If you recently bought a car and want to trade for newer car but still owe the bank is the transaction handled?

Answer 1

Answer If you trade this vehicle in on a new car the dealership would pay off the loan on the trade and if there is a difference in how much you owe and how much they give you for the trade they will add that to your new car price.

Answer One problem with this arrangement is banks and lenders have become more conservative about loaning money recently.

When you purchase a car, particularly a new car, the value depreciates as soon as you drive it off the lot. This may leave you in the situation where you owe more on the car than the car is worth. Your lender may not allow you to trade immediately unless you can pay a significant amount down on the newer car, because the amount owed beyond the value of the trade-in the depreciation of the newer vehicle may be too high and would create a greater risk to the bank.

For example: You could buy a car for $20,000, put $2,000 down, and finance the other $18,000. But when you take delivery on the car, its resale value may drop to $16,000. That means you would owe $2,000 more to the bank than the car is worth.

Suppose you take that car and get $16,000 in trade on a $30,000 vehicle. The bank would have to finance the new car for $32,000 to make up the difference between your $18,000 loan and your $16,000 trade in. Then, when you take delivery on the newer car, it depreciates to $27,000.

You would then have a car valued at $27,000, but a loan for $32,000, which is $5,000 more than the new car is worth (because of the two transactions). Many banks and finance companies would refuse to take that kind of risk.

Be prepared to make up the difference in cash, or hang onto the original car until you're no longer "upside-down" in your loan. (These are all hypothetical numbers)