If you trade in a car with a low trade in value for a newer car will you still owe if you was financing?

Question

If you trade in a car with a low trade in value for a newer car will you still owe if you was financing?

Answer 1

Yes.  You will still be responsible to see that the balance of the loan is satisfied.

When you trade in a car that is financed, the dealer will pay off the existing loan on your behalf, once the contract is approved.

If your car is worth MORE than the balance of the loan, the difference is applied to the new contract as a down payment.  So if you owe $2000, and the car is worth $2500, the bank gets $2k to satisfy the loan, the extra 500 gets deducted from the balance of the new car.

If your car is worth LESS than what is owed, you can either pay the difference in cash when you make a new deal, or roll the shortfall onto the new loan.  So if you owe $2000, and the car is worth $1600 - the dealer pays off the loan at the bank (2000), gives you a $1600 allowance, and the remaining 400 is added to the balance of the new loan.

Be careful rolling shortfall from one loan to another.  Its the first step toward financial disaster in the long run.  TOday you are rolling a little onto the new loan - but that is putting you further in debt on the new car.

Lets say the new car costs $20,000 and you have a shortfall of $1000 on the trade in....  Taxes, DMV fees, etc on the new car will be about $2000.  Plus the $1000 from shortfall, means you are financing $23,000 on a $20,000 car.  The moment your tailights cross the curb, that new car becomes a used car, and depreciates.  So you will owe $23,000 on a car worth $15,000 - you are now $8k flipped.

Rolling negative from loan to loan is what gets people buried in their car, and a slave to car payments.  Save as much cash as you can.  Put as much on the next car as humanly possible, or just pay cash outright.  You will be miles ahead in the big picture.

Answer 2

Yes, it is not uncommon for a car to depreciate faster than it is paid off. It usually happens at the beginning of the loan. If you do not hang on to it long enough you will owe more than the car is worth.

Answer 3

If you still owe money on your old loan, they will  add it to your new loan.