Question: Should the car dealer add my whole trade payoff to the new loan, or am I getting ripped-off?

May 23, 2005

Dear Tony

I am looking to trade my car in on a new Ford truck using my companies x-plan. When we go to the numbers for trade they give me $7,000 for my car and I owe $10,000.

They deduct the $7,000 off the bottom line and then they add $10,000 for the pay off.

Is this fair game to do that or should they give me $7,000 for my trade and then add the $3,000 on?

This is their way:

   $26,357 X-PLAN PRICE
-    $7,000 TRADE IN
   $19,357 SUB TOTAL
+ $10,000 TOTAL PAY OFF
______________________________
   $29,357 TO BE FINANCED

This is the way I think it should be done:

   $26,357 X-PLAN PRICE
-    $7,000 TRADE IN
   $19,357 SUB TOTAL
+ $3,000 PAY OFF
______________________________
   $22,357 TO FINANCE

Best Regards,

JEFF

Answer:

Hi Jeff,

You take the selling price of the vehicle you're buying, add tax and title fees, subtract your trade-in allowance, then add your payoff to the total. This gives you your total amount due.

The $10,000 payoff has to be paid off in order for the dealer to get a clear title to your trade. In essence, when you trade a car to a dealer you are really selling it to them. You can't sell a car without providing a clear title. By that I mean a title that is lien free. By refinancing the payoff you are giving the dealer the $10,000 to pay off your trade.

They can't give you $7,000 for your trade and then add $3,000 for your payoff, because you owe $10,000 not $3,000!

So their way is correct. Your way is double-dipping the trade allowance! You can't subtract the trade from the selling price and from the payoff. And don't forget you also have to add sales tax and title fees to the amount to be financed.

The calculations should look like this:

Selling Price
+ Sales Tax and Title Fees
- Trade Allowance
- Rebate (if any)
+ Payoff
________________________________
= Amount Due!

One Word of Caution: Make the dealer put it in writing that they are going to use the $10,000 to immediately pay off your loan on the trade. This is very common, and most dealers take care of it right away.

However, I've seen cases where a dealer was having cash flow problems and they sat on the money and waited a month or more before they got around to paying off a loan. Until it is paid off you are responsible for making the payments on it. So be careful.

I hope this helps. It is very easy to get confused when there is a payoff involved. It throws a lot of people for a loop!

All my very best...

Tony Iorio