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I've gotten numerous offers from car dealers in the past to trade in my used vehicle for a new or a [newer] pre-owned vehicle "while keeping my monthly payments the same." They also say that I can trade up for no out of pocket expense.

This seems like they would have to simply give people a really long term on the loan in order to finance the higher value. (More payments...more interest overall.) Can anyone with experience explain how this kind of deal works? Something tells me it's not in my best interests.

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    The brief answer is that they work well for the dealer, not so well for anyone else. – keshlam Jul 17 '16 at 20:18
  • The goal is to get you in the door. Once you are emotionally attached to the new vehicle then all reason is gone. You will likely end up with a higher payment for a longer term. Best bet: only pay cash for cars. – Pete B. Dec 14 '17 at 16:15
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You are correct to be wary. Car dealerships make money selling cars, and use many tactics and advertisements to entice you to come into their showroom.

"We are in desperate need of [insert your make, model, year and color]! We have several people who want that exact car you have! Come in and sell it to us and buy a new car at a great price! We'll give you so much money on your trade in!"

In reality, they play a shell game and have you focus on your monthly payment. By extending the loan to 4 or 5 years (or longer), they can make your monthly payment lower, sure, but the total amount paid is much higher.

You're right: it's not in your best interest. Buy a car and drive it into the ground. Being free of car payments is a luxury!

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Yikes! Not always is this the case... For example, you purchased a new car with an interest rate of 5-6%or even higher... Why pay that much interest throughout the loan. Sometimes trading in the vehicle at a lower rate will get you a lower or sometimes the same payment even with an upgraded (newer/safer technology) design. The trade off? When going from New to New, the car may depreciate faster than what you would save from the interest savings on a new loan. Sometimes the tactics used to get you back to the dealership could be a little harsh, but if you do your research long before you inquire, you may come out on the winning end. Look at what you're paying in interest and consider it a "re-finance" of your car but taking advantage of the manufacturer's low apr special to off-set the costs.

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Not only might your interest rate go down but you may qualify for a manufacturer incentive that could save you $2000 or more on the new vehicle. These monies can effectively lower your loan amount and actually save you money on your monthly payment. Dealers want to sell you a new car, but the manufacturers actually want it more, and will often pay you to do the trade-in.

  • Why would you want to save $2,000 on a new vehicle that goes down $5,000 in value when you drive it off the lot? Seriously, though, I don't think this answers the question of "is this some special exchange program". It's just a marketing tactic to get you to come to the lot. After that it works just like any other trade-in. – D Stanley Dec 14 '17 at 16:10

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