Is it possible to "trade" in a recently purchased new car?
February 20, 2019 7:23 PM Subscribe
How difficult is it, if at all, to trade in a recently purchased new car and get something used? Is this even a good idea?
A few years back I purchased a 2016 Jeep Patriot Sport, and was financed about $25,000 for it with $0 down. 6.9% interest rate on the loan, with a ~$450 monthly payment. Fast forward to now - I deliver pizza on the side (I have three jobs and work basically non-stop in an effort to get myself out of debt) and the car now has 50,400 miles on it or so. The remaining balance of the loan is $16,010. I pay $500 each month (exceeding the minimum payment) towards the loan. I am able to make the payment, but I really miss driving a used car that I would rather own outright. It is nice having a newer car, but in the end I feel like it wasn't worth it (I would be happy with something a few years older that I wouldn't have to make payments on.) At this point, I can pay off the loan fine in a few years considering my amount monthly income from three jobs... however I am researching the idea of getting something cheaper in order to cut out my debt.
A few other likely important details:
Three days after I purchased the car, I was involved in a minor accident (not my fault). Other guy didn't have insurance, he paid out of pocket, insurance company also paid me, I fixed the body damage, problem solved.
I get regular oil changes, and I just had the brakes and rotors replaced. Car basically runs fine (although there is a minor transmission or fuel line "hiccup" that occurs every so often when I step on the gas. Not sure which, but the car runs well otherwise. There is some paint/scratch damage on the side-rear panel, but it wasn't something I cared enough to repair or file a claim on and hence pay a deductible, so I didn't get it fixed. There are some minor upholstery issues (holes being poked from my keys) and I do smoke in the vehicle from time to time (I know, I know...)
Is this even possible? How does it work with trading in a car at a dealership? Is that my only option? What are the pros and cons? Does anybody else have experience with this, or is it a fantasy that cannot be done? Is it a good idea? Bad? Should I just stick with the loan and pay off the car? What would you do if you were me?
A few years back I purchased a 2016 Jeep Patriot Sport, and was financed about $25,000 for it with $0 down. 6.9% interest rate on the loan, with a ~$450 monthly payment. Fast forward to now - I deliver pizza on the side (I have three jobs and work basically non-stop in an effort to get myself out of debt) and the car now has 50,400 miles on it or so. The remaining balance of the loan is $16,010. I pay $500 each month (exceeding the minimum payment) towards the loan. I am able to make the payment, but I really miss driving a used car that I would rather own outright. It is nice having a newer car, but in the end I feel like it wasn't worth it (I would be happy with something a few years older that I wouldn't have to make payments on.) At this point, I can pay off the loan fine in a few years considering my amount monthly income from three jobs... however I am researching the idea of getting something cheaper in order to cut out my debt.
A few other likely important details:
Three days after I purchased the car, I was involved in a minor accident (not my fault). Other guy didn't have insurance, he paid out of pocket, insurance company also paid me, I fixed the body damage, problem solved.
I get regular oil changes, and I just had the brakes and rotors replaced. Car basically runs fine (although there is a minor transmission or fuel line "hiccup" that occurs every so often when I step on the gas. Not sure which, but the car runs well otherwise. There is some paint/scratch damage on the side-rear panel, but it wasn't something I cared enough to repair or file a claim on and hence pay a deductible, so I didn't get it fixed. There are some minor upholstery issues (holes being poked from my keys) and I do smoke in the vehicle from time to time (I know, I know...)
Is this even possible? How does it work with trading in a car at a dealership? Is that my only option? What are the pros and cons? Does anybody else have experience with this, or is it a fantasy that cannot be done? Is it a good idea? Bad? Should I just stick with the loan and pay off the car? What would you do if you were me?
In my zip code selling that car yourself would get you $13k. So, you're kind of upside down on it. I would maybe try to refinance the loan and get the interest rate down, so, that you can pay it off faster.
posted by trbrts at 8:19 PM on February 20, 2019 [6 favorites]
posted by trbrts at 8:19 PM on February 20, 2019 [6 favorites]
a recently purchased new car
Your car is a used car. It's not new.
It's not really an attractive prospect.
I have no idea what you're saying here. A dealership will happily buy pretty much any car that results in them selling a car on their lot. The dealer will only pay a trade-in value, which will almost definitely be less than the balance of the loan, but that's not the dealer's problem. They make money on the markup of the car you purchase and the markdown of the car you trade in.
In my zip code selling that car yourself would get you $13k.
Around my parts, $10-$12K seems more likely, but OP can evaluate that for themselves. Consider using a trade in calculator to determine the trade in value of the car. Make sure to set condition appropriately - most people overvalue the condition of their car, and the dealer will be pushing for a lower condition.
Is this even a good idea?
Effectively, you will get a trade-in value of something like $7K-$10K (at least around my locale). You will owe your bank the residual $5K-$8K on the loan. So, you'll have to pay $5K-$8K to the bank to get $7K-$10K back. In other words, if you trade in your car, you'll get a net of $2K-$5K out of the deal.
This is fairly handwavy because we don't know your locale or the specifics of your car. However, even rough math suggests that you'll probably not end up with enough money to buy a car that you're comfortable with given your description.
My suggestion is that you can certainly do this, but it's not obvious to my how it's helpful for you unless you're willing to replace your car with a significantly cheaper used car.
posted by saeculorum at 9:02 PM on February 20, 2019 [3 favorites]
Your car is a used car. It's not new.
It's not really an attractive prospect.
I have no idea what you're saying here. A dealership will happily buy pretty much any car that results in them selling a car on their lot. The dealer will only pay a trade-in value, which will almost definitely be less than the balance of the loan, but that's not the dealer's problem. They make money on the markup of the car you purchase and the markdown of the car you trade in.
In my zip code selling that car yourself would get you $13k.
Around my parts, $10-$12K seems more likely, but OP can evaluate that for themselves. Consider using a trade in calculator to determine the trade in value of the car. Make sure to set condition appropriately - most people overvalue the condition of their car, and the dealer will be pushing for a lower condition.
Is this even a good idea?
Effectively, you will get a trade-in value of something like $7K-$10K (at least around my locale). You will owe your bank the residual $5K-$8K on the loan. So, you'll have to pay $5K-$8K to the bank to get $7K-$10K back. In other words, if you trade in your car, you'll get a net of $2K-$5K out of the deal.
This is fairly handwavy because we don't know your locale or the specifics of your car. However, even rough math suggests that you'll probably not end up with enough money to buy a car that you're comfortable with given your description.
My suggestion is that you can certainly do this, but it's not obvious to my how it's helpful for you unless you're willing to replace your car with a significantly cheaper used car.
posted by saeculorum at 9:02 PM on February 20, 2019 [3 favorites]
You can try going to CarMax, they will take a look at your car and tell you what they'll give you for it; you can see if there are any other cars they have that you like that you could get a 1:1-ish trade for. I would say though as someone who went through a long dramatic car buying episode this summer, if you like the car and you get good gas mileage and it's comfortable to drive, you could wind up in a worse situation if you sell it for something older.
posted by bleep at 9:22 PM on February 20, 2019 [3 favorites]
posted by bleep at 9:22 PM on February 20, 2019 [3 favorites]
Seconding CarMax if only to get a solid number for its value to a dealer so you can make an informed decision.
posted by notyou at 10:11 PM on February 20, 2019 [1 favorite]
posted by notyou at 10:11 PM on February 20, 2019 [1 favorite]
a recently purchased new car
Ouch. This is the reason I used to always look for low k used cars - they still have (some) warranty, but the first owner had taken the big financial hit when they drove out of the showroom, and I got a cheap(ish) nearly new car.
In my book that looks like a high mileage car for its age. That is not a problem (to me) if that is highway mileage, but city miles would have me walking on that deal.
My advice is to crunch the numbers (being VERY conservative/pessimistic until you actually have offers) and see whether being debt-free is worth it to you.
posted by GeeEmm at 3:03 AM on February 21, 2019 [1 favorite]
Ouch. This is the reason I used to always look for low k used cars - they still have (some) warranty, but the first owner had taken the big financial hit when they drove out of the showroom, and I got a cheap(ish) nearly new car.
In my book that looks like a high mileage car for its age. That is not a problem (to me) if that is highway mileage, but city miles would have me walking on that deal.
My advice is to crunch the numbers (being VERY conservative/pessimistic until you actually have offers) and see whether being debt-free is worth it to you.
posted by GeeEmm at 3:03 AM on February 21, 2019 [1 favorite]
As noted above, if you owe more than it’s worth then you’ll have to pay the difference to get rid of it, plus the full cost of whatever replaces it. Also consider that the worse reliability of an older car could hurt your income since at least one of your jobs is tied to having a working vehicle. You’re almost certainly better off keeping the car you have. Refinancing is a good idea to explore.
posted by jon1270 at 3:32 AM on February 21, 2019 [2 favorites]
posted by jon1270 at 3:32 AM on February 21, 2019 [2 favorites]
My advice? Keep the car.
You’re in a tough place debt-wise, but it’s not really that bad and you’re making progress. You have three jobs and a reliable car. With three jobs, you need this car — and to my mind it’s not worth the risk to see if you can get something cheaper right now. As others have pointed out, you could get a nominally cheaper car but it could cost you more in repairs. You’ll still be in debt but with a worse car.
Ideally you’d apply your efforts right now to losing one of your low-paying gigs (I assume they’re low paying because you have three of them) and get one better paying job so you don’t need multiples. I realize good jobs can be tough to find. It just makes more sense to me to start applying your energy to a job search, than to sell stuff you need to function.
You need some quality of life too. You need a social life and emotional support. Being debt free is a good goal, but it should’t be killing you. Relax, you’ll get there. Good luck!
posted by cartoonella at 3:32 AM on February 21, 2019 [5 favorites]
You’re in a tough place debt-wise, but it’s not really that bad and you’re making progress. You have three jobs and a reliable car. With three jobs, you need this car — and to my mind it’s not worth the risk to see if you can get something cheaper right now. As others have pointed out, you could get a nominally cheaper car but it could cost you more in repairs. You’ll still be in debt but with a worse car.
Ideally you’d apply your efforts right now to losing one of your low-paying gigs (I assume they’re low paying because you have three of them) and get one better paying job so you don’t need multiples. I realize good jobs can be tough to find. It just makes more sense to me to start applying your energy to a job search, than to sell stuff you need to function.
You need some quality of life too. You need a social life and emotional support. Being debt free is a good goal, but it should’t be killing you. Relax, you’ll get there. Good luck!
posted by cartoonella at 3:32 AM on February 21, 2019 [5 favorites]
Yeah there aren't a lot of scenarios that make sense, if you need to end up with a reliable car. It DOES make sense to shop around to various lenders to find the cheapest interest rate and refinance it, because unlike refinancing a house, refinancing a car is easy and free. I'm always surprised people aren't constantly on the lookout for auto loan deals to lower their interest rates. The one gotcha you need to be aware of is not doing the thing where, say, you have 36 months left on the loan and refi into a 60-month or whatever. Do a loan that's a similar length to the number of months you have on the current loan. Shorter loans frequently have better interest rates than longer terms, too.
posted by rabbitrabbit at 7:16 AM on February 21, 2019
posted by rabbitrabbit at 7:16 AM on February 21, 2019
purchased a few years back? meaning how long until this is paid off?
i am in the refinance for a term close to what you have left but at a lower interest rate.
if you sell this, you will be lucky to get enough to pay off the loan. so to buy a new car, unless you have cash sitting around, you will take out another loan on a different used car so you really aren't gaining anything.
now if you can pay cash for a different car after you sell this one, that is a different story.
posted by domino at 8:32 AM on February 21, 2019
i am in the refinance for a term close to what you have left but at a lower interest rate.
if you sell this, you will be lucky to get enough to pay off the loan. so to buy a new car, unless you have cash sitting around, you will take out another loan on a different used car so you really aren't gaining anything.
now if you can pay cash for a different car after you sell this one, that is a different story.
posted by domino at 8:32 AM on February 21, 2019
Just a note on this:
Effectively, you will get a trade-in value of something like $7K-$10K (at least around my locale). You will owe your bank the residual $5K-$8K on the loan. So, you'll have to pay $5K-$8K to the bank to get $7K-$10K back. In other words, if you trade in your car, you'll get a net of $2K-$5K out of the deal.
I think that this paragraph is double-counting the trade-in value. The residual loan amount is ~$16k. Getting $7k-$10k back means you'd have $6k-$9k left on the loan if you turned around and applied the trade-in value to the loan balance. There is no scenario where you end up with positive net assets after trade-in when considering the outstanding loan; i.e., you're underwater, as others have pointed out.
posted by Expecto Cilantro at 12:57 PM on February 21, 2019 [2 favorites]
Effectively, you will get a trade-in value of something like $7K-$10K (at least around my locale). You will owe your bank the residual $5K-$8K on the loan. So, you'll have to pay $5K-$8K to the bank to get $7K-$10K back. In other words, if you trade in your car, you'll get a net of $2K-$5K out of the deal.
I think that this paragraph is double-counting the trade-in value. The residual loan amount is ~$16k. Getting $7k-$10k back means you'd have $6k-$9k left on the loan if you turned around and applied the trade-in value to the loan balance. There is no scenario where you end up with positive net assets after trade-in when considering the outstanding loan; i.e., you're underwater, as others have pointed out.
posted by Expecto Cilantro at 12:57 PM on February 21, 2019 [2 favorites]
There is no scenario where you end up with positive net assets after trade-in when considering the outstanding loan
Correct. I have no idea why I did this math. Thank you for the correction.
The OP can reduce their monthly expenditure by buying a drastically cheaper car after the trade-in. The amount by which the OP is underwater ($6K-$9K) will cost the OP on trade-in.
So, if OP wants to replace the car with a cheaper car (say, a 2010 Hyundai Sonata at $5,995), the car would "cost" $12K-$15K to buy (increased by the trade-in amount). Net result: OP would have to spend a lot of money to get an older car.
posted by saeculorum at 4:20 PM on February 21, 2019
Correct. I have no idea why I did this math. Thank you for the correction.
The OP can reduce their monthly expenditure by buying a drastically cheaper car after the trade-in. The amount by which the OP is underwater ($6K-$9K) will cost the OP on trade-in.
So, if OP wants to replace the car with a cheaper car (say, a 2010 Hyundai Sonata at $5,995), the car would "cost" $12K-$15K to buy (increased by the trade-in amount). Net result: OP would have to spend a lot of money to get an older car.
posted by saeculorum at 4:20 PM on February 21, 2019
This thread is closed to new comments.
"Well, sir, you can buy this 2016 Jeep with 50k miles on it for $x OR you can buy this 2016 Jeep with 50k miles on it for $x+16k." It's not really an attractive prospect.
posted by East14thTaco at 8:14 PM on February 20, 2019