We'll pay off your trade. . . No matter what you owe!

Sounds like a great deal doesn't it? Even sounds like free money! Well, it's not free, far from it.

"We'll pay off your trade" translates to "We'll refinance what you owe on the car you are driving now and roll it over into the car you buy from us."

Since you already have financing on one car, they assume you will be financing through them as well. You are "pre-qualified" in their eyes for another loan. That dealership will not only be making money off the car you are buying from them (which they have every right to), but they will also be making money off of your trade-in. You will be paying for two cars, but only taking home one.

Some people will do anything to get into a new car and dump their old one. Even if their car is in good condition with lots of life left, people are always itching for something new.

If you are already in a negative equity situation (you owe more than what someone is willing to pay you) you are guaranteed to be in the same situation or even worse after you buy your new car.

Dealerships who will pay off your trade no matter what you owe are not your friends. They do not care about your repeat business. As a matter of fact, you will be cursing their name if you try to trade that car in within the next couple of years.


Don't get me wrong, rolling over negative equity is not always a bad thing. A good dealership with reputable finance companies usually won't let you roll over negative equity that is more than 10% of the car you are buying. This means that if you are buying a car for $20,000, you can only roll over $2,000.

This may be hard to do at the time, but you will be in a better financial situation in the long run.

How to Avoid Negative Equity

1. Shop for a good deal. Don't fall in love with the first car you see.

2. Shop for low financing before you get to the dealership.

3. Keep your credit in good standing or start working now to repair your credit. The difference could mean thousands in finance costs later.

4. Make a down payment of at least 10% or more.

5. Buy used or plan to keep a new car for more than 3 years. The typical 20% depreciation a new car takes when you drive off the lot is instant negative equity.

6. Finance for a shorter period of time. 36 months vs. 60months.

7. When all else fails, keep driving the car you are driving and put extra money towards the principle.