Edmunds Answers

Answers

  • MrShift@Edmunds 01/15/10 2:20 pm PST

    My opinion is that it is nothing short of financially reckless to trade in a vehicle when you are already upside down on it----if you do this, you'll be MORE upside down on the new vehicle, creating an even faster spiral of debt. If the car is totalled, or repossessed, you're stuck for the balance above and beyond current market value.

    Bottom line is that you have to pay it off before trading it in. Some might suggest that you just pay off enough of it so that you owe exactly what it is currently worth, then trade it, but you are still blending one loan payment into another---a very bad idea IMO.

    Also, the fact that your vehicle has 100K on it and might be only in "fair" condition suggests to me that you're going to get very little for it on a dealer trade-in. You'd do much better here selling private party.




  • karjunkie 01/15/10 2:23 pm PST

    It really makes no difference. You will have to pay off the old car before you can trade it in, but the dealer may arrange financing on the new car that you can use in part to pay off the old loan. The real difference is that you can probably get more for the old car if you sell it yourself as dealers don't usually pay retail value for trade ins.

  • weggieesq 01/15/10 4:54 pm PST

    The answer to this question really depends on your personal situation. If you’re looking for credit approval, then having a down payment helps. Paying the vehicle off won’t hit your credit score for about a month, and, depending on the age of the loan vs. you other credit history it could actually hurt you. You may want to look into something like Capital One to see where you stand on qualifying, then trade the vehicle without paying it off, but make a down payment of at least as much as you are upside down. Most lenders aren’t allowing loans above the retail value of the vehicle, so you won’t be able to finance much of the upside down debt. Remember, taxes, title and the other costs may be excluded from the financing too, so make sure you have enough to cover all these expenses. You may also want to contact your auto insurance company and see how much it would cost to add Gap coverage. I’m sure it’ll be cheaper than buying it at the dealership, but either way, you’ll probably need it.

  • morin2 01/15/10 8:11 pm PST

    Make sure there is no prepayment penalty (it may be illegal in your state). If there's no penalty for early payoff, then that's what you should so. Then save as much as possible for the largest downpayment on the new car. I agree with the others that you'll do better selling the Expedition privately - and before gas prices rise much more. If gas hits $4/gal, good luck. Then make the large downpayment to finance for the shortest term possible. The reason why you are upside-down on a 8 year-old car may be because your loan term was too long. If you can't do a 36 month loan, then you are reaching for more car than you can afford and need to either scale back on the car & options, or wait until you have more savings.

  • texases 01/15/10 9:33 pm PST

    The less often you buy a car, the less money you will pay for cars. The most expensive way to have a car is to trade frequently. If you can afford to continue paying for the Expedition, maybe pay it off ahead of schedule, then save a good amount for a large down payment on your next vehicle, the better off you will be. Whoever told you to not pay off the car is wrong, or a salesman.

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