If you live on or near a military base, you’ve probably heard radio and television ads for car dealerships that go something like: “We’ll give you the best deal for your old car. Behind on your payments? No problem, we’ll pay off your loan no matter how much you owe.”
Be careful to evaluate car trade-in offers. If the ad claims you have no further responsibility for any amount of your prior financing, the ad may be untrue. Since more than 40 percent of car purchases in 2017 included a vehicle “trade-in,” it’s important to understand the trade-in process so you can maximize your trade-in’s value and get a better overall deal. Here are some tips from the FTC.
Know how much your car is worth
Showing up to a dealership without knowing how much your car is worth is like going fishing without any bait. You might make do with what you find, but you’re more likely to get what you want with the right tools.
Before you talk to an auto dealer, take a couple of minutes to consult a few online pricing guides to find out how much your car might be worth. You can also visit more than one dealership and request estimates to get a better sense of the value of your car. Save those quotes and use them along with the online pricing guides as a starting point for negotiations.
What if I own my trade-in car?
When you own your car outright, trading it in to a dealer is more straightforward. You still need to make sure the value of your car offered by the dealer is consistent with online pricing guides (or other sources you consulted), and then negotiate the best amount you can get for the car. The agreed-upon trade-in value is deducted from the new or used car price. You pay the remaining amount for the new car with cash or with auto financing.
Be aware that you can bargain for your trade-in amount. Also know that if you insist on getting a very high trade-in figure, the dealer may be less willing to negotiate on the car price and charge you more for the new car. Or vice versa: If you insist on a low price for the new car, the dealer might knock down your trade-in price. Be prepared to walk away if you don’t think the offered deal is right for you.
What if I still owe money on my trade-in car?
Things get more complicated when you still owe money on your trade-in. Some dealers advertise that when you trade in one vehicle to buy another, they will pay off the balance of your loan—no matter how much you owe. But some people owe more on their car than the car is worth. This is called “negative equity,” and the dealer’s promise to pay off the entire prior amount owed may not tell you the whole story, because that amount might be added to your new financing.
This article by was distributed by the Personal Finance Syndication Network.