When considering trading in your car, the phrase “dealerships that will pay off your trade no matter what you owe” can sound like an ideal solution, especially if you have negative equity (owing more on your car than its worth). While some dealerships offer to pay off your trade regardless of the balance on your current loan, it’s important to understand how these deals work and whether they truly benefit you in the long run. This article will explore the concept, explain the process, and provide insights to help you make an informed decision.
What Does It Mean for a Dealership to Pay Off Your Trade?
When a dealership says they will “pay off your trade no matter what you owe,” it typically means they are willing to cover the remaining balance of your existing car loan as part of a trade-in deal. However, this doesn’t mean that the amount you owe disappears. In many cases, the negative equity (the amount you owe beyond the car’s value) is rolled into your new loan. This means you’ll end up paying for both your old and new vehicles, just in one consolidated loan. This practice can be advantageous for those eager to upgrade their car, but it comes with financial considerations that should not be overlooked​.
How Does the Trade-In Process Work?
When trading in your vehicle, the dealership will first evaluate your car’s current value using guides like Kelley Blue Book or National Automobile Dealers Association (NADA). If the value is less than the amount you owe on the car loan, you have what is called negative equity. For example, if your car is valued at $10,000, but you owe $15,000, you’re $5,000 underwater. The dealership will pay off the remaining loan balance but will typically add the $5,000 of negative equity to the loan for your new car​.
Dealerships Offering This Service
Many dealerships across the U.S. offer to pay off your trade regardless of what you owe, but each dealership may have slightly different conditions:
- Imperial Cars (Massachusetts) – A well-known dealership that covers multiple brands including Chrysler, Dodge, and Ford. They offer trade-in deals even if the customer has negative equity​.
- Premier GMC (Ohio) – Specializes in accepting trade-ins with outstanding balances. Premier GMC offers flexible payment plans and wide inventory options, making it a popular choice​.
- Suburban Toyota of Troy (Michigan) – This dealership has a reputation for accepting financed vehicles with outstanding balances. It allows customers to roll negative equity into a new loan​.
The Pros and Cons of Rolling Over Negative Equity
One of the biggest attractions of dealerships paying off your trade, no matter what you owe, is the ability to get out of an upside-down car loan. If you are eager to trade in your car for a new one, this can seem like a convenient way to handle a challenging financial situation. However, this convenience comes with certain drawbacks:
Pros:
- Immediate Debt Relief: You no longer have to make payments on a car that is no longer in your possession.
- New Car: You can drive away in a new vehicle without worrying about selling your current one privately or covering the outstanding loan yourself.
- Single Loan: Rolling over the negative equity means you only have one car loan to deal with instead of two separate loans.
Cons:
- Higher Payments: Rolling over negative equity means you could end up with a higher monthly payment on your new loan, as you’re essentially paying for two cars at once.
- Longer Loan Term: The length of your new loan could be extended to accommodate the additional amount owed, meaning you’ll be making payments for a longer period of time.
- Potential for More Negative Equity: If your new car depreciates faster than you can pay off the loan, you could end up in the same negative equity situation again​.
Alternatives to Trading In at a Dealership
Before deciding to trade in your car with a dealership, it’s worth considering a few alternatives:
- Private Sale: Selling your car privately may yield a higher selling price than a dealership trade-in. However, it can be more time-consuming as you’ll need to find a buyer, negotiate, and handle all the paperwork yourself.
- Paying Off the Loan: If possible, pay off the remaining loan balance before trading in or selling the car. This will allow you to start fresh without rolling over negative equity into a new loan.
- Refinancing: If you can secure a lower interest rate, refinancing your current loan may help reduce your monthly payments and pay off the loan faster, potentially allowing you to trade in with less or no negative equity​.
Final Thoughts: Is It Worth It?
Trading in your vehicle when you owe more than it’s worth is a common scenario, and many dealerships offer solutions that seem to take care of the problem. However, while the promise to pay off your trade sounds enticing, it’s crucial to understand the implications. You may still end up paying for your previous loan, just in a new package. The key is to assess whether the convenience of rolling over negative equity is worth the potential financial burden of higher payments and a longer loan term.
Before heading to a dealership, it’s essential to research the value of your current vehicle and understand how much negative equity you have. Compare offers from multiple dealerships and consider all your options, including selling the car privately or refinancing your loan. Ultimately, your decision should be based on what works best for your financial situation in the long term​.
