The Expert Podcast

If you're shopping for a vehicle at a car dealership, one of the questions you'll probably get is, "Do you have a trade-in?" Everybody at a dealership—one of the first questions that'll come out of their mouth is, "Are you trading in a vehicle?" And there's a reason for it. Part of it is to find out about your story, but also they're hoping you have a trade-in. If you have a trade-in, it's very advantageous for them to do a car deal with somebody with a trade-in versus otherwise, and there are a lot of reasons for it.

One of the first things they're going to ask you if you have a trade-in is, "How much do you owe on the vehicle?" What's your balance? How much do you owe? What's your loan balance? You might think, "Well, why are they asking that?" They're going to ask you that before they give you a value on it, and it's a little bit of a trick question because what they want to do is see how much equity you have in the vehicle.

Let’s say you have a car that you owe $15,000 on, and it's worth $18,000—well, now you have $3,000 equity that can go towards a new vehicle, and they might view that as an opportunity for profit. On the other hand, if you owe $15,000 but it's only worth $10,000, now you're upside down $5,000, and they might have some other challenges. The amount you owe on the vehicle doesn't affect the value. The vehicle doesn't care how much is owed on it; it's worth what it's worth. But if you owe a small amount, they might chop the trade-in value so long as it's more than the payoff. They figure you're going to be happy.

For example, let’s say your car is worth $18,000, and you owe $15,000. They might say, "Hey, we'll give you $16,000—at least you have equity, right?" So, it’s recommended not to tell the dealership how much you owe on your vehicle until it comes time to actually settle on numbers—until you have an agreement on a negotiated price for the new car and a negotiated price for your trade-in. Don’t tell them how much you owe. There’s no reason for it; they don’t need to know it. It’s not going to affect the value.

So, how do you handle the question? How do you tell them no without outright saying it? Here's a couple of sentences or questions you can use to offset that or divert the topic. Number one, when they ask, "How much do you owe on your vehicle?" you can say, "Well, let me ask you this: Does that affect the value of the vehicle? Does it matter how much I owe versus how much it’s worth?" They’re going to say, "No, no, it’s worth what it’s worth." You can respond, "Okay, good. I’m glad you know that."

If they keep pushing you about how much you owe, flip the script and ask them the same question about their vehicle. If you’re buying a new car and they ask how much you owe on your trade-in, ask them, "How much do you owe on the new car?" They might shrug it off, laugh, or say, "We don’t owe anything on the vehicle; we don’t have a loan." Yes, they do—every dealership has a line of credit that finances their inventory, so they owe money on vehicles just like you do. Don’t let them tell you otherwise.

If you’re buying a vehicle from a dealership and they press you, flip the script: "How much do you owe on your vehicle? What does it matter?" They might even say, "It doesn’t matter how much we owe on it." You can respond, "You’re right—it doesn’t matter how much I owe on mine, either." Don’t get into that discussion.

Once you’ve already negotiated a car deal, including the sales price and your trade-in value, then they need to know how much you owe to factor it into your transaction. There’s no problem sharing that information at that point. But don’t put that out there when you haven’t even agreed on a negotiated price. Sharing that information early won’t help you at all—in fact, it will only hurt you by giving the dealership leverage.

Couple clever little things to keep in mind: You don’t want to be too much of a wise guy. If you get too confrontational with the dealer, they might not give you as good of a deal or think you’re a serious customer. But you can calmly and confidently say, "How much I owe on my vehicle—does that affect the value of my vehicle? Are you going to give me more? Are you going to give me less? Why do you need to know?" If they say, "We just need to know so we can figure out the payments," you can respond, "We’ll get there—we haven’t even agreed on a car yet."

Don’t let them jump ahead in the process. The same principle applies to your credit. You don’t want to get into credit details until you’ve negotiated the price on the car.

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