Pay Off Car No Matter How Much You Owe Scam
Car dealers will run ads stating, "We'll Pay Off Your Current Lease or Loan No Matter How Much You Still Owe!" This statement is just a play on words to make you believe something that is not necessarily true.
A dealer is not going to pay more money for your car than it's worth when their goal is to pay you as little as possible for your current car.
This dealer advertising scam is used to get you to come to a dealership and buy a new or used car, believing the dealer is going to pay off what you still owe on your current vehicle. The dealer will then appraise your car and tack on any negative equity and penalties onto your new car loan or lease.
This dealer advertising scam usually becomes more popular in harder economic times.
What's covered in this section:
What "We'll Pay Off Your Trade No Matter How Much You Owe" Really Means.
This is one of the more common ads you will see car dealers run in their TV, radio, Internet and print advertising. They promise to pay off your current lease or loan and put you in a new car.
It's best to not trade in a vehicle if you still owe more than it's worth.
Your current lease or loan payoff just doesn't vanish though. The dealer actually takes the difference of your current vehicle's actual cash value (ACV) and what you really owe, called negative equity, and rolls it into your new car loan or lease.
If you're trying to get out of a lease you may also have some pretty stiff penalties to pay also. These penalties can be anywhere from a few hundred dollars to a couple thousand dollars depending on the lease contract you've signed.
There are several different variations of this statement when car dealers use it in their advertising. I bet you've seen or heard some of these statements in the past:
- We'll Pay Off Your Current Loan or Lease No Matter How Much You Owe!
- We'll Pay Off Your Current Car Once We Make a Deal!
- We Can Get You Out Of Your Current Lease!
- We'll Get You Out of Your Current Car and Lower Your Payments!
- We'll Give You N.A.D.A Value for Your Current Vehicle Once We Make a Deal!
Dealers have become very creative with the above statement. The fact is, no matter how this statement is written, they all mean the same thing SCAM!
The way the ad should be written is:
|We'll Get You Out Of Your Current Lease or Loan No Matter What You Owe!|
Then we'll take your negative equity and roll it into your new lease or loan. You'll still be paying the balance of your old loan and put yourself in even a worse debt situation then you were before. It doesn't matter to us as long as we get to sell another car!
Why Dealers use the "Pay Off Trade Scam"
How someone normally finds out their thousands of dollars upside down in a vehicle is when they have it appraised at a car dealership. After receiving the news, they believe the dealer is attempting to cheat them and usually get upset and leave frustrated. Click here to read more on how the appraisal process works in a car dealership.
Contrary to popular belief, your car may not be worth what you still owe!
Once these customers calm down, they'll start shopping the dealer ads again. If they hear or see the "We'll Pay Off Your Trade No Matter How Much You Owe" advertisement, they'll go to that dealership already knowing they're upside down and give them a shot at getting them out of their vehicle. This is how they become susceptible to the advertising scam. To avoid falling victim of this car dealer scam, visit our section on how to determine your trade-in's value.
The main goal of this statement is to drive traffic to the dealership. Dealer's know customers will have previously gone to a dealership, had their car appraised and know they have some "negative equity" (owe more than the car is worth).
After seeing the dealer's advertisement, the customer will be happy they've found a dealer willing to get them out of their current situation.
After the negotiations are done the dealer will not come out and say, "You're welcome, now you're going to be in an even worse position than you where before, let's go sign the paperwork." The dealer wants you to believe they're the hero and got you out of your negative equity situation, but in reality, you're the one paying to get yourself into a new car.
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How the "Pay Off Trade Scam" works
You hear the dealer's ad on the radio and decide to go pay them a visit. You have your vehicle appraised and they offer you $10,000 for your car. You still owe $17,000 so you're looking at $7,000 negative equity. Why would the dealer give you an additional $7,000 for a vehicle that's only worth $10,000?.
The dealer will take your $7,000 negative equity and add it to the $21,000 you're financing for your new car. You're now paying $28,000 plus interest and fees on a vehicle that's far from worth it. The dealer may also extend the term of your contract out 60-72 months or more so you don't notice the increase in the amount financed.
By extending the term out far enough the dealer may actually lower your payments. You may think you're getting a great deal, but you're really getting bent over. You should also be aware of extended term leases up to 60 months. These kinds of leases will greatly reduce your monthly payment amount but at the end of the lease term you will have a large residual payment and you will still NOT OWN THE CAR!
This type of dealer advertising scam leads you to believe you're getting out of your current car loan or lease and the dealer is absorbing your negative equity. This cannot be further from the truth. By continually rolling negative equity into your car loans, you're putting yourself in a deeper financial dilemma.
How to avoid the "Pay Off Trade Scam"
- If you're wanting to trade in your current car because the interest rate or monthly payment is too high, you may want to consider a low interest auto refinance loan. Refinance loans are very popular and good ways to save a lot of money after you have already purchased a car. If you're unsure about refinancing your current car loan, read more about it in my article on car refinance here.
- It's best to not trade a car in that you owe more money on it than it's worth. If you must trade, make up the negative equity amount with cash or wait until you're in a positive equity situation to trade the car in.
- You should always try and put a minimum of 20-25% down to avoid being in a negative equity situation. This also allows you to finance for a shorter term, save on bank fees, interest rates, or lower your payment and lets you trade when you want. Read my article on how much money should you put down on a car here.
- If you're currently in a lease, the smart thing to do is ride it out until the end of the lease term. Riding it out will start you off in much better shape than trying to trade it early and being subject to any lease termination fees or penalties.
- You can read our used car trade-in tips to learn how the appraisal process works, how to estimate your current vehicle's value and how to get the most money for your trade here - used car trade-in tips.
Now that you know how to recognize and avoid the "Pay Off Your Trade Scam," familiarize yourself with other car dealership tricks of the trade here.
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