Everything you ever wanted to know about the "Dealer Forgot to Pay Off Your Trade-in Scam" but didn't know who to ask. This dealer scam happens when you trade in a vehicle at a car dealership that you still owe money on when buying a new or used car.
As you begin the vehicle trade in process, the dealer will call your lender and get a 10 or 20 day payoff amount.
After the deal is complete the dealer is suppose to send that amount of money to your previous lender, before the due date, to pay off your old vehicle. This is where the, "we forgot to pay off your trade-in" scam comes into play.
You find out later the dealer never paid off your trade-in as promised. Now you're left with the responsibility of your old car loan and your new one until your trade is officially paid off. In some cases, if your vehicle isn't paid off promptly, it may cause a ding on your credit history.
This is just one of the many reasons AutoCheatSheet.com does not advise trading in a vehicle with a car dealership. Especially if you still owe money on the vehicle. If you have the time, you should always attempt to sell the vehicle yourself.
How a Car Dealer Pays Off your Trade-in
When trading a car at a dealership the salesman will ask if you still owe money on it or if you own the vehicle free and clear.
If you still owe money on the car, the salesman will ask for your lender's information. He will then call and request a 10 or 20 day payoff amount to pay off your car loan.
After finalizing the deal on the car you're buying, the dealer will send a check to your current lender to pay off your trade.
The payoff amount the dealer receives from the lender will also be the amount they'll use when determining your overall amount financed will be on the car your buying.
How a Car Dealer figures Your Payoff Amount
A dealer or car salesman will call your lien holder and ask for a 10 or 20 day payoff amount on your trade. Sometimes they're unable to get an exact payoff from your lender. They may have to take the current days payoff and figure what a 10 or 20 day payoff will be by using the per diem you pay, per day, on your car loan.
Car Buying Tip - Take it upon yourself to acquire a 10 and 20 day payoff on the same day you plan to trade your car. Do not leave it in the hands of the dealership to tell you how much you still owe on your current vehicle. If the amount sent to your current lender is short you will be liable to make up the difference. If the amount is over you will get the overage amount back.
Payoff Information Needed From Your Lender:
- Phone number and lender name.
- Your auto loan account number.
- The name of the person you spoke with. (If not automated)
- 10 day payoff amount with due date.
- 20 day payoff amount with due date..
- The per diem amount due per day.
- Address to send payoff check too.
If you're unable to get a 10 or 20 day amount total. Get today's pay off amount and add the per diem. See example below.
How to figure a 10 or 20 day payoff:
- Call the lender of your current car loan.
- Today's payoff on your current car loan is: $8,987.74.
- The daily per diem on your car loan is $3.34 a day.
- $3.34 x 10 days = $33.40 or $3.34 x 20 days = $66.80.
- If the dealer wants a 20 day payoff they would add $8,987.74 + $66.80 = $9,054.54.
- $9,054.54 would be the 20 day payoff on your trade-in.
The dealer will now add $9,054.54 to your current car loan and pay off your trade for you. The dealer also knows they have 20 days to pay off your trade.
Every day they're late paying off your vehicle they'll have to add $3.34 until it's paid off. Once they pay off your trade with the lender they'll receive the title and will then be able to retail or wholesale your trade.
How the "Forgot to Pay Off Your Trade-in" Scam Works
This is a very sneaky car dealer scam. It can cost you a lot of money and possibly your credit history.
You're expecting to trade in your current vehicle for a new car with a dealer. What's supposed to happen is the dealer will acquire a payoff figure on your trade and payoff your current car loan for you. The dealer will then add the payoff amount to your new car loan.
The scam happens when you get a call a month or so later from your lender and find out the car dealer didn't pay off your old car loan as agreed.
Unethical car dealers use this dealer scam to pay you less for your trade than agreed or try to steal it from you altogether by leaving your trade out of the transaction altogether. Sounds impossible but these kinds of business practices do happen in dealerships and you should be aware of this dealer tactic.
When the lender calls you, you explain to them you've traded the car in, but that's not a good excuse. YOU are the one responsible for the car loan, not the dealer. Your previous car loan is still in your name and you're liable until the dealer pays the loan off. All the bank knows is they have a loan with YOU not with the dealership you traded it in with.
By the time you find out from the lender your trade's car loan has not been paid off you're a month or two behind on your payments. Now you're getting late payment marks and hurting your credit report. You're also responsible for making not only your new car payments but your old car payments also. If you choose not to make the payments on the car you traded you will end up with an involuntary repossession on your credit report, further hurting your credit history.
If the dealer didn't add your trade to the paperwork at all you can try to sue. However an attorney will want to see the paperwork where the dealer is obligated to pay off your trade and of course you will not be able to prove it. Make sure you read and inspect everything you sign.
If you're trade was included in your paperwork the dealer will eventually payoff your trade. However if you're getting calls from you previous lender the damage has already been done to your credit report. My advice is to call your trade's lien holder and let them know you've traded your car in and follow up with them within the time allotted to make sure the dealer pays off your car.
How to Avoid the Forgot to Pay Off Your Trade-in Scam
- We personally advise selling a car by yourself and not trading it in with a car dealership. You should also never trade in a car that you still owe money on. Trading in your car with a dealership will not net you as much money as you would get by selling your vehicle privately.
- Read everything before signing anything.
- Make sure your trade is included on the contract and the paperwork you're signing with the dealership. You should see the exact payoff amount and how much they're giving you for your trade listed somewhere on the paperwork. If you don't see it, have them point it out to you.
- Payoff your vehicle through your lender first. Get the title and then trade it in if you don't have the time or patience to sell it yourself. This will keep you from falling victim of the, "forgot to pay off your trade-in" dealer scam.
- If you must trade your vehicle in at a car dealership have an idea of what your trade's worth. Read my article on figuring what your trades worth.
- If you're not sure how a car dealership values your car or how to trade a car with a dealership, read my section on how a dealership appraises your car.
- Have the dealer put in writing the amount they will be paying your current lender and the date they promise to pay your trade-in off. Get a copy and if there are any problems in the future you will have proof the dealer was suppose to pay off your trade. If the dealer refuses to put it in writing they are going to pay off your trade, you should look to do business elsewhere.
Now that you know how to recognize and avoid the "Forgot to Pay Off Your Trade Scam," to familiarize yourself with other common auto dealer scams committed in dealerships nationwide.
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