Suppose for a minute that you are in a car that you hate, but you owe more on it than it is worth. You might feel that you are stuck for the car for years to come until it is paid off. Then . . . you see a commercial on television or in the newspaper that says something like “we will pay off your trade no matter what you owe“. Sounds great, but can it really be true? The answer to that question is yes. But the better question would be is it a good deal for me? The answer to that question is usually no.
You need to know and pay attention to how they perform this feat. Since the amount of the loan on your current car is not going to go away and the dealer is not going to give more than your car is worth for a trade in, how are they going to do this? Simple, they are going to just add the payoff amount for the old car minus the trade-in amount that they are going to give you into your new loan!
Here is an example of the magic that they say they can pull off:
Old Car Value: $7,000
Remaining Loan Balance: $10,000
Negative Equity: $-3,000 (you owe more than your car is worth)
New Car Price: $15,000
Negative Equity From Old Car: $3,000
Total Amount Financed: $18,000
You have essentially turned your new $15,000 car into an $18,000 car by letting them pay off your trade-in for you “No Matter How Much You Owe“. So instead of financing $15,000 for the new car, you also “get to” finance $3,000 from your old car also.