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Games Dealers Play: Paying off the Trade-In

Most consumers trade-in their old vehicle when buying a new car.  These deals can be complicated if there is still money owed on the trade-in, and a consumer can have real problems when the dealership does not pay off the trade-in.  

In a typical deal, the dealership will give the consumer an "allowance" for the trade-in.  The amount of the allowance is negotiable, and a consumer should research the value of their old car before going to the dealership. After the new deal closes, the dealership pays the creditor the amount owed on the trade-in.  The balance of the allowance amount, or the buyer's equity, is applied to the down payment of the new car.

Problems sometimes arise when the dealership does not pay off the trade-in on a timely basis. Many dealerships will not send the payment right away but will instead wait until they receive funds from the finance company involved in the new car purchase. If that payment is delayed for some reason, then the trade-in pay-off could also be delayed.

Some unscrupulous dealerships might play the "float" by intentionally withholding payment for several weeks or longer. If the contract for the new car lists a pay-off amount for the trade that includes interest through the end of the month, then the dealership is essentially getting "free money", at the consumer's expense.  Dealerships experiencing financial difficulties or cash-flow problems may also delay in making the pay-offs.

Consumers suffer serious harm when dealerships fail to promptly pay off the trade-in.  Late payments can impact a consumer's credit. Once a payment is 30 days late, the negative reporting will remain on a credit report for seven years. If payments are not made for a longer time, the impact on a consumer's credit score can be devastating.  Another game that some dealerships play with the trade-in is stealing the refunds on any service contracts, GAP contracts, or credit insurance policies without applying them to the account balance.

There are several things that consumers can do to protect themselves when trading-in a vehicle with a loan balance:

·         Make a payment before buying the new car.  Consumers should not rely upon the pay-off if a payment has just come due or will be due in the next couple of weeks. It is better to simply make the next payment, even if making it very early. Making the extra payment will not cost anything, because the payment will reduce the balance owed on the trade-in, which increases the equity that will be applied to the down payment.

·         Get a pay-off quote before going to the dealership. After your extra payment has been credited to your account, request that the creditor provide you with a pay-off date and a "per diem" amount, or the amount of additional interest that will be charged for each day after the pay-off date.  You should check your contract documents carefully to confirm that the dealership has listed the proper pay-off amount.

·         Request cancellation of any outstanding "extras".  If you purchased a service contract, GAP, or credit insurance with your trade-in, check the contracts to see if you can cancel them and obtain a refund for the balance of the contract.  Most contracts permit such cancelation. If you make these refund requests yourself, then the refund will be applied to your account. The money will go to the creditor, but they are required to refund it to you, assuming that the dealership has made the pay-off.  By canceling these contracts yourself, you can be more certain that refund will go to you and not to the dealership.

·         Monitor your trade-in account to confirm that payment has been made.  If payment was not made by the pay-off date, call the dealership immediately and ask about the status. Keep notes of the date of the call, the person with whom you spoke, and what was discussed.  The dealership should be responsible to pay any additional interest or late fees due to their failure to make prompt payment.

·         Make a payment if necessary to prevent credit harm. Do not let your credit be harmed.  If possible, make a payment yourself before an account becomes 30-days late. You should get the money back when the dealership eventually makes payment.  

Following these steps can prevent serious harm to your credit, and it will help you to get the full credit for your trade-in. But, if a dealership is playing games with the trade-in and has caused you harm, you may need to contact an experienced attorney who handles auto dealer fraud cases.

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