How does a trade in work??

Question

My husband and I co-signed for a vehicle for a family member (mistake we know!) but we are wondering how a trade in works when you still owe money on the car. She wants to pick out a cheaper car now, and we are at a loss at what we're supposed to do and what happens. Any help?

She owes around $16,000 on the car, and she wants to pick out like a $4000-$5000 car. She's tried to refiance, but the bank lady lied to us all to get the loan in. She told us she would be able to refiance by herself within 6 months and she couldn't. Also, my husband is the primary owner and it was NOT supposed to be that way. She completely talked around everything and lied. So, we are stuck between a rock and a hard place now!

Answer 1

When you are trading down and you still owe money on your car it works like this.
say the car you want to buy retails for $5000. you still owe $16,000. on your trade in. the manager will inspect your trade in and tell you what he is willing to pay for your car. say $14,500.
since it less than the loan what they do is attach the $1500.00 onto the cost of the new car. But this is what you need to know!!! I used to sell cars... I know! any used car has a bigger profit than new ones. a car that retails for $5000. will often have a markup of $3000. and the price he is wanting to give you for your trade is his wholesale price. when he sells it he will ask more. so in order to get rid of the $1500. extra he will give you $16,000 for your trade and you purchase the $5000. for full price. ON PAPER. actually they are still only giving you $14,500 for your trade, and they are reducing their profit by $1500. it's all smoke and mirrors.
The reason your husband was named as owner is because the loan is in his name, and the car is collateral, if it was in someone Else's name repossession might be a problem.

Answer 2

As others have explained, the car is now worth LESS than the loan amount. In fact, almost ANY newly purchased car is that way. So a dealer trade-in is the LAST thing you want to do. Dealer want to make money off that vehicle, so they'll take in at a value LOWER than wholesale, which is already thousands lower than private party sale price. You will lose thousands, and pay that on top of the whatever other car you choose to finance, and there's no way a bank will let you take out a $8K loan on a $4K car. It is just NOT going to happen.

I personally would suggest a "assume my loan" private sale. Basically, you sell the car to someone else, losing any equity that you've paid down, but at least you are rid of the monthly payments. If the car is in good condition, and nicely maintained you MAY be able to pull that off. The other person basically saves the down payment, and whatever payments you've already made, but takes over a slightly used car. Depending on condition of the car and terms of the loan, you may end up PAYING someone to take over the car, but that would depend on your salesmanship. :) AND you'd be rid of the co-sign thing too.

Then you can apply the monthly payments to a smaller/cheaper vehicle.

Answer 3

Basically, the dealership will give you the wholesale value of the car, and the difference, if any is rolled into the loan for the new car.

For instance, Say you owe $15K on the car. The car has a wholesale value of $10K. The new car costs $12K. The new loan would be for $17K.

I don't know the financial situation for any of you, but IMO getting a cheaper car isn't you answer. You usually end up with a highr bill. Your family member should try to refinance the car (in their name) for a longer term/lower payment.

All you basically have to do is sign the title at the time of either trade-in or refinance as the car would then be liened in your family member's name.

Answer 4

when you trade in a car and owe more than the car is worth wholesale, it is called "hooked" or "upside down". When you trade it in at a dealer the negative equity will be transfered to the new loan. More than likely you will not be able to buy a car around 4-5K. You can only finance so much money on a car and typically cars that are in the 4-5K range have very little room book wise for the bank to loan the difference.
As for your second comment it does not matter who's name is first or second both signers are legally liable for the debt. It would report as joint credit on both signers credit bureau - just like if you signed with your husband. I know it sucks i have been there - dont cosign for your in-laws is what i learned

Answer 5

Dealers sometimes add the unpaid balance of the trade-in on the price of the new car. This will pay off the original loan. Don't co-sign on the new loan and you should be free and clear .