Question For AutoBrag: Upside Down On a Car Loan
Question From Amanda: I have a 2004 mazda3 that I still owe 12,000 on through financing. My insurance on this car is through the roof and with a baby on the way I need to cut costs as much as possible. I want to trade my car in for something a little cheaper on insurance. So possibly something a little older. I’m wondering how I can trade in my Mazda at a dealerhsip for a cheaper car when I still owe 12,000 on it.
Queen of the Road: Hi Amanda. Welcome to AutoBragBlog! It may end up costing you more to trade the vehicle in and get something less expensive.
First let me tell you what the wholesale value is for a 2004 Mazda Mazda3 Sedan I with 108,350 miles, wholesale prices range from $6,000 (being in above average condition) to $4,500 (being in average condition) and $3,000 (being in below average condition). Dealerships will usually aim to sell it for +12%-14% more than wholesale, so their estimated retail prices could range from $3,800 to $7,200. A private seller will usually aim to sell it for 5%-10%.
That means when you trade it in the dealer will probably give you much less than the $12,000 that you owe on the car. Let’s say you were offered $6,000 on a trade which would be for an above average condition… that would mean you need to pay $6,000 out of your own pocket to “get out of the car“. I’m not sure why in your case the loan is so much higher than the value of the car.
One of the possible scenarios I can see happening is a dealer may roll over the difference on the trade in and loan amount onto a new loan. That would mean in the scenario above adding $6,000 to any car you purchase. In my opinion, this is a horrible idea that will keep adding debt.
