Ep. 7 My Car Isn’t Paid Off. Can I Trade It In?

Navigating Upside Down Car Loans: Strategies and Insights for Women Buyers

Host Meredith Reynolds, a former teacher and current used car dealer, discusses how to trade in a car when you owe more than it's worth, focusing on empowering women in the process. She explains key concepts like depreciation, provides real-life examples, and outlines scenarios for trading an 'upside down' car. Additionally, Meredith highlights options for securing favorable loans for those with strong credit. The episode also features a segment on the Toyota RAV4, highlighting its features and benefits. Meredith offers practical advice for managing car payments and making informed decisions in the current car market climate.

00:00 Understanding Being Upside Down on a Car Loan
00:20 Introduction to Women Buying Cars
00:56 Trading In a Car When You Owe Money
01:19 Depreciation and Its Impact
02:22 Real-Life Trade-In Stories
05:05 Financial Changes and Trade-Ins
05:38 Two Scenarios of Owing on a Vehicle
07:30 Bank Loans and Credit Scores
09:22 Spotlight on the Toyota RAV4
11:57 Current Market Trends and Advice
14:28 Concluding Thoughts and Recommendations
16:12 Final Words and Call to Action

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Transcript

Meredith 0:01

In the car industry, if you owe more money on your vehicle than what your vehicle is worth, we call that being upside down. Can you trade in a car if you're upside down? Yes, you can. And today I'd like to tell you how that works on women buying cars.

0:21

You're listening to Women Buying Cars, and I'm your host, Meredith Reynolds. I'm a former teacher turned used car dealer, and I'm here to teach and empower women to walk into a car dealership with confidence and walk out with the car that's right for them.

Meredith 0:37

Thank you for joining me today on Women Buying Cars. I'm Meredith Reynolds, my husband and I own Reynolds Automotive in Kansas City. If you are in the area, please come by and see us The previous episode, episode six, was all about trading in your car assuming that you don't owe any money on that vehicle. Today we're gonna talk about trading in your car when you do still owe money on it, Sometimes in that situation you owe more than it's worth and you are upside down. can you trade in your vehicle if you're upside down? The short answer is yes you can, but we've got a lot of ifs and maybes and but think abouts to discuss. First of all, just a quick refresher on depreciation. I talked about this in episode one, which is about gap insurance. cars depreciate quickly, unfortunately, meaning once you buy a car, it starts to lose value when you have a car loan, the first few years, the car is likely going to go down in value faster than you can pay it off. If you put down a large down payment, that's a different story, but if you haven't, you're going to owe more money on the vehicle than it's worth for a few years. I. However, sometimes situations arise where people need to trade that car in and get a different one. A common situation we would see is a family that is growing. If you are having a third child and you're driving a sedan, or even a smaller SUV, it's really hard to get three car seats across the backseat. And so people are in a situation where they have to upgrade to a larger car.

2:22

Okay, so here's a trade-in story for you. I'm just gonna tell the story. It's, I'll say it's about a parent, and I'll let you see if you can figure out which parent it is. So this particular family has two young children and a sensible vehicle for the family to drive around in. And so one of the parents thought, well, we've got a sensible vehicle. I'm gonna go buy a sports car for our other vehicle, a two-door V eight with a turbo souped up sports car. I probably could stop right there and you could figure out which parent it is, but we'll keep going. So this person bought a beautiful car and babied it and within a year. Came to us because this person needed to get rid of the sports car. Turns out, sometimes this parent does need to drive the kids around, and it's very hard for young elementary school kids to get out of the backseat by themselves at car drop off when they can't reach the door handle in the front seat. And various other reasons. So, spoiler alert, it was the dad. The dad came to us, super nice guy, totally self-aware. Realized it was kind of a bonehead move, and also realized that he's 40. And sometimes people do things like that. So. He traded in his really beautiful 1-year-old sports car with 3000 miles on it and drove off, wait for it. In a minivan, wah wa. It was kind of sad. I was kind of sad for him. I mean, he had this dream car, you know, living the dream that he'd probably been thinking about since his younger days when he couldn't afford a car like that. And then after a year of fun and frustration, he drives off in. A minivan and not even like a really new one, just a kind of a basic minivan. So seeing him drive in as this cool dad and drive out as this typical dad, it was kind of a sad moment for him, but I. He ended up, you know, being in a better situation for his family. But, that is an example that I will always think of, when we discuss being upside down in a vehicle and needing to get into something else right away.

Meredith 5:05

Another situation we see are financial changes. So a divorce or a change in job status that can cause someone to just not be able to afford their vehicle anymore and they need to try to get into a cheaper car payment. And then finally, people trade a car in when they're upside down because they just want a new car. They've been driving their car for a while and they really want something different, better, and they're choosing to roll their old payment into their new one and try to get a new car. If you owe on your vehicle, there are two different situations. One is you owe money on it. But the value is higher than what you owe. This especially happens, like I said, if you put down a large down payment in the beginning. So let's say you are buying a $20,000 car. And we are willing to offer you $5,000 for your trade-in. You still owe $2,000 on that car. What we would do is the 5,000 we would give you for your trade-in, we're going to take two of that to pay off the loan. That leaves you with $3,000 equity that acts as a down payment on your $20,000 car, meaning you would owe or be financing 17,000 on your $20,000 car. Okay. That's a good situation to be in. That is someone who was not upside down. The second situation is you still owe money and it's worth less than what you owe. you are buying a $20,000 car, your it's worth $5,000. However you owe $7,000 on that loan. So what happens then? Well, the $5,000 that we are giving you for your car is going to go toward what you owe on it, bringing what you owe down to $2,000. If your credit is good and a whole lot of other things fall into place, you can take that $2,000 that you owe and add it to the $20,000 you're paying for your new vehicle. So you would be asking for a $22,000 loan on your $20,000 car. Like most situations, the bank is willing to do this for people who have really strong credit. And we've talked a lot in my other episodes about how credit scores can affect your ability to buy a car. And this is another example, the banks that we work with. Are willing to loan up to 120% of the price of the vehicle for someone with a very strong credit score, Meaning seven to eight hundred. So if they were buying a $20,000 car, they could borrow up to $24,000 for that loan. so the person I was talking about who still was going to owe 2000 on their car and roll it into the 20,000, they would be fine because that's under 120% of the price of the $20,000 vehicle. The banks we work with would probably not consider a situation like this at all for someone who is below 700. For the most part, a 600 credit score is going to mean that you have missed some bills. Or you have gotten it over your head and made some poor financial choices. And in that case, a bank does not want to loan you more than the value of the car if you don't pay. For that car and the bank has to repo the car. They would be getting a $20,000 car, but they would be out $22,000. Okay. Do you see how that's a bad situation for them? So they are really taking a risk when they loan more money than a vehicle is worth, they could end up shot in the foot eventually. Now we've come to a part of the show. I like to call cars. I love the car. I love. Today is the Toyota RAV4. This is a mid-size SUV with two rows. It seats five people. It has a roomy interior and because it only has two rows. That leaves a lot of space in the back for cargo tall. People like my family still feel they have a good amount of head room and a good amount of leg space. Looking at the exterior of the vehicle, I love the look of the RAV4. To me, it looks sporty. Some people have called it rugged. What it isn't is boxy. It has a contemporary look with angles and curves and. Those little details can make a big difference in the RAV4 standing out against other two row SUVs. I also really like the wheels on a RAV4. They put some effort into designing them to have style and not look like every other wheel. Rav fours come in. Several different trim levels include one called adventure, which is for off-roading. It's an all-wheel drive, Other trim levels, some are an all-wheel drive, some are front-wheel drive. they've had a hybrid since 2016, and you can go anywhere from a really base model to save you some money where you might have cloth seats. And not have power seats, not have navigation to a top end where you have all that stuff and more, they get really good gas mileage. RAV fours consistently rank high in safety. And just as the all around, one of the top selling mid-size SUVs out there because they're a real crowd pleaser. One of the biggest reasons people love Rav fours is because they are made by Toyota. You are gonna pay more for a Toyota than you would for a comparable version in a Ford or a Chevy. But what you're getting is a vehicle with a very long life. And reliability. Toyotas stay on the road for hundreds of thousands of miles assuming they've been taken care of and received regular maintenance. We sell a lot of Toyotas. We love to sell Toyotas because they make our customers happy and they last a long time for our customers. So when you are considering a two row SUV. You should consider the Toyota RAV4. Okay, let's get back to the show. We are in a situation here in 2025 where we are seeing a high number of people who are upside down in car loans, and that is because in the post covid years, like 20 21, 20 22, car prices skyrocketed. People were buying brand new cars. For over sticker and used cars were the highest they have ever been. People who bought during that time. Now that car prices have leveled out somewhat, they are very upside down. The value is significantly lower than it was in 21 and 22, so they bought at a very high time. And if they're trying to trade in now at a lower time, there's a huge gap in what they owe and what the car is worth. So should people do this? Well, we have people who do it. We have customers who just really love cars and love to get a different car every few years, and so they will roll the difference into their next payment, and they're fine with that if it's something you can hold off on. Because like we said, some people are in situations where they have to do this. If it is something you can hold off on. Or if your credit is not the best, a good recommendation is to pay extra each month to get the loan smaller before you trade in so that you're either not upside down or you are upside down a smaller amount. So if your payment is $300 a month, pay extra as much as you can. If you can pay $400 a month, if you could. A couple months, pay $500 a month. You're gonna get that principle down and then you won't have as much to roll into your next car, if any. Of course, you need to find out first if there's any penalty for early payoff. The banks we work with, there's no penalty, but always find these things out by calling and speaking to someone about this situation. So that you don't end up hurting yourself by paying down the loan, but if you can spend a little extra, pay down the loan as much as you can before you go to trade in. I think that is a smart thing to do. But again, it's your money and, and if it's you're in a good situation where rolling a little bit into the next loan isn't gonna change much for you, then hey, you have that choice. At the beginning of the episode, I mentioned that one of the reasons people want to trade in a car they're upside down on is because they need a lower payment that is possible to get, but it is pretty difficult. One example is someone who traded in a luxury vehicle to us, a loaded luxury vehicle. I mean, this car was absolutely gorgeous. It had every feature, some I didn't even know existed, like massaging seats for the driver and passenger. I'd never seen that before, so it was a fully loaded luxury, SUV, and she was in a financial situation that she couldn't afford, and so she traded it in and drove off with a much more paired down, sensible vehicle. A quality vehicle, but I don't even think it had heated seats. I mean, it was pretty bare bones. It'll last a long time, but it's just a very different vehicle. In that case, she was able to have a lot of equity in her car. And then spend a lot less on this other vehicle. And so she ended up in a good situation and got a lower payment. But do you see that there's a big gap between what she was trading in and what she bought? If you are looking at something I. A little bit cheaper. You know, it's not going to work out But again, there's so many different factors at play, including your down payment and what your vehicle's worth, and how fast your car appreciates so many different situations. You really have to talk to a lender about your situation before you would know how it would pan out for you. Thank you so much for listening today. If you are in Kansas City, please come see me at Reynolds Automotive. I so appreciate you listening. If you could leave me a positive review and follow the show, that would help me get in front of more listeners. Thanks again and happy driving.