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Existing car loan vs. new loan questions


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Maybe this decision doesn't matter, but at least I hope I can get guidance from you guys who have helped tremendously in the past. 

 

My DH and I are in the market for another vehicle. We currently have a 2009 Ford Flex with a little over 138000 miles on it. We are in the last 10 months of the 4 year loan we signed and therefore have little left on the loan. However, the amount we owe is still more than the car is currently worth based on information I can find on the internet and the condition it is in (fair condition; cosmetic issues, but no mechanical issues other than age). 

 

We have a specific model of car, Ford Explorer, in mind and would like to get one with less than 50K miles on it. We are not interested in anything new, only used and financing, not leasing, is what we need (when I go back to work, physically, I will commute 50+ miles a day).

 

We have money in the bank, not savings (we have that separate), just extra cash built up for down payment on the new(er) car. My question is, do we put that money on paying off the loan of the car and exclusively using the car as a trade in OR do we use the money as down and (try to) negotiate the trade in value to cover the amount of leftover loan? Does it matter? We know little of successfully buying a car, neither of us are strong negotiators and this is really the first time we have gone into the market with specific wants/needs outside of 'it needs to fit our family of 6'. Frankly this is the most financially secure and confident we have ever been in our adult lives thanks to this board, but I also know our weaknesses, lol.

 

Thanks for your help, again!

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From a math standpoint, it doesn't matter. However you reduce the principal, whether it is through increased trade value (by having positive equity in the trade) or cash down the math still works the same.  There are other considerations though:

 - As far as the trade value, you're best bet is to compare the dealer's offer to CarMax and Carvana so you have comparable values.  Typically, those places offer better values than the dealer does, however that is not always the case.  There is also a sales tax credit in some states when you trade in a car so that is something else to consider.

 - When you trade in a car, it gives the dealership another place to add profit to the deal for himself.  Make sure you negotiate the price of the car first, then talk trade values.  This is also where having a backup offer on the trade is helpful.

 - If you credit is marginal, cash down may help with approval (or get you approved at a better rate). 

 - You may want to use a check into outside financing like at a credit union (DCU is one that is easy to join and has good rates), especially if the captive's rates are not that great.  Again, it gives you options.

 - Lastly, research.  It is a bit harder to know if you're overpaying for a used vehicle, but use sources like KBB, see what comparables are going for via cars.com, etc.  This should at least give you a ballpark on what a fair price will be on the vehicle you're looking at.  Also, don't let them push you into something right away.  If you are not comfortable negotiating, either do it via email or take their offer and leave and come back.  Give yourself time to absorb everything, research and then proceed.  

Edited by CTSoxFan
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I generally try to avoid trading, because it's hard enough to know if you're getting a good deal without introducing trade value as an additional variable.

 

In your state is there a sales tax advantage to trading, or are you avoiding selling the car yourself for some other reason?  

 

If there is no sales tax advantage, consider selling the current car yourself.  I bought a vehicle in mid-December, but just sold the car it replaced over the weekend.

 

The most I was offered in trade for the old vehicle was $9,500, but I got $13,500 after spending $20 on advertising and showing the car only twice.  

 

If you don't want to advertise the car and deal with random people, you should at least check and see what Shift, Vroom, Carvana and Carmax will offer you (yes, get quotes from all of them).  

 

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In addition to everything that has already been said there is one other option to look at given the age of the car.  Once you get several reliable appraisals as to what the vehicle is actually worth (loan balance aside) it may be advantageous to trade it in for another reason.   When I traded mine they gave me what I wanted for it because due to age (and a crack in the windshield) it was not going to be cleaned up but sent to auction.  Many dealers have a policy that if the vehicle is going to auction and you are doing a solid purchase from them to simply give you what you want for the trade in. The key is to also be a savvy negotiator on the other parts of the purchase process so they don't "hide" that money somewhere else to take advantage.

 

I did this last November and it worked out FABULOUS for me.  You simply have to be candid about their policy on trade ins of that age, your down payment regardless of other details, and what you will flat out pay for the purchased vehicle under all circumstances.

 

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16 hours ago, CreditSucksNot said:

In addition to everything that has already been said there is one other option to look at given the age of the car.  Once you get several reliable appraisals as to what the vehicle is actually worth (loan balance aside) it may be advantageous to trade it in for another reason.   When I traded mine they gave me what I wanted for it because due to age (and a crack in the windshield) it was not going to be cleaned up but sent to auction.  Many dealers have a policy that if the vehicle is going to auction and you are doing a solid purchase from them to simply give you what you want for the trade in. The key is to also be a savvy negotiator on the other parts of the purchase process so they don't "hide" that money somewhere else to take advantage.

 

I did this last November and it worked out FABULOUS for me.  You simply have to be candid about their policy on trade ins of that age, your down payment regardless of other details, and what you will flat out pay for the purchased vehicle under all circumstances.

 

This is the issue.  The dealer is not going to lose money on a sale, especially on a used car that isn't going to be tied to hitting manufacturer sales incentives for them.  So if your car is only worth $3,000 and they say we'll give you $4,000, that is $1,000 more you'll be paying on the price of the purchased car (or put another way, $1,000 less of a discount you could've obtained on the price of the purchased vehicle).  That is why it is best to negotiate the price of the car prior to any discussion of trade value.

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Thanks guys for the information. 

 

Turns out there is a sales tax credit in Texas for trading in your car to the same place you purchase your next. I wasn't even aware of that, so thanks for that specific information. Otherwise, truth is, I've never sold a vehicle. After getting myself into a bad deal the first time I bought a car, the DH and I have almost exclusively purchased in cash and ran previous cars into the ground. At most we have donated or junked older vehicles at the end of their lives. This will be our first trade in as well and for that don't particularly feel comfortable selling ours. Knowing that, would you still encourage us selling separately from purchasing our next?  I did check our auto enhanced Fico scores. I don't expect them to be too much of an issue; mine are all over the 700's though DH's are still lagging in the 600's. Would any of this information tip the scales further to one side (trading in) or the other (selling privately)? We've been actively researching for almost 2 months but have kept an eye on things for awhile. I will take the next step in getting those offers from the suggested locations over the next few weeks and see where it all goes from there.  

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You need to do the math.  You will almost always get more selling privately to another person, but it is a greater hassle.  If you aren't comfortable doing that, at least get a quote from the places CV mentioned above.  It is a no hassle cash offer, and aside from CarMax all 3 can be done from your couch.  The only caveat is they are usually only good for 7 days/300 miles, so you should have your new car picked out or be reasonably assured you can find one within that time frame.  Once you find your car, negotiate the price of the car, no trade.  Then talk about what they'll give you for your trade.  If the trade value plus tax benefit is better than (or at least close to) the other offers, take it.  If they are way below the other offers, then trade it into CarMax/Carvana etc.

 

Another source for trade offer is KBB.com instant cash offer.  I have used that twice successfully in the past.  Second time I even was able to get more than the guaranteed offer.

 

As far as your credit, you may want to have a pre-approval from an outside source in hand (also known as a "blank check" or other).  Basically it is a check from a bank or CU good for up to a certain value.  DCU is a good option for this, their rates are very competitive.  If you are eligible, Navy Federal CU is another good option.  I have used them in the past, very smooth process.  If nothing else it gives you leverage to see if they can beat the rate you have.

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Are you flexible enough to completely divorce the sale of your old car from the purchase of the new one (if the old one sells first, would you still have transportation?; if the old one sells later, does that require you to take on too high a payment on the new one?; etc.)? 

 

If nothing else, if you end up trading in your vehicle you're in a much stronger position to negotiate trade value when you have written offers from other sources for your current vehicle.

 

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  • 2 weeks later...

As always you guys have been amazing! Thank you for letting us glean some of your knowledge and experience. We are still researching and trying to find that right fit vehicle and I feel much more confident going into this. We have also been doing a lot more reading and researching and *will* come out with a much better vehicle and deal than in the past. I cannot thank you all enough, really. After the very rough, very cold last week here in Texas I hope to hop back on this and get this off our "to-do" list very soon and I'll update when we've made more progress. Again, thank you all so much!  

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