“My Trade-In Vehicle wasn’t paid off by the Dealer. Now it’s still on my credit report as past due. What can I do?”
Believe it or not, this question comes up fairly often. You go car shopping, and you find a car you like, negotiate a value for your trade-in vehicle, sign the papers and drive off in your new ride. You start making your new payments and all is well. Until you find out that your old car loan – the one that the dealer was supposed to pay off – hasn’t been paid off. And now you’re getting collection calls, and past due negative marks on your credit report.
Sometimes, it is a (mostly) honest mistake. Your old car note information got lost in a stack of other deals and the dealer didn’t send the check to the old lien holder until a couple of months had gone by. They eventually pay, but not before your credit takes a hit.
Other times, it is a regular practice of shady dealers. They gladly take your trade-in, and they give you credit for its value, minus the previous lien, and they’re supposed to pay off the old lien. But sometimes they don’t pay off anything for a couple of months, because they are waiting to see if they can obtain financing for your deal. Even though you’ve signed the papers and already driven off in the car. In the worst cases, they may not pay it off at all.
Regardless of their reasons, and even if they did it by mistake, a dealer’s failure to promptly pay off the lien on your trade-in vehicle can have serious negative consequences for you. See, the lienholder will blame you for their late payment. Your previous lienholder doesn’t care whose fault it is – all they know is that your payment is due on the first of the month, and if it is 30 days late, they’re going to report that to the credit bureaus, and it’s not going on the dealer’s credit report. It’s going on yours.
If you have otherwise clean recent credit history, this can have a serious impact on your ability to obtain a mortgage and can increase the cost of things like credit cards and other loans.
To make matters worse, the credit bureaus don’t care whose fault it is either. The Fair Credit Reporting Act only requires that the information they publish be as accurate as possible – not that it be a fair reflection of who is to blame for your negative credit marks. So if you dispute a “Past Due” amount on a car loan that was only past due because the dealer screwed up, they don’t have to fix it. And therefore they probably won’t.
So What Can You Do About It?
You’re not without hope, though. By taking your trade-in and adding the balance of your previous lien to the cost of your new vehicle, the Dealer is being entrusted with your property. They are taking your property partially for your benefit: to be liquidated to pay off your old lien. And they have a contractual duty to do just that. When they do not do so, they can be held liable to you for the damages caused by that failure.
The most common problem facing a buyer in these cases is proving that the dealer’s irresponsibility caused you damages, and proving the amount of those damages. Most often, the only financial harm that is caused by a dealer’s failure to pay off a trade-in is in the form of credit denials and increased cost of credit. While there have been cases of buyers who were unable to buy a home because of a dealer’s failure to promptly pay off a trade-in, this usually is not the case. Credit reports contain lots of information, and unless you can obtain evidence from a lender that you were denied credit, or your interest rate was higher primarily due to the unpaid previous car loan, then obtaining significant compensation from the dealer is going to be hard.
So where the dealer simply waited a month or two to pay off a trade-in, it may not be worth the money of filing a lawsuit unless you can show specific harm. You may simply want to file a small claims lawsuit or post a few negative reviews and BBB complaints against the seller.
However, if several months go by and the debt remains unpaid, then the dealer’s failure to pay the lien may be a sign of serious fraud, and you should talk to a lawyer immediately. Particularly if the previous lien holder begins pursuing you to collect the unpaid debt. Yes, this can happen.
This situation often involves two victims – you and the person that the fraudulent dealer sold your old car to. I’ve had clients who were sold vehicles that the dealer didn’t even own. If a dealer sells you a car that has a valid lien on it, then the previous lien holder may repossess the car from you – even though you never owed them a dime!
This can be immensely frustrating and disruptive to your whole life. The loss of your transportation can cause you to miss work and family commitments, not to mention the money that you’ve paid in good faith for the car. If you suspect that you’ve been sold a vehicle without clear title, then you need to call a lawyer immediately.
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6/22/17 I purchased from Lancaster Mitsubishi 1009 N.Prince Street, Lancaster, Pa 17603, 717-295-5000, a 2017 Mitsubishi Lancer, trading in my 2008 Mitsubishi Outlander. I financed my 2008 from M&T Bank, they call me at least 4 times a week stating I owe them Loan payments. I explained I traded the vehicle in, M&T said they NEVER received a call for a payoff amount!!! I have called Mitsibushi each time I receive a call from M&T, I keep getting a run around by Lancaster Mitsubishi. The mgr’s first name is Nick, he’s been lieing through his teeth to me. I don’t even want this car anymore!! I saw my Outlander still sitting in their parking lot outside the service center, I want it back, I want Lanc Mitsibushi to pay my back payments to M&T, I want only to drive away happy!!! My next step is an atty by end of week!!
That doesn’t sound right. You should call a lawyer in Pennsylvania. Best of luck with this.
That sounds shady. Call a Pennsylvania lawyer.
I traded my car in April of 2017 to a used car dealership and they still haven’t paid off the loan. the owner basically told me to sell it myself or bring the car that I traded my car for which wasn’t even a car on his lot!! now he is offering to give me money to make payment of the car I traded in!! someone please help me I called a lawyer n he told I’m looking at 5000 or more to invest with him. Jesus I don’t have that money so what can I dooo
Nessa,
I can tell that you’re scared about this, but your message doesn’t entirely explain the matter. Generally, if a car sale contract includes a trade-in and its lien, then the dealer has to pay off that lien. But having not seen the paperwork, I can’t tell you anything specific.
I assume you’re in Alabama since you’re posting on my website. If not, you’ll need to call a lawyer in your area to discuss this.
Best of luck!
JEC
I traded in a car and drove off with a new car. The salesman tells me not to worry about anything it will be taken care of. Now to find out they have no paperwork on the trade in and they say the car was surrendered. When I left my car purchasing a new one. Any advice?
Norma,
I assume that you’re in Alabama if you’re posting here. That doesn’t sound right. If you traded in your car to the dealer, they should have paid off the lien. If not, then you could potentially take legal action against them. Call my office and we can make an appointment to talk about this in more detail. Thanks. 251-272-9148.
I was traded in my car in November & they still haven’t paid it off. What do I do?
If they won’t respond to your efforts to convince them to do the right thing, your only option may be to take legal action against the dealer.
Hi, I traded in a financed old car, and after the trade in value, deducting the payoff amount, I was able to pay for the new car full in cash. The dealer made a mistake on the pay off amount on the old car when I traded it in. Now they are not paying off my old car loan, asking me to pay for the differences or return the new car. Since I already signed the contract for this trade in, should I be reliable on the differences due to their mistake? Thank you.
Amber,
Car dealers LOVE to point to the paperwork when there’s a mistake that is in their favor, but when the tables are turned, they cry foul. That looks like what may be happening in your case. To fully evaluate your rights, I’d have to review all the contract documents you signed. Call my office for a free consultation at 251.272.9148. Thanks!
hello my i traded in my car more then a month ago and they haven’t payoff and every time I call they never give an answer , now the financial from the car is contacting me what should I do ? I live in California
Antonio,
You’ll need to have a local attorney review the papers and make sure that the contract included your trade-in vehicle as such. I’ve had cases where my client thought they were trading a vehicle in, but the paperwork didn’t mention the trade-in at all. California law on auto sales is very different from here in Alabama, so you’ll need a local attorney. If you need help finding one, you can call my office for a recommendation.
Hi. I live in Florida and In July we traded in a comaro, and got a mustang. All the paperwork shows the trade in info clearly. A few months later, we realized our credit score went down due to a late payment. Then we get a letter from our bank that we had the loan with for the comaro saying we owe them $25. Alarmed why we would even owe anything, and thinking the car is already paid off by the dealer , we call the bank and they informed us that the dealer just paid the car off in October, and $25 was still owed. We right away paid it, called the dealer and they took full responsibility that they forgot to pay it off due to accounting and paid it when they realized it. Well now my husbands and my sons credit score went down more than 100 points because of the dealerships mistake. We already sent a dispute to the bank sending them our entire contract with a letter from the dealership stating they took full
Responsibility. Well the bank says, according to the law , they reported everything correctly, therefore no changes will be made.
Help!! How can we fix our credit scores? The dealership takes full responsibility.
A little over a month ago my wife and I traded in our 2018 Ford Fusion Sport for a new 2021 Ford Mustang at Iron City Ford in Birmingham, AL. They have failed to pay off the car with Avadian Credit Union and our trade-in has been sold by the dealership, obviously without a title. Now Avadian wants a payment which is about to be late, we had made a payment a few days before trading or the payment would be really late. How can a dealership lawfully sell a car they don’t legally own and possess no title for ? How can this be legal business practices ?
The dealer didn’t pay off my trade-in, I called the bank and they told me I still own the car, Can I repo the car from the dealership?
is there. a time period for them to pay off the trade in