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Feb 16, 2009 -- Unintended consequences of trading in a car
Clark wants to issue a special warning about the unintended consequences of trading in a car.
Picture this scenario: You have a car and you're still paying off the note. You decide to trade it in and get a newer vehicle, taking out a new loan in the process. Several months later, you are contacted by the lender on your last car about missed payments.
What happened? The dealership never paid off your loan when you traded your car in…and you don't have the vehicle anymore.
Yet you are still responsible for payments on the car that you no longer own. Your credit is dinged because of the missed payments and your new car may be repossessed if you can't meet both loans!
A recent Associated Press article that Clark saw reports this is happening all over America. The car dealership that took your trade-in is not trying to cheat you. But dealerships are going insolvent left and right and they may not be able to pay off your note.
The AP report also had the following angle: The person who buys the car you traded in could have it repossessed from them because your original loan is outstanding. And they would still have the obligation on the loan they took out! Talk about a train wreck…
The real problem here is that state legislatures have not passed bonding laws that would protect consumers in the event a dealer goes insolvent. That's the real solution, but the dealerships have a powerful lobby.
So the takeaway is this: Do not trade in a car you still owe money on ever -- period. Pay it off before dumping it.
Unfortunately, Clark won't be able to answer any questions submitted via commenting. If you have a question, please try posting it to our message boards.
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What others are saying
Trade In's
Maybe someone can explain this to me, but, why is this not "stealing"? If a dealership takes your trade in and doesn't pay it off, you would think that it would fall into some kind of criminal act and not a consumer problem?
How is this that much different from leaving you keys in the ingintion and having someone drive it off claiming that they didn't do anything wrong?
Ouch
With hearing about stuff like this, it is pretty obvious that you want to, if nothing else, know you're dealership really well. I feel bad for the people that have had to go through this.
Car Dealerships
Oh my goodness! This exact situation has happened here in NY. In fact, the state's Attorney General went after the owner because not only were loans on the traded in cars not being paid off but their credit was suffering too. The AG ordered the dealer to clean up his mess but it's a long road ahead for those folks.
Shocked my dealership behavior
I just had this experience in trading in a lease last month. After a job change, I started putting on significant miles, so I was "convinced" to trade in my lease and the mileage and last few months of payments were to be settled by the dealership. I was repeatedly told they would "take care" of my outstanding balance and I would be "free and clear" from my prior lease. All of the initial paperwork and deal sheets reflected that, but in signing the final deal some shady business went on behind the scenes. Needless to say, when I received a bill on my terminated lease I was shocked. What a mistake on my part- the "final" paperwork backed up their stance. Unlike the story above, I was mislead by the manager of the dealership, and was shocked to find out that the deal was not written as agreed to. After hours of fighting, they agreed to pay half of my remaining balance in exchange for the "dealership survey". What a lesson learned. Luckily, I was able to pay off the remaining balance before this became a credit issue. I am still waiting for the check they promised!
Trading in vehicles
I had this happen to me in 2004. It was a mess! It took me a year to clear this up with the dealership that went under, and I called the owner of the dealership several times a day until he personally took care of it, and sent me certified proof that my trade in was paid off. I have learned me lesson, I will NEVER again trade in a vehicle I owe money on, or if I do, I will follow up with my old lender to ensure payment has been made.
