trading in a financed used car after 1 year for a another used car that's slightly cheaper. What am I missing?
Posted by VinnieIDC@reddit | Autos | View on Reddit | 8 comments
Let's say I finance a car for $16,000, after 12 month of payments $4,000 is paid off.
My remaining debt would be $12,000
Trade in value $10,000 (1 year later), $2,000 of unpaid debt.
And then I buy another car that costs $14,000, subtract $10,000 (trade in) on the next car, $4,000 + $2,000 = $6,000 unpaid debt on the other financed vehicle. What am I missing? I know about interest rates and stuff, these are just rough estimates.
RonBurgundy2000@reddit
You don’t subtract $10,000, you actually add $2,000 as your trade in value is $10k-$12k (remaining obligation on the first car)= negative $2k.
So in your example you’d be borrowing $16,000 to buy the second $14,000 car.
VinnieIDC@reddit (OP)
Yeah, I think I might have been missing the 2 brain cells necessary to figure that out. lol
notwyattjames@reddit
Good thing you asked, secondly, the worst part about it, is paying taxes again. Each time you get a car you will have to pay the sales tax - it’s a killer (depending on location I guess)
Noredditforwork@reddit
Just to add to the conversation: on top of double counting the equity, you also have to pay tax and title again. In many states, that's sales tax on the full value of the new vehicle regardless of the trade in value. Depending on your sales tax rate and price of the car, it's a significant amount. Then add the fees to get the title in your name on top for good measure.
chathobark_@reddit
This is not how this works
The car has a VALUE, but the loan has to be paid back
It’s still a losing game
karankshah@reddit
You would owe $12K from the original loan along with an extra $4K for the new car ($14K cost new less $10K trade in).
In fact in most cases you would not be able to borrow more than the value of the car; so if the new car is only worth $14K, that's going to be the maximum loan possible. You would owe the gap between the value of your trade in ($10K) and the amount on the loan ($12K) immediately when you were doing the deal.
It's really not in the cards to build equity on cars - they depreciate, and fast.
boxerbroscars@reddit
you are double counting the $10k trade in. You subtracted $10k on the remaining loan balance, and still owe $2k. Meaning all of the trade in value applies to the old loan, and none of it goes towards the new car
VinnieIDC@reddit (OP)
Thank you. How stupid of me. lmao