We’ve got a growing family (growing more quickly than I originally imagined), and we’re going to need a bigger car. We are still making payments on our current car and will not have paid it off by the time we need to buy the new car.
We plan on trading in the old car. Let’s say the trade-in value of the car is $12K and the loan payoff is $4K. I can see one of three scenarios happening:
The dealership requires us to completely pay off the loan before they will accept the trade-in. We pay $4K out of our own pocket, and the entire $12K trade-in value goes as a down payment on the new car.
The dealership basically assumes the loan from us, which it immediately pays off. We get the balance of the trade-in value ($8K) applied to the new car. No need for us to come up with cash unless we want to increase the down payment above $8K.
The dealership requires us to completely pay off the loan before they will accept the trade-in. However, afterwards they give us “cash back” – we get a check for $4K, and $8K is applied to the new car. Nets out to the same as scenario 2, although we still need to come up with the $4K in cash prior to the transaction.
Any idea how this works in practice? Does it vary by dealership, or is it pretty standard?
Virtually every dealership I have seen will handle like your scenario 2. This may or may not be the case at small places like Honest John’s Used Cars & Body Piercing, Inc. but most reputable dealers will take the trade-in and pay off the loan.
Where it gets tricky is if the trade-in value is less than the remaining balance on the loan. In that case, I think that they add the difference onto your new loan.
Fatbaldguy has it.
Incidentally, you can probably sell your car privately for $1000-3000 more than you’ll get from the dealer. You’d need to pay off the note, but depending on liquidity that may or may not be a problem for you.
Maybe the time needed to sell it is worth that to you, maybe not. Depends on your means and free time.
If you want to save time selling it but still make more than the dealer would give you for it, you can price it halfway between the private party value and trade-in. It’ll likely sell in the first three days that way.
Thanks for the information and advice. I had planned to trade-in just to avoid the hassle and uncertainty of selling it privately, but your suggestion on pricing makes a lot of sense.
As was already said most dealerships will handle it like number 2.
You can sell a car privately even if it has an outstanding loan, if the buyer is also taking a loan their bank will cut two checks, one to your finance company for the loan payoff amount and one to you for the rest of the sale price. You need to find a buyer with a little patience because it is a bit of a hassle and it will take some time to get the title. **
Trading it in is probably much easier but it’s still nice to know you have an option if they are really lowballing you on your trade in.
** Based on my experience (I bought a car this way), YMMV.
Don’t go to the dealer and start talking about this stuff. You have a car and want a new one. The dealer has new cars and probably does not want your trade. Your primary objective is to get the price you are comfortable paying for the new vehicle.
Dealers love to get you talking about financing, trades and the new car all at the same time, because it gives them the most flexibility to make money - Your money. Be a prepared buyer and know what you are willing to spend to buy the new car. From there you can work the other details out.
The site that Mr. Blue Sky linked to has some fantastic information. I studied it before I bought my new car. It was almost embarrassing to see how many dealer scams I’d fallen for in the past. IMHO, that site should be required reading for anyone in the market for a car.
If you do decide to trade in your current car, Meltdown, make sure the dealer puts it in writing that it will pay off the loan. Otherwise, if the dealer doesn’t pay it off as promised, you could be stuck with two car payments.