Someone Explain This To Me...

[Tyler]

O.K. so I have a car that I bought in Feb last year, I owe 15k on it. If I wanted to buy a cheaper car how would the loan transfer work?

The KBB trade in for a "fair" quality of my car is roughly 11,000 without adding on all the bells and whistles I actually have and I believe my car is between "excellent" and "good" but just to be safe I want to work with the numbers for "fair."

So lets say I wanted to tade my car in for a 2008 Chevy Malibu which costs...let's say 12,000 for shits and giggles.

If I trade in my car for 11k, that would make the Chevy essentially cost 1,000, right? well, that's 1000 I would need to finance and since none of the trade in value goes toward my existing loan, I essentially would be refinancing my loan for 16,000 versus what I origonally bought my car for a year and a half ago, right?

Am I understanding this correctly or am I way off?

[Arcane]

that's basically it....if you use a different financial institution that won't absorb your existing loan, then you'll just have a 15K loan and a separate 1K loan...

but, either way, you'll tack on whatever the difference is...

[Cp44]

are you buying this cheaper car through a dealer or private seller?

[delSol_si]

You might be better off selling your car...not 100% sure, but its an idea. I was going to trade my old car in years ago, the dealer told me they would give me $500 trade on my car, and it was a perfectly good running car in pretty good shape. I decided to just keep my car...then about a year or 2 later, I found a delSol on eBay from a private seller, so obviously I couldn't trade my car. I ended up selling it to a guy for $1800 if I remember correctly.

It was kinda funny too, I had it at $2200 obo, and then later I went back to the newspaper and was going to reduce the price to $2000, but the guy told me he could run the add a lot cheaper for me if the price was under $2000, and since I didn't really care how much I got off it (I only still owed my dad $800 for my new car) I listed it for $1900. Two days later, a guy offered me $1800 and I gladly took it.

Anyway, back to the point, you are probably going to get screwed on trading in your car to a dealership. Yea, your car might be worth $15000 and they might offer you a $18000 trade on it, but guess where they are going to make it up? They are going to tack on another $6000 to the price of the new car.

To answer your question, if the car dealership is the same one you have the loan at, then yes, that is essentially what is going to happen, if it is a different car dealership, the new car dealership will be "buying" your old loan from the old car dealer and then issuing you a new loan. More than likely, they are not going to do this for free though because the old dealership is going to probably charge a fee for the early payoff because of all the interest they are going to be losing.

So, using your numbers, Car Dealer A is the old dealer, Car Dealer B is the new one. Car dealer A sells Car Dealer B the $15000 loan, but since they are going to lose the interest, they are going to charge a $500 premium, then Car Dealer B decides to charge you a fee for their trouble, say $500, bringing your loan up to $16000, then they will give you $11000 trade on your car, bringing it down to $5000, Then you buy the new car for $12000, bringing the loan back up to $17000. This isn't concrete by any means, totally hypothetical, but that is how I would imagine it going down. I have never dealt with car dealerships, both my cars have come from private sellers, one in the paper, the other on eBay, but I have taken a lot of accounting and finance courses in college, so that is how I would imagine it being played out.

either way, good luck!

[Chreees]

Car dealer wins every time... That's all I gotta say.

[Tyler]

Boo. O well, I don't ever really plan on selling my current car I just wanted the option when I graduated if I have to move somewhere a little bit more expensive than I had planned. O well, I guess I can just pay my car off and then trade it in if necessary but at that point -- no car payment would be better than a low one

[Rani]

[quote name='Tyler' date='15 July 2010 - 01:54 PM' timestamp='1279227265' post='475248']
Boo. O well, I don't ever really plan on selling my current car I just wanted the option when I graduated if I have to move somewhere a little bit more expensive than I had planned. O well, I guess I can just pay my car off and then trade it in if necessary but at that point -- no car payment would be better than a low one
[/quote]

Suze Orman says keep your car 10 years. Period. She says even she does so despite being very wealthy. It's good financial sense.

'Rani

[brigita]

Suze Orman is the bomb and does not mess around. Listen to her!

[delSol_si]

[quote name='Tyler' date='15 July 2010 - 03:54 PM' timestamp='1279227265' post='475248']
Boo. O well, I don't ever really plan on selling my current car I just wanted the option when I graduated if I have to move somewhere a little bit more expensive than I had planned. O well, I guess I can just pay my car off and then trade it in if necessary but at that point -- no car payment would be better than a low one
[/quote]

I'm not trying to tell you to keep your car. You should do wahtever you want, I'm simply saying if you do want to get a new car, its going to cost. I could be totally off on the cost too, i am just taking an educated guess at the situation.