Is Trading In Your Car Really A Good Idea? What Are Things To Look Out For?

I need to lower my expenditures because I am moving and will be attending a university as a full time student...so my question is....If i trade in my car which has a blue book value of about $9,000 dollars...i still owe about $15,000...and get a newer but used car for like $10,000.....is that a good idea?? I don't want to get screwed over....if I do this what are some things that i should look out for??

You will NEVER get KBB for a trade in, dealers are cheap and they will expect you to walk away from your car for less than your seats are worth.

Don't worry about how old the car is, some cars last longer than others. I have a 1994 Nissan Maxima which runs like new at 126K miles and the engine is known to run past 300K miles in the right hands. My dad has one at about 205K miles and it runs like new.

Age just really doesn't matter, look at the cars actual life expectancy. Newer doesn't guarantee it will get you further. If you know what you are getting into and don't use your vehicle as a trade in but sell it privately you'll get more for your money.

I have illustrated this in here for numerous people. When you are dealing with negative equity you can almost never trade DOWN. You almost always have to trade UP to deal with that shortfall. And, as I advise people almost daily, you should try to avoid rolling the negative from one car to another at all costs. You end up even worse than when you started almost every single time.

I will copy and paste an illustration from another post so that you can see how this works. The numbers will not be precise to your individual situation. But the math and the formulas will always be the same...

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You have to get what is known as an 'over-advance'. This means that the bank is lending more than the value of the car being purchased. Typical over-advances run in the 125% range. SO, if you are on a 20,000 car and have a 125% advance, they will loan $25,000 (20k * 1.25)

You are going to run into a big problem trying o trade down. Overadvances do not hide negative equity when you are going down in price. On a cheap car, the amount of hte advance is not sufficient to hide the negative.

In your situation, this is how it would look. You think you are only $5500 upside down, but its probably more. For illustraction, I will use your numbers

Let's say you land on a $10,000 can and get a gold-balls credit over-advance of 135%. That means that they will loan $13,500 on that car. You need to hide $5500 PLUS taxes and fees. So you come up $2k short, plus fees. Taxes, DMV etc is usually about 10% of the sale price, so $1350. You are $3350 short of making the deal. You need to pay that in cash in order to make it happen.

The only way to hide $5500 in negative, on an average over-advance is to step into a $23,000 car. (23,000 *.25 = $6250) So your loan would be close to $30,000 + taxes and fees. Roughly $33,000. On a car worth $23,000.

Before they hand you the keys, you have gone from being $5500 upside down, to over $10,000 upside down. When your tail lights cross the curb, you will be $14-15000 upside down.

So - As much as you may not like to hear this, I will tell you. Its not going to work. You can't roll back to a $7000 car, and hide $5000 in negative plus fees. That would be an advance over 200% and no bank is going to do that.

Your best bet is to tighten the belt, an dmake those payments. Even if you do find a dealer and bank willing to do this, it is a HUGE mistake. You will be a slave to the car for the next 6 years. And there will be absolutely no way to get out of it. Any dealer who would do this would be doing you a huge disservice in the long run.

You probably wont be able to. Even if you got 9k for your car, you still owe 6k. The to purchase a 10k car the 6k will have to roll over to the next vehicle.You will need a 16k loan to buy the 10k car. I dont know any banks that will do that