Zombie Trade-Ins! When The Dealership Goes Under, Your Old Cars Come Back To Haunt You

Meet Christine O’Kelly. She just bought a new Kia and traded in her old car. Kia of La Quinta, California sold her a new Sorento and offered her $4,000 for her trade-in. They then took the other $4,000 she owed on her old car and rolled it into the new loan. That was in October. Now she’s getting calls from former employees of the now out-of-business dealership — telling her that she is still responsible for the trade-in and had better come pick it up.

“They told me they didn’t have the money to pay off my car and I needed to pick it up in San Bernardino,” O’Kelly told KESQ. “I was still financially responsible for it.”

She was also told that she has until Friday to pick her car up or it will be sold at auction by the bank that shut down the dealership.

“I’m either going to have to make two car payments on a car I don’t have or it’s going to hurt my credit,” O’Kelly said. “It’s Christmas time. I’m a single mom. I don’t have the money to be making two car payments.”

We did a little research and learned that this problem isn’t unique to Ms. O’Kelly. In fact, California passed a new law that protects consumers from this very situation, according to the Los Angeles Department of Consumer Affairs.

They say:

Many consumers who trade in their used cars when they buy a new car often still owe money on the trade-in. The understanding between the consumer and the dealer is that the dealer will pay off the balance owed on the trade-in so that the consumer will incur no further charges.

Typically, however, the sales or lease contract for the new car does not specify any time for the dealer to pay off the trade-in. If an unscrupulous or financially strapped dealer does not pay off the balance on the trade-in quickly, the consumer remains liable on the old contract while having to make payments for the new car.
If a dealer who engages in the above practices goes out of business or files bankruptcy, consumers are unable to recover money directly from the dealers and thus incur substantial financial loss.

This new law establishes a program to compensate consumers if a dealer shuts down or files bankruptcy before paying off the trade-in, license and registration fees, or sales proceeds from a consigned vehicle.

If this has happened to you, and you live in California contact the LA Department of Consumer Affairs or the California Attorney General and ask them about your options. You can also read the full text of the new law, here.

Kia of La Quinta Closure Puts New Car Owners in Corner
[KESQ] (Thanks, Traveler!)


Edit Your Comment

  1. solareclipse2 says:

    Wow. I never knew that you could be responsible for your old car after you traded it in. I always though there was some sort of paperwork that absolved you of the responsibility of the old vehicle. You know, something that legally made the dealer have to hold up their end of the bargain.

    • NightSteel says:


      I’m pretty sure you have the right idea here. If she has a piece of paper saying the dealer has taken possession of the car, then if someone tries to wreck her credit over this, all she has to do is contest it with the credit bureaus and show them this piece of paper as proof that it’s no longer her problem.

    • Applekid ┬──┬ ノ( ã‚œ-゜ノ) says:

      @solareclipse2: You can bet that any papers the dealer makes you sign are all about taking rights away from the buyer and granting powers to the dealership.

      • sonneillon says:

        @Applekid: I would say that your car trade in debt is part of the dealership bankruptcy and that it isn’t a valid debt. This is something that the “single mom” should just not pay and dispute. In the end it’s difficult to sue her and she could probably just stall out the creditors. And really if she owns a car and a house who cares about the credit?

        • bwcbwc says:

          @sonneillon: The problem is that you aren’t really transferring the debt. The original car loan is still in your name, and your still obligated for it. You’re transferring the title and creating 2 new debts: 1) The loan on your new car, which includes the equivalent amount of the rollover balance and 2) A “loan” you make to the dealer out of the payment they receive from the new bank, so that they pay off your old loan.

          The problem is that your old bank doesn’t give a damn what financial arrangements you made with the dealer, they have a debt with your name on it that you owe. Since the dealer went bankrupt and you’ve transferred title, in theory they could just pocket the money and the car, and you would have to get in line with the other creditors against the dealer.

          At least this dealer is offering to roll back the transfer of title on the trade-in. The OP would have to sell the trade-in on the open market, probably still taking a loss if they’re underwater on the loan.

          • sonneillon says:

            @bwcbwc: This falls under Tortious interference. Now whether it’s worth it to sue the dealership is a whole other issue especially considering that they are going under.

            This also might be a material change in the contract.

            In the end people in this situation should consult a lawyer about their options. She could not pay and let the bank seize her old vehicle. That might be kind of fun.

  2. dentedvw says:

    This stinks.
    With GM about to axe so many dealers, how many more times are we going to read about this?

    • cabjf says:

      @dentedvw: I think they’re more likely to consolidate than just close. At least in my area there is a Chrysler dealership that Chrysler wants the owners to sell to another local Chrysler dealership. The owners aren’t too happy and are bringing a lawsuit against Chrysler to prevent it. It does make more sense that way though. They wouldn’t want to lose any customers after the dealership they bought their car from closed.

  3. humphrmi says:

    If the trade-in is worth $4,000, assuming they didn’t monkey with the numbers (e.g. boost the trade-in and sales price at the same time to hit some bonus quota) then she should pick up her old car and drive it strait to a Car Max and sell it there, and pay off the loan herself. Assuming it was a valid trade-in price she should be able to get that much from Car Max, and they’ll buy the car from you (at their quoted price) even if you’re not a customer.

    • nataku8_e30 says:

      @humphrmi: Or put it up on craigslist for $5500 and sell it for $5k, I’ve never seen any dealership (including carmax) that’ll give you as much as you can get private party, although it does take more effort.

      • humphrmi says:

        @nataku83: Actually, I have to correct my original comment. In most cases, since she still has a loan on the car, she can’t just sell it and take the money, since she doesn’t have a clean title. The only way to unwind this is to find another car dealer (ie Car Max) who is willing to take the car and loan papers and pay off the loan themselves with the proceeds that they would have given her. And if they aren’t giving her enough to pay off the loan, then she may have to come up with the difference herself, before the transaction can complete (otherwise Car Max won’t be able to get the title.)

        If Car Max is willing to do this, they are probably going to charge for the paperwork on their end, but again it’s still better than having two loans.

        I don’t know if there’s a clean way to do that private-party.

    • B says:

      @humphrmi: The trade in is worth $4,000, but she still owes $8,000 on the loan for the old car. 4,000 of that was rolled into her new loan, and the rest was supposed to be taken care of by the dealer, which they never did.

    • RagingBoehner says:

      @humphrmi: HAHAHA Carmax offered me $150 on my car after appraising it for an hour and half.

      I informed them it’s not a bicycle and moved on. Granted, I only got $1k when I traded it in when I bought my new car, but that’s when you get when your car has more miles than from here to the moon.

      • sonneillon says:

        @RagingBoehner: Really? My friend got 400 dollars for his car and it didn’t even work. It was picked up for scrap and parts.

        • RagingBoehner says:

          @sonneillon: Yup — I drove it there AND it had a full 20 gallon tank of gas which at the time was at least half the value of the car.

          At first I thought it was $1,500 and was psyched. Nope. The guy even said to me, “this probably means they don’t really want your car.”

          I’m sure with a more late model fully-functioning low-mileage car they’re probably more reasonable. I just was kind of annoyed it took so long to tell me my car was a piece of shit. I already knew that.

  4. nataku8_e30 says:

    Ok, so let me get this straight, she owed 8k, they gave her 4k for it and then rolled the other 4k into a new loan. So now she has the loan for the Sorrento – 4k for the trade + 4k from the previous loan = original amount for the Sorrento. Now they’re giving her the car back and she still owes 8k on it. It sounds like it worked out exactly as if they just never accepted the trade. Yeah, it sucks because she now has to go sell it, but she should be able to get 4k pretty easily if a dealership was willing to give that much as a trade in value.

    • squatchie44 says:


      negative on the math….Sorento + $8k in old car loan = Sorento + $4k owed

    • nataku8_e30 says:

      @nataku83: Since I’m a little geographically challenged, I looked it up and it sounds like she has to drive 80 miles each way to pick up the old car, but it’s not like she’s “going to have to make two car payments on a car [she doesn’t] have or it’s going to hurt [her] credit” She SHOULD still legally possess the car, which is what it sounds like is the case.

    • fashionista says:

      @nataku83: But isn’t she still in trouble? If she sells it for $4 or $5K, doesn’t she still owe $4K plus the Sorrento loan?

  5. TechnoDestructo says:

    Yet another reason to sell your car on your own.

    • Snarkysnake says:



      I know it doesn’t help the OP much, but here’s another lesson in why the whole “we’ll pay off your car no matter HOW MUCH you owe” line is a trap. Really, does anybody think that dealers do this because they have a big heart ? With Craigslist and a lot of local newspapers trying to compete with one another,the cost of an ad that will be seen far and wide is darn near zero. Just resolve yourself that there will be TWO transactions : When you sell your old car and when you buy your new car. Fewer moving parts and a lot less to go wrong. It would be wonderful if other states would pass a version of the California law to keep shifty dealers from doing this to other people…

    • humphrmi says:

      @TechnoDestructo: How does she sell the car on her own when she doesn’t have the title?

    • nataku8_e30 says:

      @TechnoDestructo: The only advantage I’ve found to trading in a car is it reduces the amount of sales tax you have to pay. e.g. you get 4k for your trade and purchase a 20k vehicle. You pay sales tax on 16k instead of the full 20k. That’s the way it’s been with every dealer I went to in Texas, anyway. I still think you’d make more than the difference by selling your car privately, and I’d rather see the extra money going to the state government than the dealer.

  6. Corporate_guy says:

    I wonder if it possible to get the dealer to give you a cashier’s check for money to pay off the old loan at closing, and for you to just pay off the loan yourself?

    • ManiacDan says:

      @Corporate_guy: Then they wouldn’t get the interest by rolling your payments into the new loan!

    • tgpt says:

      @Corporate_guy: problem is that then you might not pay off the loan and they’d be screwed, since they’d be sitting on a car that they don’t hold a clear title on.

    • TheSpatulaOfLove says:


      I just did that. I wanted to wipe out another loan for a car I kept and the dealer cut me a cashier’s check to pay off the other loan.

      Was it the best financial decision? No, but it afforded me much needed cash-flow and the amount I’ll pay in interest is negligible.

    • Anonymous says:

      Dealers do not pay off cars that are traded in until the new loan funds. If the dealer pays off all cars that are traded in prior to the new loan funding. This could cause the dealers cash flow to go negative. Think about it if a dealer sell 200 cars a month. Half of the customer have a trade-ins. Average payoff is 15k. That’s 150k in one month or 1.8m in a year. Another reason for this practice is, not all deals are approved by the lender at the time of purchase. So loans require additional cash down for LTV (Loan to Value) purposes, moving number to fit in to bank guidelines. This does not happen in hours, sometime it takes a week to get loans done. Some are never approved and the car must be return due to customer credit, DTI, LTV. If the customer cant get approved on the new loan and the dealer paid off the trade prior to the approval. And the new loan was declined. The dealer would be stuck with a car that they paid off that might be worth half of the loan balance. The customer would have no obligation on the old note. And most likely could not get approved for the old car if it is worth half of the balance. LTV would be out to line.

  7. Geblah187 says:

    Depending on how long ago it was, being able to sell or trade in the old vehicle might not be as good an option as you think. Most vehicles, until they become “collector’s” items, will depreciate in value over time – even with no additional mileage.

    Thus what might have been a $4,000 trade in value a few years ago might only be $2,500 today.

    Yet another good reason not to trade in your old car. You can almost always get more from a private buyer than the dealership will give you.

  8. Oranges w/ Cheese says:

    If they rolled half the trade-in’s value into her loan, isn’t she already technically paying “two car payments”?

    And since when is it economically feasible to buy a NEW car when you haven’t even paid off the old one?

    • nataku8_e30 says:

      @Oranges w/ Cheese: Well sir, I believe that is the root of the problem. Also, if she got 4k on the trade, her trade-in must have been in pretty nice shape (not a junker). As a “single mom” she probably should have driven it until it stopped making financial sense (repairs were costing more than a car payment), then purchased a nice used car, maybe even just a 2 or 3 year old model with under 30k on it.

      • emis says:



        Sounds like this single mom isn’t making very good financial decisions… it’s too bad she is stuck in this mess now, hopefully what she can take out of it is that rolling her old car’s negative value into a new car is never a good plan.

        Domestic manufacturers have been absolutely famous for that, particularly combined with their high discounts from msrp and customer “bonus” cash offers–the bank finances a car for 110% of MSRP and that particular model almost never walks out the door for more then 85-90% MSRP … the spread pays off the last mistake the customer made and the cycle continues…

        It’s just the housing market… the stock market and all the other nasty financial sh*t going on today.

    • Traveshamockery says:

      @Oranges w/ Cheese: Some people gots to have their new cars. Honestly, a lot of people don’t even understand what happens when the dealership says “we’ll pay off what you owe on your old car!” and think the debt disappears or something.

      • pecan 3.14159265 says:

        @InfiniTrent: I don’t get why people do that either. Since she bought a Kia as a new vehicle, I can only assume that her old vehicle had reached the end of its lifespan, but because it fetched $4,000, it wasn’t too terrible (maybe it was drivable, but was probably just old, and no one would deliberately go and buy it as their “new” vehicle).

        I don’t understand how anyone can hear “we (the dealership) will pay off part of your loan for you” – how does that make sense? Loans cannot be re-loaned to someone else. It’s your debt, you keep it regardless. If you buy a new car, the debt from the old one rolls over onto the loan for the new car. Owe $1,000 on the old one? Financing the new one for $10,000? You owe $11,000. No one absolves you of debt.

        • Oranges w/ Cheese says:

          @ChildrenAreSticky: I’ve never understood it either! I mean, if you look in the small print on ALL of those commercials that proclaim that it says “Balance on trade carried over to new loan” Which is absolutely frickin ridiculous!

          If she still had $8k on her old trade, it seriously couldn’t have been more than 2-3 years old, which, unless it was a total Lemon = AT LEAST 10 years of driving (maybe without the AC for some.. but yeah)

  9. Graverobber says:

    Let this be a lesson; Never buy a Kia.

    • failurate says:

      @graverobber- My Yugo Nova!: They are depreciation machines and an absolute poverty trap.

      • Anonymous says:

        Not really a poverty trap…I’ve had my Kia for 5 years, paid off the loan of 9K, my car is still worth 2K and still looks brand new. I’m going to drive it till it falls apart. I already have 80K miles on it with only changing the oil. It just sounds like she got shafted by the dealership.

    • Anonymous says:

      I beg to differ! I bought a 2000 Kia Sephia new, and if I give you the details on the mileage I have gotten (35-41), the maintenance- none except one simple timing belt, It would boggle your mind.

      I have almost 300,000 miles on it and going strong as a daily driver. The car always starts, and still gets 35 mpg.

      Yeah, it was cheap, but it has given me a deacent car with no payments and good mpg for nearly 10 years! Top that!

    • MisterE says:

      @graverobber- My Yugo Nova!:
      Another Lesson: Pay Off your car before you trade it in!

      • madfrog says:


        amen, my friend. That’s why if you have “negative equity” in the car- i. e. you owe more than what it’s worth- unfortunately you need to deal with it just so this does not happen. Once the car has enough equity in it to do a payoff, you are rolling to dice with a dealership to make sure that they do the payoff. The dealership should make a call to the finance company to find out what the payoff is and it should be reflected in paperwork that is given to her. It will list the payoff, the date it is good until, and after that date, how much the car will cost per day past the good payoff date. The dealership should have explained this to her, but i’m sure that they didn’t. Since she doesn’t have a “clean” title, she can’t sell this privately. This whole situation stinks for her.

    • Oranges w/ Cheese says:

      @graverobber- My Yugo Nova!: They’re decent, affordable cars. While I’d much rather suggest that someone buy a Hyundai (the “Lexus” branch of Kia), its the same car.. just a little cheaper.

      My mom used to call Kia’s deathtraps. But they’ve really really improved quite a bit.

      • dangermike says:

        @Oranges w/ Cheese: My dad swears by Hyundais. But after riding in and driving two of his hyundais, I swear they’re junk. They drive sloppily and fall apart quickly. I’ll admit that they haven’t needed a whole of major service but they’ve had problems like the door-open sensor (cabin lights turning on and warning bell dinging) being tripped on all but the lightest right turns. And they’re quite uncomforatble, too, but I say that of about 90-95% of cars I’ve been in.

        • RagingBoehner says:

          @dangermike: I love my Santa Fe. Gets pretty good mileage too and is very comfortable and spacious.

        • TemporaryAphasia says:

          @dangermike: I don’t know if they’ve improved in the past several years or so, but at one point my grandmother purchased a Hyundai… was constantly bringing it in for repairs under warranty, and after the warranty ran out, she actually ended up purchasing a -second- one… not because she loved the car so much she wanted another, but for parts as it was cheaper to drop $600 or so on one that had a ruined interior but was otherwise okay than to keep buying expensive new parts all the time.

  10. SadSam says:

    I hate to pile on this poor lady, but why would you buy a new car before you paid the old one off? I hope to Dog, that she wasn’t still making payments on a clunker. How long are car loans these days?

    Seriously, single moms and the rest of the world that is down on their luck, the joy of making car payments is that eventually you should get to a point that you don’t have to make any more payments and then you get to drive a car that you own free and clear. During those free and clear years you should put money aside each month in a high yield savings account so when the time comes that you actually need a car you can pay cash for it.

    • humphrmi says:

      @SadSam: This is very common, and has been going on for a long time – Dealers push these deals because it increases their cash flow (especially when they can sell the trade-in car quickly) and helps them make a quick sale. A lot of people aren’t so lucky that they make enough money to be able to save up for a car.

      • SadSam says:


        It makes me sad, because this woman clearly has enough money to save up for a car. If you have enough money for a car payment each month you have enough money to save up. Instead of writing a check to the car company each month you put that money in the bank and you wait until the current car becomes too expensive to maintain then you tak the money you have in the bank and you buy a new car. Even if you don’t have enough to buy a car free and clear you should have enough for a nice down payment. I’m assuming, and maybe its a bad assumption, that if she was still making payments on car #1 it was still running pretty well. It makes me sad that people think they need a new car every two or three years because such behavior undermines long term (and short term) financial health.

        • pecan 3.14159265 says:

          @SadSam: Well she bought a Sorento, which has the sticker price of around $22,000 (a little more, but I’ll round down) – that’s a mighty expensive SUV! Well kind of – the Rogue and the Rav 4 are in the same price range, but I had no idea Kias were so expensive compared to other carmakers.

          Cause you know, when a dealership starts marketing “buy one get one free” you tend to get a little wary.

    • Ajh says:

      @SadSam: Credit debt first. I own my car. it’s a 2005. it has a 10 year 100,000 mile warranty on it..I will not get rid of it until 2015 unless something happens to it. I MIGHT, however, get a new pain color. I hate silver(they gave me a discount to take the silver model off the lot instead of waiting for the red one.)

    • GearheadGeek says:

      @SadSam: I have heard that you can get 72-month car notes these days. It’s insanity. If you’ve been paying attention, you’d already know that many Americans do this, and often end up owing WAY more than their new car is “worth” on day 1 because the ever-helpful finance guys at the new-car dealership rolled in the negative equity from the PREVIOUS car they “traded in” to get them a shiny new one. Then the stealerships turn around and sell them gap insurance at terrible rates, and scare them into buying it because of how far upside down they are in their new car.

      • econobiker says:

        @GearheadGeek: I first heard of an 84 month loan (7 years) in late 1996 when I worked with an idiot doper who traded his ragged 1978 Firebird for a “new” 1995 Firebird. He supposedly still owed the buy/here pay/here place for the ’78. I quit for another job and heard that he was later fired. I figured that the ’95 eventually got repo’ed as 2 years later I saw him driving a POS 15 year old Toyota Celica…

        • failurate says:

          @econobiker: The problem is not with long term car loans, the problem is with people who pay the minimum, don’t keep up with depreciation, do a piss poor job negotiating the original purchase price of the car, and then insist on trading/selling when they are upside down on a loan.

          I have a 72 month car loan and am pretty happy with the flexibility. Of course it’s paid up ahead of deprecation, is at a very low rate (credit unions FTW), is on a car I got a hella price on, that I enjoy driving and plan on keeping for many years past the payoff of the loan.

          • pecan 3.14159265 says:

            @failurate: I have a 5 year loan, which I think is pretty standard, but my monthly payments are low, and we’re saving money so we can take our savings and put part of them directly into the car. This wasn’t a peer pressure decision either – my old car suddenly started making screechy noises that translated to $4,000 in repairs, and we got so fed up we sold it to Carmax and got a much more fuel-efficient and cost-efficient car.

            The biggest factor (price, fuel efficiency, etc) was also the drivability. I enjoy driving, I hate the traffic, but I like driving so if I don’t enjoy driving the car, it’s a waste of money.

      • parad0x360 says:

        @GearheadGeek: I got a 72 month loan on my car to keep the monthly payments lower. My plan was and IS in Jan/Feb when I get my tax return I will go to my bank with $5000 cash and refinance my loan which should cut the loan time in half which in turn will remove a massive chunk of the interest I would pay if I actually took the entire 72 month term.

        Its not always bad to have a long term if you actually have a plan. In my case it ends up working to my advantage because on a 3 year loan I’d be paying around $500 a month and I cant swing that without living like a lepper since I still owe another 12 months on an auto loan for another car so that would end up being like $720 a month just in car payments not including insurance which is like $200+ a month since both cars have to have full coverage…

        Sorry I started to ramble.

    • emis says:


      I had a guy at work here who bought a Dodge Ram for $32K with a 72 month loan… 6 freaking years… and it was at a crazy high (for the term) rate too, something like 7%… at the time I figured it out and he was going to be paying about $8K in interest over the life of the loan. Of course he was convinced that he would be able to pay it off sooner, I wonder if he ever did? He was laid off 6 months ago.

      I’ve seen 84 month advertised around here…

      My aunt gave me a rule of thumb that has been invaluable… she calls it “$3000/$300/36 or less” … If you can’t own it for less then $3000 down at purchase and a payment of $300 or less over a term of 36 months of less then you can’t afford it… that works out to something like $13,000 before taxes, dealer fees, etc… so even if you have no trade in at all you can still get a decent used (or even a really cheap new) car for that…

    • econobiker says:


      Exactly- buy a new car and run it into the ground time wise. The bank owns the car for the first 5 years (60 month loan) I own it for the second 5 years, and then any time after 10 years is gravy.

      As for maintenance figure on $500 maintenance years for the first 5 years (hopefully you have a good warranty), up to $1000 yearly for the second five years- but cumulatively- maybe one year only $300 but the next is $1700 etc. Remember that $1000 over 12 months is only abour $84 a month which is alot better than a $400+ month car payment per month…

    • Oranges w/ Cheese says:

      @SadSam: I had a 60 month loan on my Elantra, but only 5% interest and a decent, affordable payment.

      I just want to be debt free though, so I liquidated my savings account and paid off my car.

      I realize its not great in the short term but it means that I have zero debt and can actually save money. After all, if I continue to make the payment for the rest of the time the loan would’ve lasted, I’ll have $2400 in the bank by the end of next year! :D

  11. admiral_stabbin says:

    I wonder how they got former employees of a defunct business to start making difficult calls to customers. If my employer went out of business I wouldn’t keep working for them out of the kindness of my heart. ;-)

    • GearheadGeek says:

      @admiral_stabbin: You might if you were an officer of the corporation and could end up with some legal responsibility… you’d be better off if you could scare your former marks..er.. customers into coming and picking up their old cars for which you legally agreed to take responsibility rather than having them try to actually enforce performance on the contract you signed with them.

  12. SkokieGuy says:

    Since the dealership did not perform their contractually obligated duties, this woman’s car has been stolen from her. What about an insurance claim?

  13. bohemian says:

    I would never do a trade in on a car I didn’t own free and clear. I trust car dealers about as much as I trust people selling designer watches on street corners.

  14. billy says:

    First of all, doesn’t the new law protect her? The website says “Starting July 1, 2008, consumers can apply to the CMVRC to recover losses of up to $35,000 per vehicle for unpaid trade-ins, registration and license fees, or consigned vehicles.” [dca.lacounty.gov]

    Second, I’m not sure why trading in the car doesn’t relinquish her responsibilities on the car. The dealer accepted the trade in and, therefore, it’s their responsibility. Maybe this wasn’t explicit in her contract? [actually, after reading the linked article, it’s clear that the dealership never transferred the ownership to them. That’s apparently how this happened, but Consumerist left out that very important detail].

    Third, if the car dealership never transferred ownership, then how can the bank sell it to satisfy the dealer’s debts? The dealer doesn’t really own it: it’s not theirs to sell. On the other hand, the contract that she signed may change that.

    • humphrmi says:

      @rubinow: Your first point is valid. Your second and third are trumped by bankruptcy law.

    • tgpt says:

      @rubinow: unless I misunderstand the concept of a “loan”, I can’t reassign my responsibility to somebody else. Say we do this:

      I borrow $5000 from you.

      I tell that homeless guy over there “hey, if you accept my debt to this guy, I’ll give you a beer” and he says yes.

      I tell you “sorry, I know I owed you money, but this guy agreed to pay it off for me so now you have to talk to him.”

      It doesn’t work that way – the loan company (you) made the agreement with the borrower (me), and in order to transfer that debt to somebody else, both parties have to approve of it. (Me asking you “is it OK if that homeless guy takes over my debt to you?”)

  15. TVarmy says:

    @SadSam: It’s possible the original car didn’t suit her needs, so she wanted to trade it in for a better car instead of continuing to make payments on a car she didn’t like. As for the payments, I know it’s a regrettable way to buy a car, but maybe she needs a vehicle and can’t afford to wait long enough to accrue enough savings.

    • SadSam says:


      True, especially since she has kiddos.

      But my last car didn’t meet my needs for about the last 4 years, it was two doors it was too small and all my friends had fancy cars and I certainly felt pressure to get a new car to keep up with my peers. What did I do, I kept driving it and I made at least one $1000 repair the last year I owned it (that was painful). I was complaining to anyone that would listen about how I hated the car and it was a waste to put money into it when I hated it. But instead of caving to my selfish desires I kept driving it, a couple of times I rented a car for long trips, and I kept saving and I bought a new to me (2006) car this fall and paid cash for it. All my friends cheered!!

      • pecan 3.14159265 says:

        @SadSam: You have good friends. Mine were surprised when I traded in my car, because they knew I loved my car, but they also knew about all of my repair shop stories. Every trip to the shop was hundreds of dollars, and it wasn’t worth it anymore to do it so often. $200 a month is better than $3,000 at once, and not knowing how you’re going to be able to get to work the next day. It’s the worrying that got to me, so I traded the clunker for a new car.

  16. econobiker says:

    A spoiled, young, inexperienced coworker at my previous job drove a used extended cab Dodge Ram that was killing her in gas cost (even 3 years ago pior to $4gal/gas)plus the payment was high. (Her cowgirl lifestyle was a little hard to maintain when she had to pay her own rent and support her child by herself versus living at home mooching off her parents… She wondered out loud about trading it to a local new car dealer who “pays of the trade when you buy a brand new model x economy car”.

    We had to educate her that the trade isn’t actually paid off clear but the debt is rolled into the new loan so she would end up not only owing for the value of the economy car but also the pay off on the truck combined… Silly.

    She then would later get fired for being zoned out too much due to lack of sleep/ partying all the time…

  17. innout3x3 says:

    It’s a tough life as a single mom, but if she had time she could have sold the car privately and not get screwed by the dealer. I would never trade in a car when I could get better money for my car somewhere else.

    • pecan 3.14159265 says:

      @innout3x3: I think maybe she thought it’d be a lot easier to go through a dealership, especially since she still owed money on the car. I didn’t know the first thing about buying a car until I actually bought one, and I’m not an expert or anything, but given what I do know, I’d still be more comfortable going to a dealership and trading it in or going to Carmax.

  18. christineo says:

    nataku83 – great point – but actually that’s NOT what happened! This is my story. I owed $8000 on the car. They bought it for $4000 – and I was responsible for the other $4000 which was rolled into my new loan. Meaning that I am supposedly responsible for

    1. The $4000 that was rolled into my new loan


    2. The $8000 that still remains on my old loan.

    Even if I sold the car at the Bluebook value of $4000 (which is what the dealership bought it for) I would still be responsible for the other $4000 on the loan… which I am ALSO paying in my new loan! That’s a total of $8000 – ahhh!


    Thank you SO much for informing me about this law – I hadn’t heard of this and will ABSOLUTELY be following this lead!!!

  19. Marshfield says:

    And who wants to bet that the people running the dealership will have a new one open in a year or less and start all over again with a clean slate?

  20. ShadowDancer says:

    my ex and i had a similar situation happen to me in san diego a number of years ago. this was before the law changed where there is no cooling off period for automobile purchases. we traded in a dodge charger that had an outstanding loan for a newer car.

    about a week after the transaction the dealership tells us they couldn’t finance the loan through a credit institution. we were to make payments on the new car directly to them. having a bad feeling about the situation i called chrysler credit regarding the older car. sure enough, the loan wasn’t paid off.

    we were now responsible for two car payments. one on an automobile we didn’t have possession of.

    when we called the dealership to discuss the payoff on the charger, they told us the car had been sold to a wholesaler. falsehood easily exposed when we showed up on their property. the car was on their lot with a ‘for sale’ sign.

    after three weeks of back and forth we were able to return the new vehicle and have the older one returned to us… damaged on the front end significantly.

    being naive twenty year olds and just happy to have the car back and only one car payment, we didn’t pursue any repairs from the dealership.

  21. Trick says:

    Am I not adding the numbers up correctly, seems to me this lady now owes $12,000! They “gave” her $4000 by adding to her current loan, then never paid off her old car loan where she owed $8,000.

    Seems to me this lady is out $12,000!

    • coren says:

      @Trick: Well, if they didn’t pay off that other loan then she doesn’t owe them the 4 grand. Or she has the 4 grand and can just apply it towards one of the loans.

    • B says:

      @Trick: Before she bought a new Kia, her old Kia was worth ~4k and she owed 8K on the loan, so the dealer “gave” her 4k for the car, which should have been used to pay off half the loan, and the remaining 4k was added to the loan on her new car. So 4K of the loan on her old car was paid for through the finanching on the new car, that’s being paid off each month with her loan payment. The remaining 4K the dealer should have paid the lender, but they never did, so she owes that lender 4k, and has a car hopefully worth 4k.

  22. MrEvil says:

    Out of all the old crap I’ve driven, repairs over a 12 month period have never cost more than 12 months of car payments. I think the most I spent on my Crown Vic in repairs last year was $180 to have the gearshift fixed at a local repair shop. This year the total’s up to $215 for a replacement intake manifold that I did myself. Things like broken windshields, tires, and oil changes are expenses I’d face with a new car anyway.

    • DeeJayQueue says:

      @MrEvil: That’s great if that’s your experience. But not everyone shares it. I’ve had nightmare cars that cost far more over time than a new car payment would have. Add to that the anxiety of not being able to rely on your car, and you can see how some people will do almost anything to get into a new car.

      In the 2 year span that I owned my Jeep I had to replace:

      -The entire exhaust system 1 piece at a time, starting with the manifold, the cat, the plumbing, the muffler then the tailpipe. This even included the o2 sensor.

      -The power steering pump

      -The starter motor, twice

      -The alternator, caused by the bad starter.

      -The radiator and all the associated hoses and plumbing

      -The water pump and thermostat.

      That’s not counting the stuff like the new windshield I had to buy because PennDOT wanted to drive a plow 70mph in the center lane of the turnpike, throwing a 20 foot wall of snow and ice into the opposing lane. Or the new door tops I had to buy because the driver’s side plastic window cracked in the cold, or the new tires that had to be special ordered to fit on the funky rims the previous owner had put on.

      Each one of these things, even buying parts wholesale and doing most of the labor myself were still pretty expensive. Plus I wouldn’t ever have trusted that thing to go on a long journey. There were numerous days it didn’t even get me to work and back.

      • Oranges w/ Cheese says:

        @DeeJayQueue: Yeah, the last two years of my “trade-in”‘s life cost my parents about $4000. Though we owned the car for at least 5 years before we traded it in, we had to replace the voltage regulator (which is attached to the computer, apparently), the Alternator, the AC compressor, the rear bumper and the struts + shocks in addition to regular maintenance. Oh, and it had gotten a completely new paint job about 3 years previous also.
        And then we traded it in for $750 off a $13k car.

        And my dad begged too, they offered $500 and he said meekly “$750?” I was so sad :(

  23. Anonymous says:

    This comment is for those who keep asking why she didn’t sell her car privately for $4k… because she owed $8k on the car, they rolled over $4k in the new loan and gave her $4k trade in credit, so it may have been very hard indeed, especially in today’s slumping market to find someone willing and able to dish out $8k on a used car, not to mention the car probably wasn’t worth the $8k because we all know you’re basically upside down in equity once you roll the car off the lot.

  24. Anonymous says:

    In reality the dealership placed a value of $4000 on the vehicle. Even though the woman rolled the additional money into the loan if the dealership gives the vehicle back to the woman they are making the contract null and void. As a finance manager for a dealership I can tell you that on her contract with the bank her trade in shows up as $4000 collateral toward the loan. If there is no car trade in…there is no loan. Therefore the contract is voided and the dealership is on the hook for the purchased vehicle. The greedy bank could try to hold the woman on the hook for the vehicle but they would have no legal basis in a court of law as the terms of the contract are not correct.

  25. Anonymous says:

    First and foremost I would like to say I feel very sorry for this single mom who has been put in this situation at this time of year. However, I would like to bring a new suggestion to the mix. How about paying for a car in “cash”. This is one of the problems that has put America into the financial mess we are in. It is called individual financial responsiblity or lack there of. We have been indoctrinated to the teaching that we must have a “car payment” It is all about instant gratification. I too have been thinking this way since I got my first car. My eyes have been opened. I will be paying my last “car payment” in a couple of weeks and I vow never to have one again. I will save up and purchase a new car outright. I have also established an emergency fund to finance any unforseen repairs. Just imagine the amount of stress this poor lady as well as other consumers could have avoided if they lived their lives like our grandparents did just a couple of generations ago.

  26. seth1066 says:

    “…offered her $4,000 for her trade-in. They then took the other $4,000 she owed on her old car and rolled it into the new loan.”

    This is a confusing statement and needs a rewrite to explain the true facts of this deal.

    If it was worth $4000 and she owed $4000, then the dealer pays off the car (with the dealerships own money) and wholesales it to get the $4000 back.

    If it is an $8000 trade with a $4000 equity, the dealer again uses the dealerships own money to pay off the car and then give the customer the balance of equity, $4000 taken off the deal as a credit. The dealer wholesales the trade for $8000 and is done.

    The only time the amount owed on the trade is rolled into the new car financing is when the customer is “upside down,” i.e. owes more than the car is worth.

    Here is the only likely scenario: The car is worth $4000 and the outstanding loan balance is $8000, then $4000 is rolled into the customer’s new car financing and the dealer gets that $4000 and sells the car for $4000 breaking even on the trade. If this is the case, the dealer kept that $4000 when they cashed in the installment contract and didn’t wholesale the trade. The customer still owes $8000 to the lender on the trade and is paying another $4000 in additional payment for $4000 of the trade in payoff. She’s a got a $4000 car she has pay $8000 on to get a clear title to. In reality she’s got payments that equate to $12,000, as anther poster surmised. Bottom line: she needs $4000 cash and a buyer for $4000 to get rid of her old trade.

    Most state’s DMVs frown on this kind of transaction regardless of the circumstance and some (I know Virginia has it) have recovery funds for the consumer to be protected.

  27. DeeJayQueue says:

    Ok, here’s what happened.

    She brought a car to the dealership that she owed $8000 on. The car was only worth $4000 as a trade in. The dealership took the trade and rolled the other half of the $8000 she owed into her new car loan.

    You have to look at it as two separate transactions.

    1. They bought her car from her for $8000. Half of that went to her as a trade in, the other half went to pay off the note on the car. Now, the old car is free and clear from the old loan, but she still owes the dealership/finance company $4000 on it, so they add that amount to her new car loan.

    2. She bought a new car, which they inflated the price of by $4000 to compensate for what they had to pay the bank to get the title of the old car.

    When the dealership went tits up they were on the hook for the entire $8000 note on the old car, which they never paid. So now she’s on the hook for it. Or, not if she’s protected by this CA law that was mentioned.

  28. Anonymous says:

    So, once again the “little guy” gets screwed and the big corporation gets away with it. If they made cars that weren’t SHIT maybe they would be worth something when we tried to trade them. Barring that, the same story happened here. The dealer got to declare bankrupcy and the people again got shafted. Maybe we should give the big 3 the power to print their own money like the Fed can. Quit buying their shit and we have to pay for it anyway??? A new car loses most of its value the first couple of years (unless they are selling it used) How about we let the auto companies sell their cars for the “real” price they are worth (less than half price) AND then they could raise the capital they want us to (LOAN?) them???

  29. Anonymous says:

    one thought comes to mind when i see people respond with” sell it yourself” first you must take into account, she probably only has one vehicle(the trade-in) 1 you dont know when/if your car is going to sell & for a price you can live with, so you cant go out and find a new car till it does. 2 how do you sell that car privately and THEN find another car if thats your only vehicle? 3 you sell your car, find a new one, but the financing is denied, what does she do in the mean time? being a single mom, i assume she has a job, kids school ect ect. it seems the smart way would have been to buy the new car then sell the old one yourself, it seems to be alot cheaper to pay a second payment for a month or two till it sells rather than get stuck like she did.

  30. rockergal says:

    I hate the “I’m a single mom” card, it takes two to tango..
    second: Doesn’t anyone buy used anymore? I got a nice vehicle for $8000 (2003 with 45k miles)paid mostly cash and sold my old vehicle (2000 with 160K miles)

    • TechnoDestructo says:


      I can think of one reason people might not do that. They don’t want to save up for it…they just don’t have the willpower for it or they figure something will come up or something (and better to have bills to pay so you can cry poverty….I guess?). They don’t have 8 grand to spend on a safe-bet used car. But they do have a couple hundred bucks for the first payment on that no-money-down new car…or maybe a couple thousand for a responsible down payment, even.

      The cheaper the used car, the more you have to know about cars in order to not get screwed. Buying a good used car for 8000 dollars isn’t even a challenge. Buying a good used car for 1000 dollars…that requires you to know what you’re doing.

  31. Difdi says:

    Even in places without the California law, this strikes me as shady; Corporations can sell and trade debts, and if the dealership agreed to make the last few payments on the traded-in car as part of the trade-in deal, it seems to me that the debt no longer belongs to the customer.

    Granted, the debt corporations sell usually is the other way around, but the concept remains the same…

  32. shufflemoomin says:

    This has an easy solution: If you haven’t paid off the care, technically you don’t own it outright. Don’t go around trading in things you haven’t paid off. She hadn’t paid off one car and went into more debt for a new one? Sounds like she could be more careful about her financal decisions.

  33. pgaulrapp says:

    I don’t understand how the bank that took over the dealership can auction off the trade-in if the lady still owns it. If she’s still responsible for the car, can’t she just let it go, then use the auction sale as proof that the dealership took ownership of the car?

  34. bmwloco says:

    Same thing happened here with a Ford dealership in Black Mountain, NC. Some greedo from Florida bought it, then disappeared. 18 months later, people are still hurt by it.

    The upshot was people lost money, jobs, and now there is a big empty box sitting beside sitting beside I-40 in a bucolic little mountain town.

    I trust Floridians (native born are rare, and exempt) about as far as I can toss them. Most are transplants from Jersey.

  35. datruesurfer says:

    Didn’t she sign over the title for the trade-in to the dealer? If she did and there was still a lien in effect then the dealership should be responsible, not her. Or am I missing somthing?

  36. shepd says:

    So, after seeing people lose their homes from ending upside down on their loans, they are still willing to be upside down on a *car* loan?

    At least with a house you can delude yourself that it will go up in value, and in 20 – 30 years you’ll be very right. If you do that with a car, people will think you’re delusional and offer to check you into an asylum.

    No thank you. If I’m already that far out of whack on a car loan, it’s either getting paid, or if I’m unable to make payments, I suppose I’ll have to sell it to reduce the principal, renegotiate payments, and then take the bus for a while. Of course, then again, I’ve sworn to never get into a car loan, ever. Unless I need the car for work and have nothing saved, in which case it’ll be a car I can pay for with less than 3 months work wages.

  37. seth1066 says:

    I just noticed another twist. She traded her car in La Quinta, CA and they tell her she has to pick it up in San Bernadino, 75 miles away. Seems like they wholesaled it and then told that dealer they can’t produce a title.

  38. bagumpity says:

    Never borrow money to buy a car. NEVER!!! (unless you pull the “dealer reserve” trick I’ve explained before). The auto & credit industries have brainwashed us into thinking that we need to borrow money to be able to drive. In fact, it is relatively easy to start small and work up. Out of college, find a new car you want and figure out how much it would take to buy it. Plan to buy that car (or its equivalent) in five years. Figure out how much you’d have to sock away each month to pay cash at the end of five years. If you don’t make enough to sock away that much cash PICK ANOTHER CAR. Repeat until you can live on the remainder. Then buy a used beater and SAVE UP for the car.

    Don’t give me the crap about “some people can’t afford to pay cash for a car.” If you can’t afford to pay cash, you surely can’t afford to borrow money because when you borrow money you have to pay MORE MONEY back.

  39. howtragic says:

    I was raised by a single mom and we never once set foot into a car dealership. We just had an older used car that was paid for outright. I currently have a ’98 camry. Is it the sexiest car in the world? No. But it runs great, it’s completely paid off, and it’s cost me about $1000 in repairs maintenance over the past 6 years (yes, I bought it used). Also, if I get a little ding on it, it’s no big deal.

    I don’t get why people need fancy new cars. I really truly don’t. Do feel richer even though you’re actually poorer? Is it showing off? Comfort?

    I have always loved it when someone I worked with, who had the exact same job as me (i.e. earned the same) would drive up to work in a brand new car. I always wondered who they were fooling.

  40. dopplerd says:

    I have long thought that new cars sales exist only to provide me with a steady supply of used cars at a huge discount. Every time I hear about employee pricing or 0% I know that the price on the used cars will be even better.

    New car buyer = sucker
    New car buyer with balance owed on old car = stupid sucker

  41. Anonymous says:

    She also has recourse against the finance company that financed the new car. The FTC Preservation of Claims rule requires dealer-arranged finance contracts to contain language that makes the finance company liable for any claims the buyer may have the dealer. The liability is capped at the amount paid under the contract, but that includes the down payment and the value of the trade-in. If the cap is too low, refinancing and paying off the original lender will raise the cap to the full purchase price of the car. This is an advanced strategy that will probably require a lawyer to execute.