Buyer Guide

Car Shopping

The Basics of Vehicle Trading

Before you go into any dealership, it's a good idea to know where you stand on your trade-in vehicle. There's no more awkward a moment for the consumer or the dealer than when the moment of truth comes - when you find out what your vehicle is worth versus the amount of money you owe on it.

A common misconception is that the payoff on your vehicle has some relevance to the vehicle's value. This simply is not true. These two numbers have absolutely nothing to do with each other.

Today, many people with a balance owed on their car are "upside down." You probably have heard that term before. Being "upside down" simply means that the balance owed on your car - the payoff - is greater than its value. Many dealers also refer to this as "negative equity."

An examination of payoffs of 100 trade-ins versus what the vehicles were actually worth shaped up like this: 91 people out of 100 had a payoff, meaning only nine people had clear titles with no liens. Of those who owed money on their trade-in, they had on average negative equity of more than $6,000. So if you are upside down, you are not alone.

Figuring out where you stand in your trade-in also will help ensure that the dealer is treating you fairly.

How to Find Out Where You Stand

Generally speaking, two numbers are needed to evaluate where you stand on your trade-in. If you still owe money on your vehicle - and most people do - the first number you need is the exact payoff. Whether you purchased the vehicle on a retail contract, a lease or a balloon note, a payoff amount can always be obtained by talking to your lender. Payoffs can be obtained during normal business hours by phone, and many times you can get them online. Have your account and Social Security numbers ready when you contact your lender.

The lender will give you either a limited payoff (10-day, for example) OR your current payoff with the amount to add per day until the vehicle is paid off.

Then, get an approximate value on your trade-in to compare to the payoff. Kelly Blue Book is known to be an accurate source that closely estimates real-world trade values. (If anything, KBB might be slightly conservative, but it's better to be conservative anyway for the purposes of analyzing your equity position.) Visit www.kbb.com and select USED CAR VALUES by make and model. Then enter the make and model information for your vehicle.

Now you have a choice of:

  • Trade-In Value
  • Private Party Value, or
  • Suggested Retail Price

Be sure to select Trade-In Value. The other two will not give you accurate values for the purposes of trading your vehicle.

Next, input your zip code, the mileage of your vehicle and any options your vehicle has. Be sure to input accurate information. The last step is one of the most important. You have to classify your car into one of these categories: poor, fair, good or excellent. Each classification will tell you what to look for. If anything, be conservative here. Again, it is better to have a low estimated value and have a pleasant surprise once you visit a dealer. Hit "GO" and shortly you will have your approximate trade value.

Now you have your payoff and the approximate value of your trade. You are well equipped to go car shopping now armed with knowledge.

What if the Difference between the Two Numbers Is Huge?

There are a lot of factors that determine whether you can trade or not. Here are a few scenarios:

  • 1). You are less than $3,000 upside down. You are in pretty good shape to trade. Most lenders understand and will let you roll that amount into a new loan. Plus, on most vehicles today, there is enough in rebates to cover that amount, so you often end up breaking even.
  • 2). You are $3,000 to $6,000 upside down. It becomes a little more difficult to trade, and to get a lender to allow you to roll that much negative equity from one loan into another. You will need to have a better-than-average credit rating. You also might want to choose a car with a larger rebate.
  • 3). You are more than $6,000 upside down. These deals are even more difficult, so you may need some cash down payment to go with your car. You also will need to have good credit. Understand, too, that rolling this much negative equity can have a huge effect the next time you go to trade.

In summary, if you are upside down you have plenty of company. Understand that a dealer cannot make your negative equity go away. They can play numbers games to cover it up, but you still are paying for it. But you cannot roll negative equity from car to car to car without it catching up to you. Still, knowing how much negative equity you have is a valuable tool when going to buy a new vehicle.

Excerpted with permission from Jerry Reynolds-The Car Pro.

Fuel Expenses

Estimate Your Fuel Expenses

Below you will find what each five-cent increase in gas prices really costs you, based on the fuel economy of your vehicle and the amount of miles you drive per month.

Match the closest miles per gallon your vehicle gets (10, 15, 20, 25 or 30). Then choose the closest amount of miles you drive monthly (1,000, 1,500 or 2,000).

If your vehicle gets 10 miles per gallon:

  • And you drive 1,000 miles per month, each 5-cent increase in fuel costs you an additional $5 per month
  • And you drive 1,500 miles per month, each 5-cent increase in fuel costs you an additional $7.50 per month
  • And you drive 2,000 miles per month, each 5-cent increase in fuel costs you an additional $10 per month

If your vehicle gets 15 miles per gallon:

  • And you drive 1,000 miles per month, each 5-cent increase in fuel costs you an additional $3.33 per month
  • And you drive 1,500 miles per month, each 5-cent increase in fuel costs you an additional $5 per month
  • And you drive 2,000 miles per month, each 5-cent increase in fuel costs you an additional $6.67 per month

If your vehicle gets 20 miles per gallon:

  • And you drive 1,000 miles per month, each 5-cent increase in fuel costs you an additional $2.50 per month
  • And you drive 1,500 miles per month, each 5-cent increase in fuel costs you an additional $3.75 per month
  • And you drive 2,000 miles per month; each 5-cent increase in fuel costs you an additional $5.00 per month

If your vehicle gets 25 miles per gallon:

  • And you drive 1,000 miles per month, each 5-cent increase in fuel costs you an additional $2 per month
  • And you drive 1,500 miles per month, each 5-cent increase in fuel costs you an additional $3 per month
  • And you drive 2,000 miles per month, each 5-cent increase in fuel costs you an additional $4 per month

If your vehicle gets 30 miles per gallon:

  • And you drive 1,000 miles per month, each 5 cent increase in fuel costs you an additional $1.67 per month
  • And you drive 1,500 miles per month, each 5 cent increase in fuel costs you an additional $2.50 per month
  • And you drive 2,000 miles per month, each 5 cent increase in fuel costs you an additional $3.33 per month

Excerpted with permission from Jerry Reynolds-The Car Pro.