. With work and a good down payment you can work the trade in value up, and the new car price down during negotiations to offset the difference.