Especially when it comes to financing your next car, truck or SUV. The roll over I’m talking about happens when your trade-in is not worth as much money as you owe on your loan. Here’s why what seems like a quick solution may be the start of your financial downfall.
In my years working for and with credit unions, I’ve seen this situation many times. You’re looking for a new vehicle and you choose a sweet ride. The dealership checks out your trade-in and then advises you that your trade-in is worth $6,000. That sounds great until you remember that your loan on the trade-in has a balance of more than $12,000. However, your salesperson tells you that is no problem. They will pay off the trade-in for you!
The problem is that the dealer is not paying off your trade-in. You are paying off your trade-in when they roll your negative equity into your new auto’s loan! That’s right, in our example, they add the $6,000 to your loan. While that solves the immediate problem of getting you into a new vehicle, you will owe more than your new vehicle is worth for a long time. This also has a “snowball” effect. I’ve seen people roll negative equity from one vehicle to another, increasing their debt and loan balances along the way. Many times this ends in a bad way when the vehicle with the negative equity is stolen or totaled. That’s when the poor car buyer finds out that his insurance and GAP insurance won’t cover the outrageous amount being financed. The end result is destroyed credit.
The best way to deal with this situation is to keep your trade-in and keep paying down your balance. A good way to do this is to make extra principal payments. This cuts down your negative equity more quickly and saves you money! Then when you have equity in your trade-in, it can help reduce the amount you need to finance for your next vehicle.
Contact us at We Drive, we can help guide you with advice that’s in your best interest!