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Paying Off Your Old Vehicle Before Buying A New One
Paying Off Your Old Vehicle Before Buying a New One: Vehicle Owners with Negative Equity Should Use Caution When Trading-In their Vehicle
Our cars are part of our Michigan identity. We build them, buy them, restore them, take pride in them, and show them off at the North American International Auto Show, the Woodward Dream Cruise, and car shows all over the State. When it comes time for a new vehicle - maybe our families are growing, or our budgets are shrinking - we look for deals, and hear promises like "We'll pay off your old car, no questions asked!" We should not let our love for vehicles make us disregard the caution that we use when making any major purchase.
Buyer Beware - Dealers May Not Pay Off Your Old Vehicle as Promised!
In an effort to attract buyers to their showrooms, some dealers may promise to pay off any outstanding loans (also called liens) on your current vehicle to help get you into a newer model, or a smaller, more fuel-efficient vehicle.
This promise is especially attractive to vehicle owners who are currently "upside down" in their current vehicle. This means that the vehicle owner may owe more on the car loan than the car is currently worth - a situation also referred to as "negative equity."
Although most car dealers may have every intention of paying off your previous vehicle as promised, some dealers may lack the ability to pay off the loan on your previous vehicle.
But why should you care? You got a nice new vehicle out of the deal, and paying off your previous loan is the car dealer's responsibility, right? Wrong! You are responsible for any and all loans that you signed a contract for - even on vehicles that you have traded in and do not drive any more! This means that if a dealer fails to pay off the loan on your previous vehicle, as promised, you are responsible for paying off both your previous vehicle and the vehicle you are currently driving. Failure to make payments on your previous vehicle will have a negative implication on your credit score - up to and including a repossession of a car that you no longer have possession of.
Protect Yourself When Purchasing a Vehicle
As with any purchase, make sure you read and understand everything before you sign. Ask the dealer if they will be paying off the lien on the vehicle you would like to trade in, and make sure you get this promise in writing.
It is also important to ask the dealer if they will be paying off the lien on the vehicle you will be trading in one lump sum, or if they will be making the monthly payments. Remember, you signed the contract to take out the loan on your previous vehicle and you are responsible for making the monthly payments. This is an important point because if a dealer informs you that they will make monthly payments, rather than paying off the lien in one lump sum payment, any late payments the dealer makes will reflect negatively on your credit.
Finally, keep in mind that if a dealer spends money to pay off the loan on your previous car, this may be rolled into the loan for your new vehicle. This may result in you having to pay a substantial amount more for your new vehicle than you would have if you had waited to pay off your current vehicle and bought the same car at a later date.
Other Dealer Incentives - Read the Fine Print Before You Buy!
In an effort to sell more vehicles, vehicle manufacturers and dealers have proposed innovative ideas to get consumers into showrooms. These ideas include 60 day return policies on new vehicles, guaranteed low fuel prices for a certain amount of time, and lifetime warranties. However, many of these ideas come with fine print - so be sure to read it!
If You Have a Problem With Your Trade In, File a Complaint:
Consumers who have had a problem with a dealer failing to pay off their previous vehicle's lien as promised should file a complaint with the Michigan Department of State, Regulatory Monitoring Division (BRS). You may contact the BRS at 888-SOS-MICH (888-767-6424). You may also file an Automotive complaint online.
For general consumer questions or complaints, you may reach the Attorney General's Consumer Protection Division at:Consumer Protection Division
P.O. Box 30213
Lansing, MI 48909
Toll free: 877-765-8388
Online complaint form