I would like to know if it would be in my best interest to pay money towards my balance before I trade it in or put the money as a down payment?

Or would it be the same?

for example if I owe $30,000 on my car and the trade in value is $20,000 and I have $10,000 to either put down or towards the balance in my car. Which one would be better? (not actual amounts .. just an example)

Could someone tell me what the difference it makes?

thanks for your help

 

I doubt they are going to add 10k to your new car purchase so either way you will have to put that 10 into your old car. Ask your bank, they will tell you the best way to approach it. Its always best to put as much down on a car as you can afford. Unless of course you are getting a 0-1% rate. Which then you would make more money having your cash in the bank.

Pretty basic stuff...

 

the better thing to do is pay off your loan first. It will get you a lower intrest rate on the new car as well.

 

If you owed 30K and they gave you 20K you would have 10K negative equity which means you would have to pay the dealership 10K plus the initial taxes on the car you are purchasing. Sometimes they will roll some of the negative equity in to the new car.

If you pay 10K off your current loan and they give you 20K then it is the same difference.

Will not make any difference either way to the interest rate. Your credit is what affects that.

 

Don't put anymore money on the car you're trading in, save your money for the new ride ( a big down payment might lower your rates). However, I would suggest not telling the salesman how much money you're planning on putting down at first. When he sees how upside down you are, he might try and crunch some of the numbers to help you. Maybe you can get more money for your trade-in or have him take more money off of the new ride. After he gets done with everything and you're satisfied with the numbers. then tell him that you're going to put that much money down. my .02

 

working at a dealership, the person who pays off their loan will always have a lower interest rate because of good credit. We recommend this sometimes to people. I have cases like this at least once a month. It's always better to pay off the loan then our dealership paying off the loan for you and then adding more money onto the car.

 

Not true. Just making payments on time and not defaulting is what gives you good credit. Most finance companies prefer you not to pay off early because they make less money. You can change your car as much as you want. The problem with changing so frequently is depreciation.

Some manufacturers offer low interest rates as incentives. These rates are subsidized by the manufacturer.

Used car rates will be higher because of car values.

There is the 50% rule were you can hand the car back after paying 50% and walk away from it. Finance companies don't like people to know about this though.

In this gentlemans case it would just as well to keep his money and do what xedes says.

 

me as a salesman, i always try to help out the customer as much as possible on or off the clock. My sales manager don't watch over me like that. I have to make my money regardless.

If you have an open auto loan and you are trying to trade for another car, let's say your interest rate is set at 7%...if you pay off your loan by yourself that month and come back in the next month with no open loans, i will guarantee you that it will be a lower rate. This is just how it is . I deal with people all the time and should know.

I understand when you say the dealerships need to make money but we have a lot of other ways of doing so..like financing them through our banks at the dealerships. If someone comes in with their own financial institute, then yes, we lose out on a lot of money.

 

Yes.

 

If you have an open loan of 7% what is stopping you from getting the same or lower rate on your next car?

I was talking about finance companies making more money on people who continue to pay the loan rather than terminating early.

Dealerships usually have access to several banks which they can put the loans through. However on a new vehicle most manufacturers prefer the dealerships to finance through them IE GMAC or Lexus Financial Services etc.

 

Precisely.

 

While I think your heart is in the right place, this is simply not true for conventional loans. I can think of some special cases where this would hold, i.e. customer is beyond maxing out the advance on a factory subvent rate structure and has to use a market rate bank...

I would encourage the OP to use 10k as downpayment. That way you don't have 10 grand in limbo as the dealership pays off your existing loan.

 

Good lord, some of you people make this so complicated.

$10K upside down is not good. I would advise you not to trade in.

If you must, it's pretty much a toss-up, but I would say put it as down payment, so you are showing the lender the dealer tries to finance through that you are committed to the car and the payment. I think that would work a little better.

As for some other asinine stuff in this thread...

Cash down...unless your credit sucks, or you are way upside down, investing money in a depreciating asset is not usually wise. Don't put money down unless you have to. It's not financially viable.

Telling the salesman about down payment...always tell the salesman anything he can use to help you. If you don't tell him you have a nice down payment to offset your negative equity, he won't crunch numbers, he'll kick your *** to the curb. It takes an almost perfect credit score to convince a lender to finance $10K negative.

50% rule...wtf are you smoking? Give it back after paying 50%? Once you sign the papers, it's your car. There is no giving it back, no matter how much of the loan you've paid off.

 

WTF you smoking? Critisizing me when you clearly don't know anything yourself.

There is a little known rule which allows someone to hand the car back and walk away after paying 50% or more. Finance companies don't make this common knowledge for obvious reasons.

There is nothing you have said above that we haven't already covered here.

 

Thanks for your advice.

For those that didn't actually read the first post, I don't owe $10k in negative equity on my car. I was using it as an example.

I am not worried about my credit because it is perfect.

I was wondering if the dealership tagged on extra fees or anything. I remember overhearing one of my friends say that they put her down payment towards the interest on the loan rather than on the loan itself and that the down payment goes towards the taxes and fees.

If that is the case I'd rather pay off my current loan so only a little amount would roll over to the new car.

 

Usually you can just put down taxes and tags. In some cases you can roll this in to the financing. I wouldnt advise rolling any money in if you can help it because you are increasing the loan and it will be even harder to get out of if you want to change your car early again.

Interest is paid in the monthly payments. More interest is paid at the earlier stages of the loan.

Lets say the vehicle you purchase is 30K

New Car $30,000
Trade in $20,000

You owe $10,000
You pay $10,000

Balance is $XXXX (Taxes and tags, doc fee etc)

Most dealerships have document/handling fees and freight charges should be included in the price on the window sticker.

Depending on the type of finance you get there may be additional fees.

 

Hmm. so your logic says that you should pay more in interest on an investment that loses money. You have absolutely NO CLUE what you are talking about. Its all numbers, why would you want to pay higher interest on lets say 30K when you could put more money down and only pay interest on lets say 15K if you put 15K as a dn payment.

If you cant see that, then you probably have lost tons of money because of poor financial decisions. The ONLY exception to this rule is if the loan company is going to lend you money at a lower rate than what the rate of your savings, CD, or monemarket account is making.

FOE EXAMPLE. Car loan rate is 1%, and savings account is 2%. Probably doesnt matter if you put any money down on the car.

Car loan rate is 8% and your savings account is 2%. In this case you should put down and much money as you can, because whatever money you put down you are making 6% on.

Does that make sense to you? Probably not!!!

Good luck!

 

Your an idiot. There is no rule, little known or otherwise, that says you can just give your car back, no matter how much of it is paid off.

You can hand the car back, but it's called a repo.

 

Well, as for having a clue, I only work at one of the largest dealerships in the world. Take that for whatever it is worth to you.

If you have good credit, there is no reason to put money down. It won't affect your interest rate at all. By good credit, I mean 700+. Money down will not affect that kind of buyer's rate at all. They are going to get the best rates they can, whether from a GMAC or LFS, or from their own bank.

People in the 600-700 range can get a point or two lower usually, with some cash down.

People under 600 often HAVE to put cash down to get approved.

I would rather keep my $5K, $3K, whatever it is, in the bank and have on hand, not invested in my car which is worth less every day.

Just to further clarify, cash down is only part of the decision that goes into determining interest rate. The main point is credit score, also time on job, time at residence, payment history, how much you are financing relative to invoice and sticker, what kind of history do you have for car loans (are you suddenly trying to borrow $40K when the most you have ever had is $20K?). Lenders look at the whole picture.

A lot of dealerships perpetuate the myth that no matter your score, you need as much cash down as possible to get approved. It's simply not true.

 

Save your insults - you clearly don't know all the in's and out's. Mr I work in the largest dealership in the world blah blah blah

I spent over 10 years in the motor trade in 2 countries working for BMW, Lexus, Acura, Mitsubishi, VW to name a few, dealing with financing/selling every day of the week. For what it's worth.

If you have paid over 50%, you can hand the car back and leave. There are no benefits for doing this apart from if the car you own has depreciated terribly and you want to get out of it without paying any more. It is not common knowledge because finance companies don't like people to do it.

I have gotten people out of cars using this option.

A repo is when you default on your payments and that is different.

Maybe you should ask one of your finance managers. Or perhaps you are the finance manager and don't want people to be aware of this information. Dealerships tell there staff not to offer up this information because it is bad for there relations with the finance company. However I used to hint to my good customers and tell them to do the research themselves....say no more.

I got out of the industry because for every good person, there is some uneducated one misleading customers and generally adding to the bad rap dealerships already get. It's all a game at the end of the day, especially now with todays educated consumer.

Cancelling a credit agreement