Better to pay off trade in or use money for down payment?

arminius2

I have a question I can’t find the answer to anywhere on the internet. I want to purchase a new vehicle, and owe as little on it as possible. I have a trade-in that has a trade-in value of 10000, and I owe 7000. I have 10000 in the bank that I want to apply to the purchase. So it is not a matter of being under water on the loan. My question is: is there functionally any difference between paying off the trade-in for 7000 and using the remaining 3000 as a down payment (plus the extra 3000 “profit” on the trade-in), or not paying off the trade in and using the 10000 (and the 3000 profit from the trade after the lenders resolve the transaction) as a down payment? Either way, 10000 is being subtracted from the final sale of the new car. But I was wondering if there is any drawback to doing it one way or the other. I was thinking specifically about sales tax: is the sales tax break you get from your trade-in going to be based on the 10000 trade in value, or only the 3000 “profit” value, therefore paying the loan first means all the profit goes straight into the value of the trade-in and not the loan resolution? Or are there any other potential gotchas? Please advise, thanks!

kyfdx

arminius2 said:

I have a question I can’t find the answer to anywhere on the internet. I want to purchase a new vehicle, and owe as little on it as possible. I have a trade-in that has a trade-in value of 10000, and I owe 7000. I have 10000 in the bank that I want to apply to the purchase. So it is not a matter of being under water on the loan. My question is: is there functionally any difference between paying off the trade-in for 7000 and using the remaining 3000 as a down payment (plus the extra 3000 “profit” on the trade-in), or not paying off the trade in and using the 10000 (and the 3000 profit from the trade after the lenders resolve the transaction) as a down payment? Either way, 10000 is being subtracted from the final sale of the new car. But I was wondering if there is any drawback to doing it one way or the other. I was thinking specifically about sales tax: is the sales tax break you get from your trade-in going to be based on the 10000 trade in value, or only the 3000 “profit” value, therefore paying the loan first means all the profit goes straight into the value of the trade-in and not the loan resolution? Or are there any other potential gotchas? Please advise, thanks!

Your trade-in gets paid off, either way. Sales tax credits are based on the value given for the vehicle. The loan amount or pay off has no effect on the amount of the sales tax credit.

When you trade the car in, the dealer takes care of paying off the loan, because they can't get clear title to the vehicle without doing it. There is only one way to do it. There are no "options", other than what to do with any trade equity.

But, sales tax credits for trade-ins vary by state.