From Car Loan Wiki

Upside-Down is a term used with loans that means that the balance you owe on the loan is greater than the value of the car itself. This negative equity can be passed along if you trade in a car the you are upside-down on. That means if you have a negative equity of say $5,000 and you trade that car in for a new one, you must still pay the $5,000. With dealer payoff the dealer will pay the whole remaining balance of the loan, but the difference, in this case $5,000, will be added to the cost of the new car. That can be a pretty big responsibility when combined with the debt of getting a new car. If you're upside-down on your car loan and want to get a new car it's a good idea to pay off that debt first and even out your loan. Another option is to look for rebates when purchasing a car. If you can find a vehicle with a rebate, you can use the money to pay off the negative equity in your car loan and even it out.