When it’s time to upgrade your vehicle, trading in your old car can be a great way to reduce the cost of your next purchase. However, dealerships that will pay off your trade no matter what you owe if you still owe money on your trade-in and it’s worth less than what you owe (a situation known as being “upside down” on your loan), it can feel like a daunting process. The good news? There are dealerships that offer to pay off your trade-in no matter what you owe. But is this too good to be true, or is it a legitimate offer?
In this blog post, we’ll dive into how these dealership offers work, the pros and cons, and how to determine if this option is right for you.
What Does It Mean When a Dealership Pays Off Your Trade-In, No Matter What You Owe?
Many car dealerships offer to pay off your trade-in vehicle, even if the balance on your current loan is higher than the value of the car (i.e., you owe more than the car is worth). This type of deal is sometimes marketed as “We’ll pay off your trade, no matter what you owe!” or “Underwater trade-in? We’ll take care of it!“
Here’s how it works:
- You trade in your car, even if you owe more on your loan than the car is worth.
- The dealership will pay off the remainder of your loan on your behalf, often as part of a deal on a new or used car.
- Any remaining loan balance that exceeds the trade-in value is rolled into the financing of your new vehicle purchase.
So, for example, if you owe $10,000 on your car, but it’s only worth $8,000, the dealership would pay off your $10,000 loan and help you finance the $2,000 difference in your next car purchase.
Why Do Dealerships Make This Offer?
At first glance, it might seem like a dealership is doing you a huge favor by agreeing to pay off your trade-in, no matter what you owe. But why would they do that? The answer lies in selling you a new car.
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Increased Sales: The dealership is hoping to sell you a new or used car in the process, which often means higher profits for them. They are willing to roll the remaining balance of your loan into a new loan on a different vehicle.
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Car Inventory: Dealerships need used cars to replenish their inventory, and a trade-in is a way to acquire vehicles at little or no cost to them. Even if the trade-in has negative equity (you owe more than it’s worth), they can sell it at a profit, especially if they refurbish it.
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Financing Profit: By offering to pay off the remaining balance of your trade-in and rolling it into your new vehicle loan, dealerships can make money through financing. Higher loan amounts mean higher interest payments over time, which benefits the dealership financially.
How Does the Dealership Pay Off the Trade-In?
If you’re considering trading in your car and you owe more than it’s worth, here’s how the dealership typically handles the situation:
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Trade-In Value: The dealership will evaluate the trade-in value of your vehicle. This is usually based on current market conditions, the vehicle’s age, mileage, condition, and other factors.
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Paying Off Your Loan: If the dealership agrees to pay off the remaining loan balance, they will pay the lender directly. However, if you owe more than your car is worth, that’s where the issue of negative equity comes in.
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Rolling Over Negative Equity: If you have negative equity, the dealership may offer to “roll over” the difference between what you owe and what they are offering for your trade-in into the new financing. For example, if you owe $10,000 on your car and the dealership offers you $8,000, the $2,000 difference will be added to your new car loan.
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New Loan: Your new loan will reflect the value of the new car plus any negative equity rolled into it. Keep in mind that the interest rate and monthly payments will increase due to the additional amount being financed.
The Pros of Dealerships Paying Off Your Trade-In, No Matter What You Owe
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Convenience: If you’re stuck with a car that has negative equity, the option to trade it in and not worry about paying off the remaining balance can feel like a relief. The dealership handles everything for you.
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No Need for Additional Payments: If you’re struggling with a car loan that’s higher than your car’s value, rolling that balance into a new loan means you don’t need to come up with additional funds to cover the difference out-of-pocket.
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New Car or Used Car: By trading in your vehicle, you get the opportunity to purchase a new or used car, often with new features, warranty benefits, and potentially better fuel economy.
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Improved Financing Terms: In some cases, dealerships may offer lower interest rates or better financing terms, especially if you qualify for special financing programs. This can help offset the impact of the negative equity in your new loan.
The Cons and Risks of These Offers
While these deals can sound appealing, it’s important to understand the risks and drawbacks of rolling negative equity into a new car loan:
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Higher Monthly Payments: By rolling over the negative equity, you are essentially adding to the total cost of your new vehicle. This means your monthly payments will likely be higher than if you had traded in a car with positive equity or no loan balance.
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Increased Loan Balance: If you roll negative equity into your new loan, your car loan balance could be significantly higher than the value of your new car.
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Longer Loan Terms: Some dealerships may offer longer loan terms to accommodate the additional negative equity, which can result in paying off your loan over an extended period. While this can reduce your monthly payments, you will pay more in interest over the life of the loan.
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Risk of Being “Upside Down” Again: If you trade in a car with negative equity and roll that balance into a new loan. This can be problematic if you want to sell or trade in your car before the loan is paid off.
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Potential for Higher Interest Rates: Some dealerships may offer higher interest rates when you roll negative equity into your loan, as the total loan amount increases. This could lead to paying more over time in interest.
Dealerships That Offer to Pay Off Your Trade-In, No Matter What You Owe
Not all dealerships offer to pay off your trade-in no matter what you owe. However, many big-name dealerships or large automotive chains may offer promotions or special financing deals where they will pay off negative equity. Here are some examples:
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CarMax: Known for its no-hassle pricing and wide range of vehicles, CarMax is a popular choice for those looking to trade in their car, even if they have negative equity. CarMax may roll over your remaining loan balance into a new loan, depending on the circumstances.
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AutoNation: As one of the largest automotive retailers in the U.S., AutoNation often offers trade-in deals that include paying off your loan balance, regardless of the car’s trade-in value.
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Honda, Toyota, and Ford Dealerships: Many dealerships associated with major car brands like Honda, Toyota, and Ford may run promotions or special financing offers that help customers with negative equity. It’s always a good idea to ask the dealership about their specific policies and promotions.
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Local Dealerships: Many local and regional dealerships may also offer these kinds of deals, especially if they are looking to move inventory quickly or offer financing specials.
Conclusion: Is It Right for You?
Trading in a dealerships that will pay off your trade no matter what you owe car when you owe more than it’s worth can feel like a daunting financial situation. However, dealerships that offer to pay off your trade-in, no matter what you owe, can provide a solution that helps you move forward with your car purchase.
Before taking advantage of this offer, make sure to carefully evaluate the terms of the deal.
While it’s convenient and can be helpful in certain situations, be mindful of the long-term financial implications. Always do your research and speak with a financial advisor or dealership representative to make sure you’re making the best decision for your financial future.
