Question:  I'm confused over my payoff. Can you clarify it for me?

November 21, 2001

Tony-

First of all, your site kicks ass and has helped me understand the whole process much better. BUT, I'm still a little confused with trading in a truck on which I owe more than I have equity. My wife and I bought a 2001 Toyota 4Runner at appx. $29,000. A month later, we found out we're pregnant. The baby is due next month, and we're realizing we need a mini-van.

Therefore, we have a 2001 4Runner, on which we still owe about $28,000, which we want to trade-in for a $24,000 Dodge Grand Caravan. If I have this right, they buy the 4Runner at close to blue-book value and then we tack the "pay-off" onto the negotiated loan for the mini-van?

How often will they offer blue-book value, especially on a virtually new, spotless SUV in pristine condition? Thanks! You and your site are the best!

Happy Thanksgiving,

Josh

Answer:

Hi Josh,

Thanks for all the complements! It's always nice to be appreciated!

Sometimes it can really get confusing when there is a payoff involved. Especially if you're "upside down" as you undoubtedly are.

When you buy a car the numbers go like this:
the negotiated selling price of the new car . . . plus . . .
sales tax and whatever fees there are . . . minus . . .
The trade-in allowance you're willing to accept . . . minus . . .
rebates or cash down . . . plus . . .
Your pay-off.
This will give you the total amount you will need to finance.

I hope you realize you are going to take a pounding on the Toyota. The dealer is going to give you wholesale value for it. I'm sure it's a desirable vehicle for him to have, and this is in your favor, but he's going to leave himself a lot of room to profit off of it.

As far as Blue Book goes it's generally a little high. In reality, most dealers will use the Black Book which gives the dealer a very realistic wholesale number. It's based on actual averages from dealer wholesale auctions around the country. Some dealers will use the NADA book which can go either way!

Bottom line is you're going to loose your ass on the Toyota! Unless you can find a private buyer to give you close to what you owe on it. The only thing you have going for you is that your Toyota is new and extra clean and it's fairly popular to buyers.

Good luck,

God Bless America . . .

Tony Iorio