Any catches to an early auto loan termination program?

I've received an offer from a local auto dealership and they're offering to pay off my loan if I finance a new car through them - even if I'm upside down on the loan. Is there any catch to this type of program? Will they really cover a few thousand dollars in negative equity? I appreciate you sharing your experiences too.

Any catches to an early auto loan termination program?
Not really. What they do is roll the balance of your existing auto loan into the new loan. They take the excess paid over the amount of your new car and pay your former lender. That's all. You just have a higher car payment...so that's the catch. If you just have a couple thousand left to pay on the car, you're paying on the principal now and not paying much in interest. It might be worthwhile to investigate how much you'd save monthly if you can just pay the current loan off in cash and finance the new car price only. However, no...there's really no "catch" here...you're just re-financing the balance of the original loan really by rolling it into the new loan.
Reply:The dealership will not actually cover a few thousand dollars in negative equity. More likely, you will ultimately finance the amount by which you are "upside down" on your trade-in vehicle by that "negative" amount being tacked onto the price of the new vehicle. Doing this often causes one to pay full sticker price, or more, for a new vehicle. Any discounts or incentives will be absorbed by your negative equity situation. In addition, most (if not all) dealerships will discuss financing someone who is "upside down" ONLY if they are "trading up", not "trading down." In other words, if you express interest in a car that is in a more expensive price category, they are usually happy to discuss the deal with you. You will almost always come out better financially if you can sell your current vehicle yourself instead of trading it in. Good luck!
Reply:Well the fact is you can do it yourself. You can get a similiar financing from an outside bank and they usually cover the negative equity. I just did it this morning. I traded in my truck for a car and I had $4k in negative equity that I rolled on to a used Mazda 6. The dealerships will advertise this trying to tell you that they are doing you a huge favor and they make it sound like they are going to take out of their pockets and pay the loan off. However, the fact is they are going to finance the entire amount (cost of the car + negative equity) to you and charge you interest. You can do the same thing with an ouside bank. Normally all lenders have a provision for negative equity these days. For example, my lender said they can cover up to 150% of the price of the car. That is they can roll on negative equity of up to 50% of my cars value to my financing. In my situation the car value was $15,700 and the total amount that I am financing is $19800 which includes the negative equity and registration, title etc. It is not always advisable to do this kind of a thing, unless you have a gas guzzler like mine or a highly depreciating car..... It depends on your specific circumstance. So to answer your question.. any lender can do what the dealership is promising you to do... they are just doing it to get your attention and to take advantage of you.....
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