December 18, 2014
Car dealer has not paid off loan on trade-in
Dear Consumer Ed:
We traded in my wife's car 3 months ago and the dealer still hasn't paid off the loan. We've called them countless times and we are getting nothing but the run-around. Now the car has gone up for repossession. What do we need to do?
Consumer Ed says:
Trusting car dealers to pay off your loan can be risky: if the dealership fails to pay off your loan, you’re the one responsible to the lien holder. You’re responsible for all loans that you signed a contract for – even on vehicles that you’ve traded in and no longer have in your possession. The dealer’s failure to make payments on your previous vehicle could have a negative impact on your credit score, and lead to a lawsuit against you from the company that financed the car that was traded-in.
Since your vehicle is in the process of being repossessed, the best thing to do first is to consult a private attorney immediately; he/she can assess the particular facts of your potential claim and provide you with individualized legal advice. That attorney can also contact the dealership and lenders on your behalf. Additionally, there are several other actions you can take to mitigate the situation:
- Look at the documents related to your transaction with the dealership, such as the auto sales contract. See if your trade-in was included as part of your new-car purchase and if the dealership promised to pay off the loan on your trade-in. If you have the dealership’s promise in writing, it is easier to make a convincing case to the finance companies.
- Then you should contact the company that is financing your trade-in and explain that the car should have been paid off by the dealership and that the car is physically in the dealership’s possession. If your contract with the dealership states that the dealership promises to pay off the loan on your trade-in vehicle, provide a copy of that contract to the finance company. You should also provide the dealership’s street address and phone number, because the finance company is allowed to repossess the vehicle when the loan is in default. Ask them to work with you so that your credit is not negatively impacted by the dealership’s default or late payments.
- You should also contact the company that is financing the new car that you bought from the dealership. Provide copies of the sales contract with the dealership, and explain to the new lender that you had traded in your car, but the dealership failed to pay off the loan as it promised. Talk to the new finance company about taking the new car back and cancelling the that contract, or lowering the new loan to make up for what you still owe on the trade-in.
Pay special attention if the outstanding balance on the loan for the car you traded in is more than the trade-in value. For example, if the outstanding balance on the loan for your trade-in is $18,000, but your car is worth only $15,000, the dealership may include the $3,000 in the new car loan. This is called “negative equity.” If you’re buying a $30,000 car from the dealership, then you’d be signing for a $33,000 loan. As a result, you could end up paying a substantial amount more for your new vehicle if the dealership defaults on your old loan.