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Q: New car financing ( Answered 5 out of 5 stars,   2 Comments )
Subject: New car financing
Category: Business and Money > Finance
Asked by: bdp-ga
List Price: $6.00
Posted: 06 Apr 2006 13:46 PDT
Expires: 06 May 2006 13:46 PDT
Question ID: 716237
I'm ib the process of new car shopping.  I have a car which I'd like
to trade in toward the purchase, however I still owe on this car.  I
met with the dealer and started the paperwork.  The dealer offered 12k
for my trade-in. I owe 14k on this car.
On the paperwork, he deducted the 12k from the list price to give me a
tax break supposedly.  However, at the end of the document, he added
the 14k back in to the financed price. Is this correct?  Shouldn't he
have only added 2k back in?   Help!

Subject: Re: New car financing
Answered By: efn-ga on 08 Apr 2006 09:01 PDT
Rated:5 out of 5 stars
Hi bdp,

The dealer is correct.  You have a 12k car and a 14k debt, for a net
value of -2k.  The dealer is accepting both the car and the debt,
which adds 2k net to your cost.

If you sold the car to someone else for 12k, you would still need 2k
to pay off the balance of the loan.  If you borrowed that 2k from the
dealer, then it would make sense for him to add that 2k to the amount
financed, without giving you any trade-in credit for the car you sold
to someone else.  But the bottom line would be the same (aside from
any tax consequences):  you are paying the cost of the new car plus
the 2k difference between the value of the old car and the loan
balance on the old car.

I hope this explanation is clear, if not what you wanted to hear.  If
you have any question about it, please ask for a clarification.



Request for Answer Clarification by bdp-ga on 11 Apr 2006 13:25 PDT
Thanks for the excellent answer..  If I understand correctly,the
bottom line remains the same, whether the dealer adds in the debt
difference of 2k to the selling price or adds in the 14k total debt to
the financing cost.  Close?

Clarification of Answer by efn-ga on 11 Apr 2006 21:28 PDT
Thanks for the rating and the tip.

I think you probably understand the deal.  I have trouble constructing
a way to represent it that has a 2k in it rather than a 12k and a 14k.
 I suppose you could do it this way:

Cost of new car                             x
Cost of assumed loan               14k
Value of trade-in                 -12k
Net from trade-in and assumed loan         2k
Bottom line amount financed            x + 2k

rather than:

Cost of new car                             x
Cost of assumed loan                      14k
Value of trade-in                        -12k
Bottom line amount financed            x + 2k

I guess I just think the 12k and 14k are important numbers and the
dealer is unlikely to define the deal in a way that glosses over them
and just nets out the 2k.

I hope this helps.

bdp-ga rated this answer:5 out of 5 stars and gave an additional tip of: $1.00

Subject: Re: New car financing
From: koolkingdaddy-ga on 11 Apr 2006 08:49 PDT
If you will ask the dealer to make an over alloance for your trade -
so that on paper it shows you breaking even or a small downpaynment. 
This will make the loan look better to your lender - the way it is now
you are going to have a problem financing without money down - For car
buying tips free - I found this webpage very helpful
it will give you some advice about how to buy your next car.
Good Luck - Old Car Guy
Subject: Re: New car financing
From: bdp-ga on 11 Apr 2006 13:27 PDT

Thanks for the comment.   I'll definitely check out that website. 

bdp-ga   can you tell how badly, I want a new car!  lol

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