Tip for Trading in Your Used Car

This weekend I was doing some research for an upcoming assignment about vehicle loans. As usual I got engrossed and sidetracked in this crazy web. But, I ran across this tip that I wanted to share with you.

Important Notice for Buyers Trading in Used Cars
If you trade in a used car on which you still owe money, make the dealer put in writing that he will pay off your car loan in 10 days or NO DEAL. Without contractual proof, some unscrupulous dealers legally delay paying off these loans (in some cases indefinitely). In addition to making payments on your new loan, you must continue making payments on your previous loan until it is satisfied by the dealer (since the loan is in your name)—or risk going into arrears and ruining your credit. Most dealers are reputable, but to be safe, always include clear payoff terms in your contract and follow up with the lien holder to ensure the dealer has complied. If a dealer refuses to include this, be ready to leave immediately and take your business to a reputable dealer.

My experience when trading in a car that I still owe money on was that this was always in the contract. Still, I imagine that this could happen. I got this tip from Hudson Valley Federal Credit Union, so my guess is that they've had some members who were burned in this kind of situation. I imagine this would be more likely at smaller car sellers.

One thing I will say that I've experienced is a paperwork lag in which you could end up making 2 car payments (one for the trade and one for the new) in the same month. Or you could forget to cancel an automatic bill pay and again pay twice. It's important to pay attention to all of these details: the contract, the paperwork processing and you automatic payments.

photo by geognerd