A driver wants to trade his Dodge Durango for a Cadillac Escalade. One big snag: the loan on his SUV is far larger than the staff thinks it is.
In a clip featured in Mike Chipman’s November 3 video, a speaker puts the loan at almost $70,000. With the Durango valued at about $30,000, those figures leave a gap of nearly $40,000.
Some of that debt came from a car the customer had already traded away. Another speaker explains that he bought the Durango new and rolled debt from a Challenger SRT into its loan.
Now the staff is trying to find a way to make another sale. One option raised in the exchange would leave him paying for the Durango and a second vehicle at once.
Still Paying for It
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At first, the trade sounds promising. A speaker describes the Durango as clean, with low miles, before the loan balance prompts a check to make sure they have the right car.
“Yeah, that’s his Durango,” comes the reply. Next, they turn to how much cash the buyer could put down.
One speaker estimates he might need $25,000 to $30,000 down to make the deal work. In that speaker’s view, the loan would be too large without that cash. It would leave too much debt tied to the next car.
The debt figures also shift during the exchange. The first figures suggest nearly $40,000 in debt beyond the SUV’s value. Later, a speaker puts him “30 G’s in the hole.” Both are estimates discussed in the clip.
Then comes a different proposal: “The only thing I can do is get him a loan without the trade-in.” Chipman pushes back, arguing that the customer should pay down his existing debt rather than take on more.
The Balance Follows
When a car’s loan is larger than its trade value, the gap is called negative equity. The Federal Trade Commission explains that dealers may add this debt to a new car loan. The buyer then pays interest on that debt and on the next car.
A rebate can cut the new car’s price, but old debt added to the loan still has to be repaid. A dealer can pay off the old lender while passing the cost to the buyer. That cost may end up in the next loan.
Before a trade, the Consumer Financial Protection Bureau recommends getting the lender’s payoff amount and checking the car’s trade value. Interest and fees can change the amount owed. That means the payoff may differ from the balance on a loan statement.
The bureau also recommends a follow-up after a trade that rolls debt into a new loan. Contact the old lender after a week to confirm the loan has been paid off. If it has not, contact the new lender.