One of the many tricks of car dealers, is the promise to pay off your old car loan. If you trade your car, the dealer agrees to pay the vehicle loan. It ends with a new car, and you won’t have to worry about making payments for both the old and the new loan.
This may seem like a good deal at first, but there are some things you need to keep in mind:
Yes, the dealer can make payments to his former lender and pay the loan. However, it is important to realize that, in many cases, the amount of the previous loan will be added to your new loan. Although the borrower pays the previous loan, you are still responsible for paying what you owe. It’s more like a balance transfer than having paid the loan on your behalf, so don’t be fooled. Pay attention to the terms of the agreement, and be careful what they sign.
Sometimes, in the paperwork shuffle, you may not get the value of your trade that you deserve. The dealership could simply use the merchant to help offset the cost of the new purchase you are making, telling you how wonderful the price of the new vehicle is getting by reducing its costs.
But you still have to consider the transfer of your previous loan at the top of your new loan. Understand what value you are getting for your exchange, and pay attention to how it will be credited to you. Make sure the transaction is completed in the way that benefits you the most.
There are some exceptional dealers that will accept your exchange and will really pay off your previous loan. But, in general, it is probably best to just pay the previous loan before deciding to have a new car. Rarely will you be in a better position asking the dealer to refinance the previous loan. Most dealers are charging a fee for this convenience.
Instead of adding to the burden of your debt, keep driving your car until it has been worth it. If the amount you can get covers your loan balance, another option is to sell your old car. In this way, at least you are receiving a new car without current car debt!
Have you ever sold your car even though you still owe money from it? Do you regret the decision, or would you do it again?