## Trading in a vehicle with negative equity
### The growing prevalence of negative equity in trade-in vehicles
According to a recent report from Edmunds, one of the biggest mistakes car shoppers make is trading in a vehicle with negative equity. This means that the amount owed on the car loan is more than the value of the vehicle itself. The report reveals that nearly one in four consumers who financed a new vehicle purchase with a trade-in during the second quarter of 2024 were underwater on their prior car loan. This trend of being upside down on car loans has been increasing since 2022, and not only has the number of upside-down trade-ins grown, but so has the amount owed on those loans.
### The financial consequences of trading in a vehicle with negative equity
When you trade in a vehicle with negative equity, you will have to pay the price of the new car plus the amount you owe on the current car. This means that your monthly payments will be much higher because you’re rolling over the debt from your old car to the loan for your new one. For example, if you are $5,000 upside down on your current vehicle and decide to trade it in and buy a new one, you will have to pay the price of the new car plus the $5,000 you owe on the current car.
### The best solution: Keep your current car longer
To avoid the financial burden of trading in a vehicle with negative equity, the best solution is to keep your current car longer and continue paying off its loan. Although it may be tempting to get a new car, waiting and ensuring that your trade-in value equals your loan amount will save you from having to pay extra for your new vehicle purchase. While waiting might be challenging, it is a financially wise decision in the long run.
## Rushing into a vehicle purchase
### The importance of research and preparation
Rushing into a vehicle purchase is another common mistake made by car shoppers. While there may be legitimate reasons to expedite the process, such as a totaled or broken-down car, it is crucial to take the time to do valuable research beforehand. This is especially important if it has been a while since you last bought a new car, as there may be new and unfamiliar automotive features and technologies worth knowing about.
By taking your time, you can gather multiple quotes from different dealerships and have the opportunity for a vehicle inspection, especially if you are considering buying a used car. Even if you need to replace your car quickly, it is often better to find alternative transportation while you research your new vehicle purchase. Renting a car for a few days may cost a few hundred dollars, but it is a small price to pay compared to making the wrong vehicle choice or falling victim to a bad deal.
## Going to only one dealership
### The importance of exploring different options
Another mistake car shoppers often make is going to only one dealership. This is often due to a sense of urgency in finding a new vehicle. However, it is vital to give yourself time to make wise choices, especially when you need a car quickly. Most of the price research can be done online or on your phone without leaving home, allowing you to compare prices and options from different dealerships.
Dealerships are in competition with each other, so it is essential to take advantage of this by being transparent about your shopping and sharing quotes with dealers. By exploring multiple dealerships and considering different offers, you increase your chances of finding the best deal on a new vehicle.
## Getting confused over dealership pricing
### Avoiding confusion and focusing on the essentials
Getting confused over dealership pricing is a common concern for car shoppers. Salespersons may overwhelm shoppers with various numbers, including the asking price, trade-in value, cash down, and monthly payment. While dealerships practicing confusion tactics are becoming less common, it is still essential to be prepared to combat them, should they arise.
To avoid confusion, it is crucial to do your research and determine the market value of the vehicle you want to buy before negotiations begin. By having a reference point, such as the out-the-door price of the car (including fees like tax and license) and your trade-in value, you can simplify the negotiation process. Additionally, be cautious of potential add-ons that dealerships might use to increase their profit. Negotiating the price of these add-ons may distract you from focusing on getting the best deal on the vehicle itself.
## Conclusion
When it comes to car shopping, it’s important to avoid common mistakes that can have significant financial consequences. Trading in a vehicle with negative equity, rushing into a purchase, going to only one dealership, and getting confused over dealership pricing are all pitfalls to be aware of. By taking the time to research, consider different options, and stay focused on the essential aspects of a car deal, you can make a more informed decision and potentially save thousands of dollars. So, slow down, explore your options, and make sure your next car purchase is a well-thought-out one.