Trading in Your Car to a Dealer? Watch out! The 10 day payoff rip-off.

Trading in your car and you owe money on it? Be prepared to get ripped off.

The typical dealer will add a 10-day payoff meaning he will add ten days of interest to your payoff thereby charging you for his carrying costs.

Let’s look at your trade in lien payoff:

On must distinguish between a consumer asking for a payoff and a dealer asking for a payoff. A consumer who is quoted a payoff has the luxury to decide if she wishes to pay this amount immediately, or allow interest charges to accrue. In that instance, a 10 day payoff quote, while technically unfair as some would interpret that as a grace period, without a contemporaneous disclosure that interest or finance charges would continue to accumulate during this ten day period. A decision to pay immediately, even if the quote was a 10 day payoff, would result in a refund of excess finance charges. The scenario is completely different when one puts an automobile dealer in the middle.

When a dealer takes a vehicle in on trade (Trade-in), as part of the down payment, the dealer is purchasing the trade-in that day. Historically and without even asking the consumer, the dealer calls a trade-in lien holder and ask for a 10 day payoff and inserts that amount on the RISC as the “prior credit or lease balance”. This means even though finance charges are beginning to accrue on Day 1 for Vehicle 1 ( the newly acquired vehicle) finance charges are continuing to accrue on the Trade-in for 10 days. This is hardly fair for the consumer.

The NEW 15-20 day payoff.

What is most egregious is the hidden reason for the 15 and 20 day payoffs that have become pervasive in the last 3 years. As a result of the financial crisis of 2008, many dealers went out of business. On their way out, many took trade-in vehicles and failed to pay off the trade-in lien leaving thousands of Californians with two car payments despite having sold their trade-ins to the dealers.

In 2008, the California legislature created the Consumer Motor Vehicle Recovery Corporation to compensate these consumers funded by a $1.00 DMV fee for every car sold in California. In 2010 added Vehicle Code §11709.4. requiring dealers to pay off the trade-in lien within 21 days from the date the vehicle is traded in and prohibit the dealer from selling, or transferring ownership until the trade in is paid off.

Instead of asking for the common, yet illegal 10 day payoff, some unscrupulous and inefficient dealers began asking trade-in lien holders for 15 and 20 day payoffs as they misread the new law to allow for charging consumers for finance charges on trade-in liens for up to 20 days. Did the finance companies comply? Of course, they readily quoted 10, 15, and 20 day payoffs to these dealers and in order to make it even easier, changed their own policies of quoting 10 day payoffs to 15 day payoffs as standard. Some, like Westlake Financial and Wells Fargo Bank refuse to quote a same day payoff with a per diem amount for a consumer to decide when and how much to pay, and will only quote a 15 day payoff.

Your protection is to demand a same day payoff for your trade-in lien – and if they refuse – sue them. By the way, this fraud allows you to sue the dealer and the banks and you may be able to cancel your contract, return the car, get a full refund and all of your attorney’s fees.

trading in car before paid off

Trading in car before paid off

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If you’re in a situation where you want to (or have to) sell your car but it hasn’t been paid off yet (there’s a loan / there’s a lien / the title isn’t clear / it’s financed), then there are some things you should know in order to have a successful sale.

Trading in car before paid offFirst of all, yes – you can privately sell a car that is still financed. You can sell it yourself or trade it in at a dealer but you’ll get more for the vehicle when you sell it yourself (that’s sort of the point of this whole website – helping you sell your car quickly and get the most for it by doing it yourself).

The main thing you need to know is that you have to call your bank (or wherever it’s financed) and ask for the payoff amount. This is the amount you would have to pay in order to get rid of the loan and have the car just in your name.

Along with that, you’ll need to notify anyone coming to see the vehicle that the title is not clear and that there’s still a loan on the car. Be sure to tell them that you know the payoff amount. They’ll ask what that is and it’s fine to tell them. It just can’t be for more than you’re asking – you’d essentially be “underwater” with your vehicle loan-wise if this is the case.

Being underwater with your car loan means you owe more on the car than it’s worth. This is a problem if you want to sell the car. Your best option here is to wait or find the money to pay down the loan more so that you’re not underwater with it. You should ask yourself if you really need to get a different car or if you can wait.

I was in this situation once – I traded in a car that I owed money on and got a new car. The dealer and bank then rolled what I owed on the old car into the new loan. I look back and don’t know why they did that. It seems that today, banks would be less likely to do that.

One option is to try to sell the car, get the most you can for it and then take out a personal loan or home equity loan to cover the difference. You might even be able to take a loan out on your 401k or retirement plan but that’s not a good idea and it should be avoided if possible.

One more option might be to get a different loan on the vehicle if you have good credit. Maybe you can get a lower interest rate or extend the payments over another year or so and then you’d have a lower monthly payment. Often, these loans don’t take effect for 45 days, so you’d also be able to skip a payment, which might also help you.

Let’s go through the complete process on how to sell a car that is not paid off so that you do it right and don’t run into problems. Know that you’ll have to do a little bit of extra work but if you really want to sell the car, you probably can. One important thing is to make sure potential buyers that come by to look at the car feel comfortable. If they ask you what you owe or what the payoff is and you don’t even know, they’ll probably leave.

  1. Call your lender and find out what the payoff is. They’ll tell you how long that amount is good for. It might be a week or 15 days or 30 days.
  2. Find out how much your car is worth and then price it properly.
  3. Clean your vehicle and get it ready to sell. Take good pictures, write up good ads and get the word out (online and offline).
  4. Make sure you have all the necessary paperwork ready for when people show up. You’ll need the title (with the lien note on it), a bill of sale document and any other paperwork that the Department of Motor Vehicles (DMV) in your state requires (smog test, etc.).

Trading in car before paid offWhen you have agreed on a price with a buyer, you’ll need to get the title in their name. To do that, you will first have to go to your lender (bank) with your check or cash from the buyer and then have the loan paid off. The complicated thing here is that if you have a personal check, the bank might want to wait for the check to clear and this will delay things. If possible, get cash or a bank check. The bank check can be made out to you or your bank.

Your lender might be able to give you a lien release right then or it might take a few days. When you get it, you’ll need to go to your state’s Department of Motor Vehicles and get a clean title that does not show a lien on the vehicle. Once you have that, you can sign the vehicle’s title over to the new owner, like normal.

The buyer might want to go to the bank with you. If this is the case, then that’s fine. Plan a time where you can both do it together. Maybe call your bank ahead of time and ask what the best time is to do that and who you should talk to – just to ensure that everything goes smoothly. If you get in there during their busiest time, you’ll have to wait and let’s face it, that’s just awkward being there with someone you don’t know.

Probably the worst thing you can do is not tell the buyer that the vehicle isn’t paid off. If you take their money and then tell them that you have to first go to your bank, they might not be happy. Be honest and tell them.

If you want more tips and advice, I have another article here on this website that you should read:

Know that it is possible to sell a vehicle that is not paid off. It’s more work but it can be done. Your best bet is to find a way to first pay it off so that you don’t have to deal with all this extra work. You’ll also attract more buyers when the car title is clear as they know they won’t have to also work a little more to get the vehicle – it’s just a lot cleaner and easier this way.

Do everything you can to make the sale hassle free. Think of what questions someone might ask about the loan and have answers ready. Get the payoff and talk to your bank and see if they’ll work with you on your loan – just let them know what situation you’re in and they might even have some ideas that you haven’t thought of.

Thanks for stopping by the website and reading this article. If you have comments that might help someone, please leave them below. Please do share this article with others you know if you think this article is valuable and would help them.

Trading in car before paid off

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Your Car Trade-In Pay-Off – Understanding How It Works!

It's very easy to get confused about how the pay-off is handled in a car deal. Almost everyone who trades a car into a car dealer on a new purchase has a pay-off on their trade.

The pay-off is how much you owe the lender for your trade. It in no way reflects how much your trade-in is worth, and most often the pay-off is higher than your trade-in's actual value.

When you buy a vehicle this is how the numbers break down:

Selling price of the new vehicle

+ Any Add-ons like extended warranty, protection package, etc.

+ Sales tax, title, documentation and registration fees

Now adding the pay-off back on to the "Amount Due" tend to throw a lot of people for a loop! They have a hard time understanding why the pay-off has to be added back on once the dealer agreements to a trade-in figure.

You must remember, the loan on the trade-in is yours – not the car dealers – and it must be paid off so the dealer can get a clear title to the trade-in. In essence, the car dealer is buying the trade-in from you, and you can not sell it to him if there is an outstanding balance owed on it. So the pay-off gets added on to your "Amount Due," and then the dealer takes that money and pays off the loan. The lending institution in return sends the car dealer a clear title and everyone is happy.

Remember, the pay-off is your responsibility not the car dealer's. The dealer is actually doing you a service by simplifying the way you pay off your vehicle. It also allows the dealer to control the process so they do not get stuck with a trade-in that has a lien and an outstanding loan on it.

Now having said that, remember that most car dealers are honest and do business in a legitimate way, and they will pay off your outstanding loan soon, or as soon as they get the funds on the car deal. It's to their benefit to pay it off right away so they can then sell the car. If they do not have a clear title for the vehicle they can not legally sell it.

However, there have been occasions when a car dealer waits to make the pay-off, or in rare cases does not pay it off at all. This is illegal and can get a dealer in a lot of trouble, but sometimes they are having cash flow problems or, in very rare cases you come up against a crook.

If the car dealer does not pay-off you loan within a reasonable amount of time (the one to three weeks) the lender is going to be looking for you to make a payment when it comes due. I have even seen cases where the customer did not know for several months that the pay-off had not been made, and it was actually causing late payment entries on their credit report.

Remember. . . I said this was a rare occurrence, so do not panic if you have a trade-in with a pay-off. There are steps you can take to protect yourself. If you trade a car with a pay-off get a written statement from the dealership signed by either the Sales Manager or the Finance Manager stating that they will in fact pay off your trade-in, and by what date. The statement should include the following information:

  • The date of the document
  • The amount of the pay-off
  • By what date will the pay-off be made by
  • How long the pay-off amount is good for (because the amount changes as interest accrues)
  • The year, make, model, mileage and serial number of the car being paid off
  • The name and mailing address of the lending institution
  • The name of the person at the lending institution who verified the pay-off amount
  • The signature of either the Sales Manager or the Finance Manager

Any reputable dealership should be happy to accommodate your request for this form. In fact, a professional dealership will have such a form as a routine part of their paperwork.

This way if anything goes awry you have something in writing to protect yourself, and to prove the car dealer agreed to make the pay-off. As I said before, most dealers are honest, but it's always a good business practice to protect yourself.

If a dealer refuses to give you a written statement on the pay-off you should not complete the deal. To me this would be a big red flag! Go do business with another car dealer who will accommodate your request. There are too many honest car dealers out there for you to waste your time with a questionable one.

Forget To Pay Off Your Trade In Scam

This scam is often pulled on people who are trading in their old car to buy a new car. Bear in mind at we have never liked the idea of trading in a car you owe money on to a dealer. We think no one should do ever do this. But if you do, here are the typical steps that should normally take place when you trade in a car that you owe money on:

  • You trade in your old car with an outstanding loan balance to the dealer
  • The dealer is supposed to obtain a loan payoff figure and payoff the loan in 10 days
  • The dealer should then add that payoff amount to your new car purchase
  • Keep in mind you will now be paying off new car and the remaining balance on the old car
Trading in car before paid off

But something horrible happens. Two months after you buy your car you are blindsided to hear the car dealer did not pay off your old car loan as promised. Now the bank is sending you angry letters that your car payment is late. With this scam dealers are effectively paying you less for your trade than they promised. This means they often are stealing your trade in altogether.

When the lender calls you for your payment, it is you, my friend who are responsible for the loan payment, not the dealer. Remember, the car loan is still in your name, until the dealer pays it off. This is the treacherous vortex of where the trouble lies. It could also have been caught earlier if you had just called your old lender 2 weeks after you trade in your car to confirm the loan was paid off by the dealer.

As far as the bank is concerned, they still have a car loan with you, not with any car dealer. The note is in your name until it is paid off. Of course you foolishly think the dealer has the car and they paid off the loan. But you never confirmed it with the lender did you? Thus in the lender's eyes, you have the loan and you have stopped paying them and they want their money now. Because of all this your credit gets dinged with these late car payments. If you try to sue the dealer, the judge will ask to see your contract with the dealer obligating them to pay off your old car loan. Of course there is none, these guys cover their tracks well.

How to Avoid the "Forget To Pay Off Your Trade In" Scam

We here at for years have always recommended against buying a new car when you still owe money on your current car. This is a constant source of devastation and teeth gnashing for too many consumers. Your best bet is to avoid this situation altogether. Avoid this scenario and you avoid the scam, its simple physics. Here is what we recommend that you do when you owe money on a car that you wish to get rid of:

  • Pay the car off yourself first
  • Receive your title a week later from the lender who is holding it during the loan term
  • Sell your car privately. You can also trade it in, but we don't recommend it
  • If you can't pay it off first, then tell the buyer they will get the title in about a week

When buying new cars, if you ignore our advice and you trade in a used car which you still owe money on, insist that the dealer put in writing that they will pay off your car loan in 10 days or no deal. Then the dealer is liable because you took steps to protect your rights up front. Most lender's early loan payoff figures require full payment within 10 days of the quote otherwise interest starts to accrue and the payoff figures have to be recalculated.

You never want to end up without proof that the dealer agreed to pay off your trade-in. If the dealer refuses to put these promises in writing, it means they will pull this scam on you. Once they refuse to put it in writing, you should then leave immediately, taking your business to a more reputable dealer.

Car Dealer Wants Me to Buy Back My Trade in After They Have Paid Off My Loan

Trading in car before paid off

Trading in car before paid off

Trading in car before paid off

Trading in car before paid off