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  • CarPro Advice: Determining Your Current Trade-In Value

    CarPro Advice: Determining Your Current Trade-In Value

    I've referenced this article numerous times on the Saturday Car Pro radio show. The crazy-high used car market has a lot of you thinking about making a move to take advantage of that. I currently see people who thought they were upside down (negative equity) finding out they are OK, even if they checked just 30 days ago. I am seeing people jump out of leases early, or if near lease end, cashing in on their equity.

    Before you visit ANY dealership, it's always a good idea to know where you stand in your trade-in vehicle. There's no more awkward moment for the consumer or the dealer than when the moment of truth comes when you find out what your vehicle is worth versus the amount of money you owe on it.

    Payoff vs Value

    A common misconception is that the payoff on your vehicle has some relevance to the vehicle's value. This is simply not true. These two numbers have absolutely nothing to do with each other, so do not be confused.

    Today, many people with a balance owed on their car are upside down. You've probably heard that term before. Being "upside down" means simply that the balance owed on your car is greater than its value. Many dealers also refer to this as "negative equity". You will see the terms upside down and negative equity throughout this report. A payoff is the amount of money you owe on your vehicle currently.

    Before you go shopping for a vehicle, you should have a good idea where you stand in your trade-in, to avoid the shock of finding out AND to make sure the dealer is treating you fairly. Below, I will walk you through exactly how to get a good idea on whether you are upside down, or if you have equity.

    Finding Out Where You Stand

    We need two numbers to evaluate where you stand. The first number is the exact payoff. Whether you purchased the vehicle on a retail contract, a lease, or a balloon note, there is always a payoff that can be obtained by talking to your lender. All payoffs can be gotten immediately during normal business hours by phone, and many times they can be gotten online. Simply call your lender and tell them you need the current payoff on your vehicle. Have your account number ready to give them, although some can do it by social security number.

    The lender will give you either a ten-day payoff OR your current payoff today, and tell you how much to add per day until the vehicle is paid off. Keep this number, we'll need it later.

    STEP TWO is to get a true value on your trade-in. Unfortunately, none of the big web-based sites are accurate. They can be off by a lot AND the values could be either high or low, there does not seem to be a pattern. Sites like Kelley Blue Book make their money by selling ads online and selling your information to car dealers.

    As I say on the air, a car is only worth what someone is willing to write a check for, and KBB doesn't write checks.   I have set up an affiliation with an online car buying service called Carbingo that DOES write checks - and you'll get a firm offer in just two minutes.


    Carbingo is owned by a large dealer group that has been part of my car show for over a decade and a half. I trust their judgement, and appreciate how easy they make it to sell a car.  They will bring you a check, pick your car up and it's done!  For more details, visit Carbingo.

    Determining Factors

    There are a lot of factors that determine whether you can trade or not. Let's look at a few scenarios:

    • You are less than $3000 upside down. You are in pretty good shape to trade and should not have any problems. Most lenders understand and will let you roll that amount into a new loan. Plus, on most vehicles today, there is enough in rebates to cover that amount, so you end up breaking even.
    • You are $3000 to $6000 upside down. It becomes a little more difficult to trade and to get a lender to allow you to roll that much negative equity from one loan to another, you will need to have a better than average credit rating. You might also want to choose a car with a larger rebate.
    • You are over $6000 upside down. These deals are even more difficult and you may need some cash down payment to go with your car. You will also need to have good credit. Understand too that rolling this much negative equity can have a huge effect the next time you go to trade.

    Other Things to Consider

    Rolling money from one vehicle to the next can have a snowball effect. In other words, every time you do this, your situation gets worse. If you roll a lot of money from one car to the next, make SURE you are buying a car you like. Odds are, you'll have to keep it longer, so be sure it is desirable to you - you'll be looking at it for a while.

    Rolling negative equity from one vehicle to another will have an adverse effect on your new payment. For instance, if you roll $5000 from one loan to the next, on 60 months at 5.9% you will add $100 per month to the normal payment.

    You can cover up more negative equity in a lease than a purchase, but understand if you do that, it will more than likely take a longer time to trade the next time, but at the end of the lease, you'll be completely even if you stay within your mileage.

    Gap Insurance

    If you roll any negative equity from one loan to the next, be SURE to purchase GAP insurance. This will cover any deficit not covered by insurance should the car get stolen or totaled.

    Work toward getting even. If you roll negative equity, in essence, you end up paying for your old car AND the new car at the same time. When you can, send in extra money with your monthly payment to lower the payoff faster and get into equity quicker.

    If you are upside down and are in a position to put money down on your loan, DO IT. You'll get equity in your trade quicker, enjoy a lower payment, AND save interest charges.

    Avoid the Negative Equity Cycle

    I met a customer some years ago who kept rolling negative equity from one car to the next, to the next and so on. She rapidly traded about four times in three years. To make matters worse, she drove a lot of miles. When she got to me, she owed $72,000 on a vehicle worth $40,000. To this day, this one takes the prize for the most upside down person I have ever seen. As in most of these cases, she met the day of reckoning. She put $20,000 down and leased a new Explorer for two years at $1200 per month. Although this is an extreme case, after the two years were up, she was level with the world and able to start over. We put her in a lease plan to get a new car every two years and she has been able to safely trade many times since.

    Bottom Line

    If you are upside down, you are in good company. Understand that NO DEALER can make your negative equity go away. They can play numbers games to cover it up, but rest assured you are still paying for it. Knowing how much negative equity you have is a valuable tool when going to buy a new vehicle. Lastly, you cannot roll negative equity from car to car to car without it catching up to you. At some point, it gets overwhelming and you get stuck, so plan ahead.

    Photo Credit: NAR studio/Shutterstock.com.
    This article was last upated March 6, 2022.