How does a car trade-in work?

Question

I currently owe $13,000 on my car and according to the Kelley Blue Book...my car's trade-in value is $10,280. But I want to trade it in for a car that would probably be around $7-8,000 worth. How does a car trade-in work in my situation?

Answer 1

depending on the dealer and your credit situation, some possibilities are rolling your deficiency balance into the financing on your new car. That would increase your payments on the new car tho. A better option is to try to sell your old car to a private party where you will get more money for it

Answer 2

First off, dealers do not go by Kelley Blue Book. They go by NADA value. After you find the car you want at the right price, the credit application will be filled out and submitted. Like previously stated, if you still owe money on your old car and trade it in, it will be rolled into the new loan. This DOES NOT necessarily mean your payments will be higher. It just depends on how much you borrow for what length of time and the new interest rate. It is a posibility that your new payment could be less or more depending on what kind of car you buy and what deals you are getting.

Car dealers look at the total difference between the two vehicles. The bottom price so to speak! They may give you a low trade in because they gave you a low price on the new car, or high trade in for a high price on the new car.

But the best thing you could do is to shop around. Find out what kind of car you want and shop for it. If you could sell it for 13K+ outright before trading it in, that is good too.

PLEASE NOTE - Dealers don't care what kind of loan you get as long as you are approved. If you are approved for the new car w/rolling the balance of the old car with it, they don't give a rat's a**. They get paid from the bank plus get a percentage of the sale regardless. And I hate to break it to you, there are dealers out there that do give trade-in book value for a used car trade in. We do and then some! It depends on the condition of the trade in, miles and what they believe they can resell the car for.

Answer 3

The replacement car comes from the same dealer?

Dealers gives you $10,280 for the current car, you buy the new car for $7-8K and you take out a loan to cover the balance of the money owed on the old car, probably using the new car as collateral for the balance.

The dealer has to obtain the title for the old car, the only way to do that is to pay off the loan with some other source of funds.

Answer 4

It's all very simple math. The difference between what you owe on the car and what the dealer offers you on the trade is added back to the price of the car you are trying to buy.

Here it is.

$8000 - price of the car you want to buy
$10,000 - trade in value offered by dealer
-$2000 difference in value
$13,000 balance of loan on your old car
$11000 total price of new car.

So what you'll end up doing is adding $2000 to the price of a $8000 car. You will pay $11,000 for a car that is only worth $8000.

One thing you have to consider. Dealers don't want to make these deals. They don't like taking in cars that are more expensive than the car they are selling. Don't expect to get anywhere close to the KBB price on your trade in a situation like that.

Answer 5

You have two options here:

(1) Put the money down to cover negative equity
(2) Rollover the negative equity into your next loan (typically a very bad idea).

Now depending on your credit situation, option two may not be an option for you at all. It is going to depend on what kind of advance* the bank approves you for on your next vehicle.

*Advance - The amount over loan value that the bank is willing to approve you. It can be anywhere for 50% of book value to over 200% of book value. Banks grant advances to customers with good credit for several reasons (Cover negative equity, Add accessories to vehicle...etc)

Also Kelly Blue Book will not write a check for your car, look in your local paper to get an idea of what cars like yours private party are selling for. Also if there is a carmax in your area, it would not be a bad idea to let them appraise it first.

Answer 6

The difference between what the car is worth, Blue Book, and what you owe is added to the loan of the car you are buying.

Answer 7

Well, you should get a good deal but you won't. The dealers don't like these less value trades, they can't make much money. You might be better checking out a private party deal.