One of the many gimmicks car dealers use is the promise of paying off your old car loan. If you trade in your car, the dealer agrees to pay off the loan on the vehicle. You end up with a new car, and you don’t have to worry about making payments on both the old and the new loan.
This may seem like a good deal at first, but there are some things that you need to be aware of:
You Might Still Have to Pay the Loan
Yes, the dealer might make payments to your old lender and discharge the loan. However, it’s important to realize that, in many cases, the amount of the old loan is added to your new loan. Even though the lender pays off the old loan, you’re still responsible for paying them what you owe. It’s more like a balance transfer than actually having the loan paid off on your behalf, so don’t be fooled. Pay attention to the terms of the agreement, and be careful what you sign up for.
Make Sure You Get Credit for the Trade-In
Sometimes, in the shuffle of the paperwork, you might not get the value for your trade-in that you deserve. The dealer might just use the trade-in to help you offset the cost of the new purchase you’re making, telling you what a wonderful price you’re getting on the new vehicle by reducing its cost. But you’ll still have to account for the transfer of your old loan on top of your new loan. Understand what value you’re getting for your trade-in, and pay attention to how it’ll be credited to you. Make sure that the transaction is completed in the way that best benefits you.
David’s Note: It’s easy to overpay when transactions become complicated. That’s why it’s always better to negotiate a trade-in value for your vehicle without combining the purchase price of the new vehicle. Run away anytime the salesman tries to tell you it’s easier for both parties if you lump the two deals together. They know it’s easier to get more money out of you by doing so. Get a value for your trade-in, then negotiate again on the new car purchase.
Consider Paying Off the Loan on Your Own
There are some exceptional dealerships that will accept your trade-in and truly pay off your old loan balance. But, in general, you’re probably better off just paying off the old loan on your own before you decide to get a new car. Seldom will you be in a better position by asking the dealer to roll over your old loan, as most dealers are charging you a fee for this convenience.
Instead of adding to your debt load, keep driving your car until it’s paid off. If the amount you can get covers the balance on your loan, another option is to sell your old car. This way, at least you’re getting a new car without existing car debt!
Have you ever traded in your car even though you still owe money on it? Do you regret the decision, or would you do it again?