Car Dealership Didn’t Pay Off My Trade-in Scam

The dealership forgot to pay off my trade scam is pretty common in modern dealerships.

When you trade in a car at a dealership for which you still owe money, this dealer scam typically occurs.

Later, you discover that the dealer did not correctly pay off your trade-in. Until your trade-in is fully paid off, you are still responsible for your old and new auto loans.

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How a Car Dealer pays Off Your Trade-in

When trading a car at a dealership, the salesman will ask if you still owe money on it or if you own the vehicle free and clear. The salesman will ask for your lender’s information if you still owe money on the car. He will then call and request a ten or 20-day payoff amount to pay off your car loan.

After finalizing the deal on the car you’re buying, the dealer will send a check to your current lender to pay off your trade. The payoff amount from the lender will also be the amount they’ll use when determining your overall amount financed will be on the car you’re buying.

After the deal is complete, the dealer should send that amount of money to your previous lender to pay off your trade before the due date. This is where the “we forgot to pay off your trade-in” scam comes into play.

How a Dealer Figures Your Trade’s Payoff Amount

A dealer or car salesman will call your lien holder and ask for a ten or 20-day payoff on your trade. Sometimes they’re unable to get an exact payoff from your lender. They may have to take the current day’s payoff and figure what a ten or 20-day payoff will be by using the per diem you pay, per day, on your car loan.

I recommend you take it upon yourself to acquire a ten and 20-day payoff on the same day you plan to trade your car. Please do not leave it in the hands of the dealership to tell you how much you still owe on your current vehicle.

If the amount sent to your current lender is short, you will be liable to make up the difference. If the amount is over, you will get the overage amount back.

Payoff Information Needed By the Lender

The essential information you will need to gather and have readily available for the dealership when trading your vehicle with a payoff amount.

Phone number and lender name
Your auto loan account number
The name of the person you spoke with ( If not automated )
10-day payoff amount with the due date
20-day payoff amount with the due date
The per diem amount due per day
Address to send the payoff amount too

How to Figure a Ten or 20-Day Payoff on Your Vehicle

How to calculate a ten or 20-day payoff on your current vehicle:

Call the lender of your current car loan.
Today’s payoff on your current car loan is $8,987.74.
The daily per diem on your car loan is $3.34 a day.
$3.34 x 10 days = $33.40 or $3.34 x 20 days = $66.80.
If the dealer wants a 20 day payoff they would add $8,987.74 + $66.80 = $9,054.54.
$9,054.54 would be the 20-day payoff on your trade-in.

The dealer will now add $9,054.54 to your current car loan and pay off your trade for you. The dealer also knows they have 20 days to pay off your trade-in.

Every day they’re late paying off your vehicle, they’ll have to add $3.34 until the vehicle’s paid off. Once they pay off your trade with the lender, they’ll receive the title and then be able to retail or wholesale your traded vehicle.

How the Dealer Forgot to Pay Off Your Trade-in Scam Works

This is a very sneaky car dealer scam. It can cost you a lot and affect your credit history.

You’re expecting to trade your current vehicle for a new car with a dealer. What’s supposed to happen is the dealer will acquire a payoff figure on your trade and pay off your current car loan for you. The dealer will then add the payoff amount to your new car loan.

The scam happens when you get a call from your lender a month or so later and find out the car dealer didn’t pay off your old car loan as agreed.

Unethical car dealers use this dealer scam to pay you less for your trade than agreed or try to steal it from you by leaving your trade-in out of the transaction altogether. It sounds impossible, but these business practices happen in dealerships, and you should be aware of this dealer tactic.

When the lender calls you, you explain to them you’ve traded the car in, but that’s not a good excuse. YOU are the one responsible for the car loan, not the dealer. Your previous car loan is still in your name, and you’re liable until the dealer pays the loan off. All the bank knows is they have a loan with YOU, not with the dealership you traded it in with.

By the time you find out from the lender your trade’s car loan has not been paid off, you’re a month or two behind on your payments. Now you’re getting late payment marks and hurting your credit report.

You’re also responsible for making both your new car payments and your old car payments. If you choose not to make the payments on the car you traded, you may end up with an involuntary repossession on your credit report, further hurting your credit history.

You could try to sue if the dealer didn’t add your trade to the paperwork. An attorney will want to see the paperwork where the dealer is obligated to pay off your trade-in; of course, you will not be able to prove it. Make sure you read and inspect everything you sign.

The dealer will eventually pay off your trade-in if your trade is included in your paperwork. However, if you’re getting calls from your previous lender, the damage is probably already been done to your credit report.

My advice is to call your trade’s lien holder and let them know you’ve traded your car in and follow up with them within the time allotted to make sure the dealer pays off your vehicle.

How to Avoid the Forgot to Pay Off Your Trade-in Scam

I advise selling a car privately and not trading it with a car dealership. You should also never trade in a vehicle that you still owe money on, especially if you owe more than what it’s worth. Trading your car with a dealership will not net you as much money as you would get by selling your vehicle privately.
Before you begin the trade-in process, read my step-by-step guide on how to trade in a car at a dealership to guarantee you get the best offer for your vehicle.
If you owe more money on your trade than it’s worth. I highly recommend at least putting money down on the car to cover the negative equity you’re rolling into the car loan. Example: If you owe $5,000, the dealer only offers you $2,000 for your trade. You should put $3,000 down to cover the negative equity, so it’s not added to your new loan. This additional money should not be calculated in your total money down towards the purchase of the new car. (15% – 25% down + negative equity amount = total money down)
Always read everything before signing anything.
Make sure your trade is included on the contract and the paperwork you’re signing with the dealership. You should see the exact payoff amount and how much they’re giving you for your trade listed somewhere on the paperwork. Have them point it out to you if you don’t see it.
Payoff your vehicle through your lender first. Get the title and then trade it in if you don’t have the time or patience to sell it yourself. This will keep you from falling victim to the “forgot to pay off your trade-in” dealer scam.
If you must trade your vehicle in at a car dealership, know what your trade is worth.
Familiarize yourself with how the trade-in process works in a dealership.
Have the dealer put the amount in writing they will be paying your current lender and the date they promise to pay off your trade-in. Get a copy, and if there are any problems in the future, you will have proof the dealer was supposed to pay off your trade. If the dealer refuses to put it in writing, you should look to do business elsewhere.

About the author
My name is Carlton Wolf, and I’ve been in the car business since 1994, both retail and wholesale. I created the Auto Cheat Sheet to better educate buyers about the deceptive sales practices many dealerships use nationwide. Please understand that not all car dealers are dishonest. However, you never know who you’ll be dealing with, though. I’m willing to share my knowledge and experience with anyone who listens. Keep in mind that I’m a car guy, not a writer.