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I have an excellent rate (1.9%) on a loan that has 3 years and roughly $8900 left on it. I’m not sure how I got such a great rate on a 6 year loan but here I am. Anyways I would like to get a new car. Somehow I owe more than the car is worth (we’ll say it’s worth about $7500 as a trade in). It’s a compact sedan and I am looking to get a midsized pickup or SUV. Anyways I would love to somehow ditch the car yet keep the loan. Like if I could sell the car, use the cash as a down payment, and keep paying the 1.9% on that cash/down payment that would be ideal. Even though I have great credit I don’t see myself getting that rate again. Maybe I am over or under thinking this and that the decision is easy but any help would be greatly appreciated!

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    Somehow... is called "depreciation", which new cars do very quickly. – RonJohn Dec 4 '19 at 8:23
  • @RonJohn I am familiar with depreciation, however I bought the car used (a 2016 towards the end of 2017) and have put very little miles on it as I was in the hospital for 6 months after I bought the car. – Chuck0185 Dec 4 '19 at 8:47
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    "I’m not sure how I got such a great rate on a 6 year loan" sounds like you overpaid for the car in return for a low rate. – D Stanley Dec 4 '19 at 13:36
  • @DStanley ya that’s probably the case. So I may plan to return to the dealer to trade it in for an suv or truck that I want. That’s when I can ask them to give me the amount left on the loan as the trade in value since I overpaid for the car and then hopefully get a similar rate on one of the crossovers or pickups – Chuck0185 Dec 4 '19 at 14:08
  • @Chuck0185: And if you keep this up, you'll be owing your soul to the finance company rather than the company store. – jamesqf Dec 4 '19 at 18:28
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The reason why you owe more than the car is worth is due to the long term of the loan. The longer the term the more likely you will be underwater. The used car price is dropping due to the age of the vehicle, not just due to the mileage of the vehicle.

The lender will require you to pay off the loan completely when the vehicle is sold. The car is their collateral. They are on the title and won't release it until they get all their money. So you have to have that extra cash on hand, or the new car dealer has to be willing to throw in the extra cash when you buy the new car.

You say that you owe $1,400 above the value of the first car, so that will mean that the new loan will be purchase price + $1,400 - down payment. But if you will have the money for a down payment you should just send the money to the lender for the first loan.

You should checkout the loans available from your bank/credit union to see what rates and amounts you qualify for before you visit the car dealer. You can also get an estimate of the value of the first car from some large regional car dealers, their estimate is good for a week or so. That allows you to sell the car in a transaction separate from the purchase of the new car.

Getting the loan approval and the solid estimate before negotiating with the new car dealer will actually simplify the new car transaction because you won't be negotiating price, trade in value, interest rate, and length of loan. You will only be negotiating price.

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    "The car is their collateral." With a house, it is definitely sometimes possible to transfer a mortgage to a new house. What is your reason for asserting that the bank here would not be able to transfer their collateral to the new car? – Mark Perryman Dec 4 '19 at 11:56
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    Because I have never seen either car or house loans transferred in the United States. – mhoran_psprep Dec 4 '19 at 12:06
  • @mhoran_psprep - you're not seeing it in the US because it literally doesn't happen! No lender will transfer a loan or allow you to "keep" the loan while removing their lien on the collateral. You need to treat the new and old separately. This is a good answer, +1. – dwizum Dec 5 '19 at 16:28
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You got the low rate most likely because you bought it from a dealer as an incentive for you to buy their car. No bank I am aware of gives 1.9% loans right now.

If you buy a house, the loan uses the house as collateral. You can sell the house and in some cases the bank will let the new buyer continue paying on the existing loan.

This is not what you are asking. You want to get rid of the underlying collateral and transfer the remaining portion of the loan to the new car. That is not going to happen. The loan follows the car. There is no mechanism I am aware of that allows this in the US.

However, all is not lost.

Under any scenario, you will have to payoff the loan. So additional money will be needed.

But after that, all you have to do is find a dealer who has a similar rate to your old loan and buy the car from them. It isn't particularly hard. Pretty much every dealership these days has some subsidized interest that can make you happy. Just shop around before you buy.

  • And the OP most likely got that low interest rate because he paid more for the car than if he'd gotten a higher rate loan, or paid cash. The $30K cash price might be something like $35K with the loan. – jamesqf Dec 5 '19 at 4:36
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The real issue likely is whether you can trade in your car if you keep the loan, not whether you can keep the loan if you trade in the car. If you have a car loan, then they probably have a lien on the car, so when you try to sell it, the dealership will notice that you don't have a clean title. If you don't pay the loan back, then the bank can repossess the car. So for the dealership to buy the car would mean that they would give money to you in exchange for a car that the bank can claim if you don't pay the money. Why would they agree to that?

You have nothing to sell. You have negative equity in your car. You're essentially just renting the car from the bank for $170/year.

Suppose I have a house worth $400k with a $500k mortgage on in. Would you be willing to pay $400k for a house that still has my mortgage on it? If your logic worked, you could buy a $500k house for a $100k down payment, sell it for the full $500k, use the money as down payment for five $500k houses, sell those, etc.

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I would just ask the provider of the loan for their policy on this.

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    Hi @Ger and welcome to money.SE. This isn't really a complete answer, we usually like to see answers that include an explanation or some form of backup. This reads more like a comment than a full answer, which is probably why it's getting down votes. You may want to take the site tour or look at the help center to get an idea of how the site works. – dwizum Dec 5 '19 at 16:33

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