Car trade in—how does it work?
February 1, 2019 4:22 PM Subscribe
Currently paying on a car I hate, would like to trade to a car I don’t hate. But I have bad credit and owe money on the current car.
I have a 2015 Fiat with low miles which I’m not too fond of, which I owe around $7000 on. I found a car for sale at a dealership for about $2000 less than even the lowest estimate of my current car’s worth, and they accept trade ins! Neat.
However, I’m a little confused about whether this is possible. I’ve never missed a car payment but my credit sucks, and I’m kinda poor. Ideally this would be a lateral move, in that I get a vehicle which makes more sense for my day to day life, maybe get a little cash to pay down my car debt, and make payments until the absent-car-of-bad-financial-decisions is payed off, and I own New Car free and clear, which is the way I prefer my life to be.
But, will the dealership selling me New Car know or care about my credit? How do I transfer a title on a car I don’t own? Will they actually write me a check for the difference in worth, or do you relinquish that when you trade “down”?
I would never have financed a vehicle if I had been in a situation where I had controlled my finances and was thinking more clearly about my future, and honestly the Fiat represents all of that, plus the debt sucks. How do I do this? I’m probably making it more complicated than it really is, but I’m not well versed in how all this works and don’t want to seem like a babe in the woods when talking to a car dealership ever again.
I have a 2015 Fiat with low miles which I’m not too fond of, which I owe around $7000 on. I found a car for sale at a dealership for about $2000 less than even the lowest estimate of my current car’s worth, and they accept trade ins! Neat.
However, I’m a little confused about whether this is possible. I’ve never missed a car payment but my credit sucks, and I’m kinda poor. Ideally this would be a lateral move, in that I get a vehicle which makes more sense for my day to day life, maybe get a little cash to pay down my car debt, and make payments until the absent-car-of-bad-financial-decisions is payed off, and I own New Car free and clear, which is the way I prefer my life to be.
But, will the dealership selling me New Car know or care about my credit? How do I transfer a title on a car I don’t own? Will they actually write me a check for the difference in worth, or do you relinquish that when you trade “down”?
I would never have financed a vehicle if I had been in a situation where I had controlled my finances and was thinking more clearly about my future, and honestly the Fiat represents all of that, plus the debt sucks. How do I do this? I’m probably making it more complicated than it really is, but I’m not well versed in how all this works and don’t want to seem like a babe in the woods when talking to a car dealership ever again.
Response by poster: Oh I thought I added that! Oops. Fiat in current low mile-but-dented-fender condition is worth around $6-8000, New Car is for sale at $4000.
posted by zinful at 4:39 PM on February 1, 2019
posted by zinful at 4:39 PM on February 1, 2019
Ok, so you may or may not be underwater with the Fiat.
Best case: dealer is willing to give $8k for your current car. That pays off your old loan and leaves $1k to spare. Replacement car costs you $4k-$1k=$3k, plus applicable sales taxes, inspections, title and license and whatever other BS fees they can load onto you. You presumably need a loan for maybe $4k.
Worse (but maybe not worst) case: dealer is willing to give you $6k for the Fiat. But you owe $7k, so you’ll have to cover that last $1k yourself, plus the $4k for the replacement, plus the same taxes and fees. You probably need to borrow $6k, which isn’t going to be easy if the supposed collateral is a car that’s worth $4k at retail. Not to mention the fact that a $4k car might be substatially less reliable than your ‘15 Fiat.
My guess is this idea would probably make you worse off.
posted by jon1270 at 5:02 PM on February 1, 2019 [3 favorites]
Best case: dealer is willing to give $8k for your current car. That pays off your old loan and leaves $1k to spare. Replacement car costs you $4k-$1k=$3k, plus applicable sales taxes, inspections, title and license and whatever other BS fees they can load onto you. You presumably need a loan for maybe $4k.
Worse (but maybe not worst) case: dealer is willing to give you $6k for the Fiat. But you owe $7k, so you’ll have to cover that last $1k yourself, plus the $4k for the replacement, plus the same taxes and fees. You probably need to borrow $6k, which isn’t going to be easy if the supposed collateral is a car that’s worth $4k at retail. Not to mention the fact that a $4k car might be substatially less reliable than your ‘15 Fiat.
My guess is this idea would probably make you worse off.
posted by jon1270 at 5:02 PM on February 1, 2019 [3 favorites]
Depending on the book value of the car you want it's possible the dealer will roll the excess you owe on the Fiat into the new car loan. (You are $1000 short on paying it off- they are selling car $1000 under a book value they can sell to a bank, so they roll the debt over to the new car). That will leave you with debt on another car that will be underwater the minute you drive off the lot. You are essentially trading a problem you have for a potentially worse problem.
Also, something you can buy for $4000 is high mileage I assume? You might be trading into a less reliable vehicle too.
Looks like a high risk transaction with not a lot of upside for you.
posted by COD at 6:00 PM on February 1, 2019 [2 favorites]
Also, something you can buy for $4000 is high mileage I assume? You might be trading into a less reliable vehicle too.
Looks like a high risk transaction with not a lot of upside for you.
posted by COD at 6:00 PM on February 1, 2019 [2 favorites]
Best answer: I think the problem is that you have to pay off the loan on the Fiat when you sell it (they won't release title otherwise). So you can't trade in the Fiat for the new car, get the excess in cash, and leave the existing loan in place. If you transfer the loan to the new car, they will certainly do a credit check plus they will evaluate the loan relative to the new car which is now the collateral.
posted by metahawk at 10:28 PM on February 1, 2019
posted by metahawk at 10:28 PM on February 1, 2019
Response by poster: So what I wasn’t taking into account was the obvious piece that the Fiat is collateral on the loan. I think I assumed the debt was somehow separated from the car, which I now realize makes no sense. Hmph. Thank you all for teaching me a little piece of this adulting thing!
posted by zinful at 12:46 AM on February 2, 2019
posted by zinful at 12:46 AM on February 2, 2019
Best answer: The value of a car at trade-in is less than the value when its sold by a dealer or private party. Edmunds and cars both offer valuation. You will do better selling a used car on your own, but it's a pain, takes time. I had a dented car and got it fixed pretty adequately at a low-end shop.
Go ask. Tell them you have poor credit but the car payments have been on time. Do not give them permission to check your credit. Just talk. If one person is disrespectful, ask to speak to someone else or go back again until they're not there. See what they can do for you. You are not in a hurry because you have a working vehicle and can drive to other dealerships. And do shop around, do negotiate abetter deal. You may be able to get a substandard credit loan with a higher interest rate. Do you have a credit union? Mine is pretty good about helping with loans. But even a bank may be willing to work with you. A family member could co-sign a new loan.
Lots of people have bad credit. I have mediocre credit because I'm sloppy at bill-paying and push back on invalid charges, plus medical bills. Don't feel shame, but do put effort into fixing your credit. Find out what the bad credit issues are and do your best. The credit industry is a racket that preys on consumers, says I.
posted by theora55 at 7:28 AM on February 2, 2019
Go ask. Tell them you have poor credit but the car payments have been on time. Do not give them permission to check your credit. Just talk. If one person is disrespectful, ask to speak to someone else or go back again until they're not there. See what they can do for you. You are not in a hurry because you have a working vehicle and can drive to other dealerships. And do shop around, do negotiate abetter deal. You may be able to get a substandard credit loan with a higher interest rate. Do you have a credit union? Mine is pretty good about helping with loans. But even a bank may be willing to work with you. A family member could co-sign a new loan.
Lots of people have bad credit. I have mediocre credit because I'm sloppy at bill-paying and push back on invalid charges, plus medical bills. Don't feel shame, but do put effort into fixing your credit. Find out what the bad credit issues are and do your best. The credit industry is a racket that preys on consumers, says I.
posted by theora55 at 7:28 AM on February 2, 2019
This thread is closed to new comments.
posted by jon1270 at 4:30 PM on February 1, 2019