Evaluating Trade Opportunities


It's a great idea to know where you stand in your current vehicle when considering your next automobile purchase. There is nothing more awkward for a consumer, or us, when the moment of truth comes and you finally understand that your vehicle is worth less than the amount you still owe on your bank loan. We hope the following information will help to prepare you for the trade in process.

If you owe more than the value of the vehicle, we call it negative equity or you are "upside down". If you find yourself in this position, you are not alone. 9 out 10 people have a lien holder on their current vehicle. The average amount of an upside down shopper is around $3,000.

In the old days, it used to be that the standard trade value would be equal to the market value. Current statistics show that these two numbers have no relation at all. The manufacturer affects trade values through production, and incentives. Low lease payments today flood the market with off lease vehicles for future years. On the other hand, banks have been creative in stretching the terms of the loans, reducing the down payment requirements and allowing the negative equity in your trade to be included in the next vehicle loan. These forces can have a negative impact on your trade position at any given time.


FIRST- How much do you owe on your current vehicle? You need an exact number. It doesn't matter if you leased, had a balloon contract, retail contract, or borrowed from a relative; you need the exact payoff on the loan. Call your lender, have your social security number and, your vehicle identification number handy and get your payoff.

Your lender will give you either a 10 day payoff, or a current payoff. If you get a current payoff, ask them about the daily charge or "per diem": this is how much the interest is added to the loan daily. We will need this, when calculating your trade position.

SECOND- What is the approximate value of your trade worth. There are lots of opportunities to get information on your trade's value. As a matter of fact, if you work hard at it you can get too much information. However, given our past experience, a good starting point is WWW.KBB.COM. Keep in mind that this value is an estimate based on a large cross section of consumers.

When you go to Kelly's home page there will be a link to "Used Car Value." Follow the links, and complete Year, Make, and Model. Click the GO button, and you will be prompted for comparison values. Select Trade-in Value. The other selection options generally won't help in providing a realistic trade value.

The final steps of the valuation require you to set up your location, (zip code), then complete your vehicle options, and classify the condition of your vehicle as either Poor at the low end, to Excellent at the top end (most vehicles will fall somewhere in the middle). The site will provide you some guidance in setting the condition of your vehicle; however, it's better to be conservative.

With the actual payoff known and a conservative trade value established, you are now set with the best information to go shopping for your next vehicle. You now have a position to negotiate from with strength.


Before you search for your next vehicle, you need to consider the impact of the difference between the payoff and the estimated trade value, "your equity position". Take a look at the following scenarios with consideration for your equity position:

  • If you are not upside down or have equity, you are in excellent shape! You can use this amount as a down payment on your next vehicle.
  • If you are less than $2,000 upside down, you're in great shape. Most banks will work with you and help you roll over all or a good portion of the negative equity when purchasing or leasing the right vehicle. New sales or pre-owned vehicles tend to work favorably in many of these situations.
  • If you are less than $4,000 upside down, you're in pretty good shape. Most banks will work with you and help you roll over all or a good portion of the negative equity when purchasing or leasing the right vehicle. New vehicle sales may work in many of these situations.
  • If you are over $5,000 upside down, you may begin to see limitations in your options. Cash down, co signers, (or good credit) and focusing on the right vehicle (in the eyes of the bank) will increase the likelihood of your success. You can find solutions in this situation.
    In all cases, rolling negative equity into the next vehicle is not a good long term option. In many cases, it can be done. At some time though, the negative equity must be paid up.
    Additional items for consideration include:
  • Cash down to cover the negative is the best way to improve your financial position.
  • If a loan has negative equity included in the principal, then additional down payment amounts, over and above the required down payment will help re-balance your past position.
  • Leasing is a great way to reduce your exposure to growing your negative equity position.
  • Vehicles with large rebates help cover your negative position and the banks are more willing to lend against a new vehicle.
  • Discontinued name plates are harder to finance, with or without negative equity.
  • In many cases, insurance savings, reduced maintenance expenses and gas savings on a new vehicle will help cover the negative equity rolled into a new purchase. This works particularly well with leasing.
  • Don't forget to ask about available coverage to protect you from your negative equity in the future, in the event of a total loss.

When all is said and done, if you find your self in a negative position, there are options! Find all the facts, and then find a great dealership team to work with. You're neither the first nor the last to find themselves in a negative position; come see what we can do for you!