Car Buying Questions

Trade In Payoff and
Car Buying Negotiating

A car buying question from Ryan L. from Long Island, NY...
Trade in payoff and car buying negotiating.

Hi Justin,

I had written you the other day regarding the value of my trade-in at the dealership. Thanks for your quick response on this site.

I thought of two other quick car buying questions that I was hoping to get your input on. The first involves my current trade in payoff on my current auto loan.

First Question: When I bought my vehicle, I chose to finance it for a 3-year (36 months) term. Currently I am only about halfway through paying my auto loan and I will not have completely paid off the vehicle until next October. The important thing to note is that I still have about $7,000 to pay off on this car.

I'm wondering how the dealership typically handles this if I'm looking to trade in my car for a new one but have not fully paid off my loan yet.

I was not planning on paying off the remainder of my current loan and then putting up thousands of dollars on my new car as well. Will the dealer make my trade in payoff?

From your experience what advice can you offer and what would be some things to watch out for?

Answer #1:

As for any trade in payoff due on your current vehicle, the dealership will include the payoff into your new financing. If you have equity in the car, then your equity would essentially act as down payment towards your new loan.

If your trade in vehicle has negative equity (you owe more than its worth), then that additional money owed is typically rolled up into the selling price of your new car.

Either way the dealership will be responsible for paying off your trade in vehicle.

Some things to watch for here is the negative equity. Auto lenders have tightened up quite a bit lately and if you have too much negative and not enough cash down to cover it, then it will result in a turn down.

This is especially true if there are any credit issues, because auto lenders loaning money to "subprime" credit customers are not going to loan nearly as much money against the value of a car as a "prime" auto lender will.

In fact, the number one reason that sales are off at my dealership is because of trade in payoffs with a bunch of negative equity and auto lenders simply not wanting to loan as much money as is necessary to make the deal work.

Second Question:
When buying a new car, if you're really looking to get the best price possible, how much under invoice should you typically try to negotiate the car for?

I know from my own research that because of "holdback" the dealer pays less than invoice for the car, so that even if you pay close to invoice for a car the dealer is still making considerable profit.

What would your suggestions be here?

Thanks,
Ryan L.

Answer #2:

This can get a little tricky when dealing with new car holdback and if you are able to find a dealer that is willing to sell a car for less than invoice and into the new car holdback, then you are certainly getting a good deal.

There are many car buying tips sites online (one in particular that comes to mind, I talk more about his and other hyped up car buying sites here: Internet Car Scam) that make it seem as though buying a car for thousands less than invoice is easy.

Realistically it's not that easy as there is not as much "profit" as these sites lead you to believe.

First point is that the new car holdback is actually designed to reimburse a dealer for flooring costs associated with the car.

Flooring costs are basically finance charges a dealer has to pay to the manufacturer or other lender for financing the car while it is for sale on the dealers lot. Most dealerships do not own more than 10% of the new or used car inventory on their lots.

Second point is that holdback on most new cars is only going to range between $400 and maybe $2000.

The low end would apply to VW Rabbit's, Chevy Aveos, Ford Focus, Toyota Camry and other small cars.

The high end would apply to your full size trucks and SUV's...

That being said, you will typically need to get a little lucky and find a dealer really eager to sell cars in order to buy a car well into the holdback.

For instance, if there is a $100,000 bonus from the factory for selling 100 full size trucks for the month of July, it's the end of the month and your deal would get them to that level, then it makes sense for them to sell a truck for below invoice...In fact, it makes sense to lose $5,000 selling that truck, because they'll pick up $100,000 for reaching their bonus.

Ultimately, you won't get what you don't ask for and if you want to be really aggressive, then start off hitting them for an out right loss. Shoot for as much as you're ready to negotiate for once the car buying negotiating begins and set your starting number below holdback.

Successful car buying negotiating is all about the grind, so grind and grind and grind until you can either get it for the loss or until you can settle somewhere that gets you half way into the new car holdback. Just know it could be a long day of negotiating. Hope this helps, Justin.

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