If you have never been injured by the process, you might not have given it much thought, but the all too common practice of trading in a used vehicle to an auto dealership is not always as safe and hassle-free as it is touted to be. When considering whether to purchase a new car or simply to go auto-free, a seller weighs the pros and cons of offering their vehicle for private sale versus trading it in or selling it to a dealer.
Whether or not a seller is planning to purchase a new car, the resale value of their current vehicle is almost always higher when offering it via private sale, such as by taking out a newspaper ad or offering for sale to the public through a marketplace like Craigslist. Private sale is preferable for those looking to make the most revenue off the sale as opposed to saving time. In addition to advertising and meeting with potential buyers, private sales typically involve third-party vehicle inspections, dealing with the DMV, and making sure the private buyers can secure financing or otherwise make full payment with minimal risk of being scammed.
A seller who is more interested in an easy sales transaction than in getting the best possible price for their used car might go to a dealer like CarMax that has a streamlined process for buying used cars from individuals who are strictly selling and not buying (i.e., not trading in). These kinds of businesses are used to dealing with high volumes of used vehicles and pose a relatively low risk of taking advantage of a private seller by taking the used vehicle and failing to pay off the seller's loan.
Where a seller might encounter a problem with the pay-off of their used auto's loan is at the dealership. Trading in a used car when purchasing a new car is a notoriously bad time for getting fair value for the trade-in. It is, unfortunately, the only reasonable for some shoppers, and dealers have to be open to taking trade-ins in order to maximize their sales. Not all dealers are, however, equipped for this process. Most large dealerships have streamlined trade-in processes and, significantly, have the cash on hand to pay off the loan remaining on traded in vehicles. Smaller dealerships, on the other hand, often have to re-sell a trade-in in order to pay off the seller's outstanding loan. When a dealer cannot sell a traded in vehicle before the pay-off date, the seller could not only be on the hook for missed payment(s) that were not part of the sales deal but could also see their credit affected if they do not continue making payments on the car they no longer own.
When possible, it is always best to sell a used vehicle by private sale so the seller can make sure their outstanding loan is fully satisfied and closed out before approaching a dealer to purchase or finance a new (or used) car. If you have to sell or have already sold a vehicle to a dealership and the dealership has not paid off your outstanding loan in breach of the terms of your sales agreement, contact an auto fraud attorney as soon as possible to discuss the facts of your case.