How is a used car trade-in financed when it has negative equity?

Question

Example, car being traded in is worth $26K with a loan payoff of $30K.
If the car I want is $26K, is the full $30K financed again (the dealer gets my trade-in, pays off the $30K then finances $26K for the new car + the $4K negative equity)?
If the car I want is $34K, is $38K financed (the dealer gets my trade-in, pays off the $30K then finances the $4K negative equity + $34K for the new car)?
If the car I want is $28K, is the amount financed $32K (the dealer gets my trade-in, pays off the $30K then finances $28K for the new car + the $4K negative equity)?
If the car I want is $24K, is the amount financed $28K (the dealer gets my trade-in, pays off the $30K and finances the $4K negative equity + $24K for the new car)?
These calculations are driving me crazy and I want to be sure I have this straight before negotiating for the new car.

Answer 1

You basically pay more for the car than the selling price - the new amount financed is the price of the car plus the excess loan amount, added together into a new loan.

You should really keep a new car that is on a loan for at least 2/3 of the loan period and you won't get in this situation. If you are paying too much interest, make about $40 more in principal payment per month and you will pay the loan off sooner and incur less interest.

Answer 2

It is not as hard to understand as you are trying to make it. They like you to be confused that way you are going to end up paying for your old car and giving it to them plus paying for the new one as well.

This is how it should be unless you let them put it to you and they will if you don't watch your self.

1. You work out a price on the new car.
2. You work out the worth of your car that they are willing to pay you that is.
3. They check the pay off and if it is higher than what they offer you. You pay the dif.

So you buy a car new for $20,000 and they offer you $15,000 on your trade in but pay off is $16,000. Your loan on the new car will be $21,000. They still may ask you for a down payment of some kind based in your credit.

You will do better by putting an add in the local paper and letting someone get a bank loan and pay you for your trade in and you pay it off and just take the 20% down payment (still depending on your credit) and make the deal without a trade in.

But keep in mind the above is how it should be but not how they are going to make it. If you act like you have to have the new car at any cost they will not budge on the window sticker price. So it is best to not take the wife with you and just act like you are just tired of the one you have now and the new one will do. And keep in mind that you can beat their deal some where else. Best to look one over and come back a few days later and look at another car and make them go through the whole thing again and then go back a few days later and pick the one you really want. By this time they will know they had better cut you a good deal or you will walk again. But they might get tired of your games and tell you the price of the car you want went up but they just have not changed the window sticker yet to hold you at the max price.

It is all games. The more money the sales guy can get out of you the more money he makes. The car lot has a set price and any thing over that pretty much is the sales person's pay check. So he has to keep the sales price as high as he can.

Good luck

Answer 3

Sammy, your scenarios are accurate. Points to note:
1. Your trade-in MUST be paid in full to the finance company;
2. The negative-equity (the difference between what your was appraised for and what was owed to the finance company) on your trade-in has to be added in to the cost of the new car;
3. You will now finance the amount of the new car + your negative-equity= New finance amount.
REALITY CHECK: No dealer ever "pays your car off "REGARDLESS" of what you owe", Sammy, you do! That's what they never say in those ads. So, that's how a used car trade-in is financed.
Good luck and all the best. REMEBER, to check the true value of your trade-in at kbb.com.

Answer 4

If your credit is good enough, it works just like you said. new car price + difference you owe over trade in value + a rediculas interest rate. That will keep you in debt until you grow old. Not worth it keep your car and pay more of it off. This way you are getting some use out of the money you are pay for it anyway.

Answer 5

Um. pay for one car before trying to get the next one. Oh...I learned of something that could help you out though called gap insurance. I never knew this existed, but my car is still worth more than I borrowed on it. Anyway, I guess this covers the difference between your loan and what the car's worth if you manage to total your vehicle.

Answer 6

you probable could have very undesirable success attempting to commerce in a 2006 motor vehicle well worth $5000 under you owe. whether you do get them to take the commerce, including that $5000 to a clean loan could make your new vehicle charge and pastime fee unaffordable. in case you have already got 2 different vehicle money, and your credit is is adverse condition, and you in user-friendly terms offered the domicile, you have a good harder time. it variety of feels the only decision you ought to evaluate is conserving your vehicle and not purchase a clean one.

Answer 7

You will have to pay the $4,000. They are not going finance $30k when your collateral is only worth $26k.