Used Car Corner: Paying Someone Else's Loan
Imagine this -- you buy a nice used car from what you think is a credible dealer and after you start making payments get hit with an additional loan to pay off. Huh? Turns out this other loan is left over from when the previous owner traded the car into the dealership. How did this mess happen and why is the innocent new owner on the hook for it?
Let's look at the process that gave birth to this daytime nightmare:
-- John Smith trades his car in towards a new one. As is typically the case, his used car isn't paid off. Usually, when the sales transaction is complete, John has driven off in his shiny new whatever and the dealer pays off the balance of his trade-in's loan and preps the car for sale.
-- Jean Jones goes to this dealership for a nice used car, ends up buying John's trade-in, takes delivery and starts making payments on her used car loan. Trouble is, the dealer never paid off the old loan and is now going out of business, which is sadly increasingly common today.
-- Bizarre as this sounds, the lender, who can't get blood from a stone (meaning the dealer who is going belly up) will go after either the person who originally traded the car in or, more commonly, the new owner.
Preventing this from happening seems fairly logical:
-- If you're buying a used car, make certain that the vehicle you're considering has a clear title (which means no money is owed on it). Some states require dealerships to prove they have paid or are paying off the lien on a given used car. Take the bull by the horns and ask the dealer to prove that there is no lien on the car. If they balk, then it's time to walk.
-- If you're trading the car in and you still owe on it, only deal with an established, high-volume and established dealer to minimize this type of problem happening for you and/or the next would-be owner of your car.
CarMax is an example of a car dealer doing it right. They are a high-volume, quality dealer that features a wide variety of late-model used cars. CarMax will appraise your car with no obligation. The appraisal is good for seven days, so you have time to mull over whether or not you want to sell (or trade in) your car to them. We've even sold a few of our long-term cars to them.
John DiPietro, Automotive Editor
- Posted by
- John DiPietro February 5, 2009, 4:00 PM
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- Categories:
- Car Negotiating, Selling Cars, Used Cars
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- Used Car Lot
I can vouch for Carmax, they are a little pricey on some cars but ballpark on others. The last three cars, when my lease was about up I'd negotiate a buyout with the lease company, then go to Carmax to get a quote. This was my baseline, a price I could count on as a minimum sale. Then I'd advertise. Best case I'd sell to a private party. Worst case, no offers over what I'd negotiated, and I'd turn in car.