Could I use my car as a down payment at a dealership that I still owe money on to buy a car that cost less and?

The only way the car will be of value to you as a down payment is if the dealer gives you more for the car then you owe to the bank. Here's how it works. If you still owe the bank $7500 and the dealer give you $10k for the car then you 'll have $2500 to use as a down payment after you pay off the bank loan. On the other hand if you owe that same $7500 and the dealer only offers you $5000 for your trade in then you still owe the bank $2500 out of your pocket. The moral of the story. If you have EQUITY in the car you'll have a down payment when you trade it. If you have NEGATIVE EQUITY you not only owe the bank cash out of your pocket you'll have zero value to use as a down payment.

Unless your current car is worth a lot more than what is owed on it, your plan won't work. If you trade the car in, the dealership will have to pay off the loan, it won't be as a down payment for another vehicle.