Trade in values tanked

Most people in this thread are forgetting to factor in inflation -- a dollar today is not what it was even 2 years ago, so you can't just look at dollars.

That $79K is equivalent to $171K in today's dollars, but I bet you could sell your house for more than that. I bought my first new Toyota truck back in 1992 for $8500. That's like $18.5K in today's dollars, and the cheapest SR Tacoma starts at $28K. Price of entry has gotten way worse.

 

We will have to agree to disagree on this, the $15,000 dollars from the old loan is in fact rolled over into the new loan in the lost trade in value, no matter how you want to describe it you are only getting $13,000 dollars off of the new vehicle, that other $15,000 does not just disappear, you will find if you read your contract that it is in fact rolled into the new loan because the dealer is not crediting you with $28,000 dollars off of your new car, you are only getting $13,000 off the price and the other $15,000 dollars is rolled into the new loan you are taking out. Look at the contract you will see they give you the full $28,000 dollars for your trade but the $15,000 dollars you owned is rolled back into your new loan leaving you only $13,000 dollars off the purchase price of the new vehicle.

To put it simpler you buy a truck for $40,000 your old vehicle had a trade value of $28,000 but you still owed $15,000 on the old vehicle.

$40,000 - $28,000 = $12,000 dollars ah but here is the catch the dealer has to pay off the old loan of $15,000 dollars. So you are not getting $28,000 dollars off the new car because the dealer is going to roll over the $15,000 owed from the trade into your new loan so you are really only getting $13,000 off your new car. You are still paying that $15,000 dollars you owed on the other car.

$40,000 - $13,000 = $27,000 dollars you have just financed instead of $12,000 dollars. Notice that the $15,000 dollars from your old loan is in the new loan, it was rolled over.

The old loan is still your responsibility not the dealers, that is why the $15,000 is rolled back into the new loan. You were just using part of the equity you had in the old vehicle to pay off the old loan leaving you only $13,000 dollars to put against the purchase price of the new vehicle.

Yes this gets confusing fast and why most people don't understand it. There are several sites on YouTube that explain the tricks dealers use and they explain how rolling over your old loan works when you trade in a vehicle that you still owe money on.

 

Rolling over a loan into a new vehicle is financial suicide.

 

Rolling negative equity is suicide, if you have $20-20k equity it’s not bad. Then again this is a Toyota forum so most here are cautious financially.

 

The original loan always has to be paid off. I rolled $X from a trade into a new loan at the same rate. $X wasn't dropping off of the 1st loan until its paid $X would have been the same amount 6 months ago as it would be 5 years from now. Trade in value has gone down since then, discounts on the vehicle have gone up, and so have the rates. The 1st loan is still a wash at the end. I wouldn't say it's good finanial advice, but buying a new vehicle isn't a good financial decision.

 

This is one of the most confusing things with buying a vehicle when you still owe money on your old vehicle.

What I was trying to explain is yes the dealer will send a check to your old loan company paying off the vehicle. I am not saying that does not happen because it does.

What I am saying is that $15,000 dollars you owed on your old vehicle reduces the value of your trade:

New car: $40,000

Old Car trade value: $28,000

$40,000 - $28,000 = $12,000 dollars. Except you're not getting the full $28,000 dollars your old car is worth. You are only getting $13,000 dollars.

$40,000 - $28,000 = $12,000 + $15,000 = $27,000 dollars you are paying for that new car. The $15,000 dollars is in your new loan.

The dealer is not the one paying for the old loan in the end, it is still the person who had the loan that is paying for it in his new car loan because he/she was unable to use the full equity they had in their old vehicle. $15,000 dollars of that equity was rolled into the new vehicle loan resulting in you taking out a loan for $27,000 dollars.

The dealer is getting a check from the new finance company for $27,000 dollars yes they have to sell your old vehicle to make up the remaining $13,000 dollars of the original $40,000 dollar purchase price, but notice what is absent on the dealers side of the deal, the $15,000 dollars you owed on your old vehicle, that money showed up in your new loan because you only got credited with $13,000 dollars of the $28,000 dollars your old vehicle was worth. The dealer does not have to make up the full $28,000 dollars because they have already received $15,000 in the $27,000 dollar check from the new finance company. The dealer only has to make up the remaining $13,000 dollars to be whole again on the new car they sold you and anything they make over that $13,000 dollars on your old car is pure profit.

The dealer only has to recover the $13,000 difference because they have already received the other $15,000 dollars your trade was worth from the finance company on your new loan, hence the old loan was rolled over into the new loan and you are still paying that $15,000 dollars.

 

That is not correct. The old loan is absolutely paid off and not rolled into the new vehicle. It’s no different than if you put down a $13k cash payment or trade in with a $13k equity after loan payoff.

 

Same thing ? If you have a balance due after pay off and you’re adding that to your new loan you’re committing yourself to major pain.

 

Its a poor example because of the positive equity being used. Math wise it will always be a wash no matter how you wanna chop it up

Negative equity changes things and more aligns with the idea of rolling over and the end user taking on the responsibility of their old loan in their new loan.

 

Absolutely not the same thing.

I had $22,000 positive equity on the car I sold to buy my Tacoma. If I had $2,200 negative I would’ve financed $44,000 instead of $20,000. Even at 2.49% the interest paid would be quite a bit different.

 

You must not be reading what I’m typing. “If you have a balance due after pay off”

 

I read “same thing”. That was my point.

 

Wow. This is pretty simple math. The new loan will always be [Sales Price + Fees] - [Trade In Amount] - [Any Cash Down Payment] + [Whatever was left on any existing loan]. Just plug in the numbers. The only odd thing is how sales tax gets calculated.

 

Lets try it this way:

New car $40,000 used car $28,000 trade in

$40,000 - $28,000 = $12,000 dollars financed

Second example:

New Car $40,000 used car $28,000 trade in, still owned on loan $15,000

$40,000 - $28,000 = $12,000 dollars + $15,000 dollars = $27,000 dollars financed

Both examples are buying the same car one your trade in is paid off when you arrive at the dealer the second one you still own $15,000 dollars on your trade in. Yes the trade in is paid off by the dealer but your trade in equity drops to only $13,000 dollars.

You used up $15,000 dollars of your trade in's equity to pay off the first loan but that also raised the price of the car you are buying by $15,000 dollars. You still have that same $15,000 dollars to pay for.

Now look at both examples do you see a $15,000 dollars difference in them? The first one is $15,000 dollars less than the second one. How much was the loan balance? $15,000 dollars and that shows up in the second purchase hence you are still paying for that original $15,000 dollar loan balance from your trade in, you did not walk away from it all you did was move the money from the original loan to the new loan.

Negative equity where you owe more than your car is worth at trade in is a whole different monster.

 

Nm

 

Semantics.

Obviously its financially smarter to trade in a paid off vehicle but not everyone pays a vehicle off in 7mo. (weird flex btw...maybe not weird for here lol)

So it is what it is and you should go outside, maybe touch some grass.

 

It doesn't "reduce the value of your trade" as you're still receiving what is $28,000 at the end of the day for the old car.

Removing the new vehicle from the equation, it's the equivalent of the dealership giving you $28,000 cash; $15,000 of this cash goes to the loan leaving $13,000 cash in your hand.

Yes. Bringing the new vehicle back in to the equation, this $13,000 "cash" is applied against the $40,000 purchase price of the new vehicle and the remaining balance is financed ($27,000).

The dealership is not "paying for the old loan" in the sense that the balance disappears but they are sending $15,000 cash to the lienholder of the trade-in. It's not the buyer sending this $15,000 cash nor is it the new lender.

And the dealer still has to sell the used vehicle for way more than $13,000 to make a profit.

Let's say the sales price of the new truck is $40,000 and $37,500 is the inventory cost for simplicity for expected profit of $2,500.

Dealer:
$40,000 - sales price new vehicle
<$28,000> - trade value credited
$15,000 - dealer paid off old loan (cash out)
----------
$27,000 - amount due from buyer (e.g., new loan by buyer/cash in from buyer via new lender)


Dealer Cash Flow:
<$15,000> - cash out to pay off old loan
$27,000 - cash in from new loan
---------
$12,000 - net cash received


Well, the dealer owes $37,500 to the manufacturer for the new truck but only has $12,000 cash to pay this. Where is this cash?

It's currently tied up in the used vehicle. The used vehicle needs to be sold for at least $25,500 to break even. If it's sold for $28,000, then they make $2,500 profit on the entire transaction. If sold for $30,000, then they make $4,500 profit, etc.

$37,500 - inventory cost
<$12,000> - net cash flow from transaction
--------
$25,500 - cash needed



Buyer:
$40,000 - sales price new vehicle
<$28,000> - trade-in value
$15,000> - loan payoff
---------
$27,000 - amount due to dealership

 

The Repo man loves when this happens.

 

Obviously trading in a paid off vehicle is better, that is beside the point. The point of the matter is that at no time is your loan rolling over into anything unless you’re upside down. Your loan is paid off by the proceeds of selling your vehicle to the dealer and the remaining equity is applied to the cost of the new vehicle. This is no different than if you sold said vehicle privately, paid off your loan and then went to the dealer with the cash for a down payment. The math is identical in both cases.

 

For full transparency:

1. Owed nothing. Bought it new outright for $20,200. Two years and 20,000 miles later, the dealer I bought the Tacoma from gave me $20,500 for it.
2. $50k OTD. Paid the difference with the cash I got from selling my dad's Camaro (impractical for a family of 3.)