Forget To Pay Off Your Trade In Scam

Last Modified: May 28, 2019 by Jeff Ostroff

How the Scam Works

This scam is often pulled on people who are trading in their old car to buy a new car. Bear in mind at we have never liked the idea of trading in a car you owe money on to a dealer. We think no one should do ever do this. But if you do, here are the typical steps that should normally take place when you trade in a car that you owe money on:

Trade in scam

But something horrible happens. Two months after you buy your car you are blindsided to hear the car dealer did not pay off your old car loan as promised. Now the bank is sending you angry letters that your car payment is late. With this scam dealers are effectively paying you less for your trade than they promised. This means they often are stealing your trade in altogether.

When the lender calls you for your payment, it is you, my friend who are responsible for the loan payment, not the dealer. Remember, the car loan is still in your name, until the dealer pays it off. This is the treacherous vortex of where the trouble lies. It could also have been caught earlier if you had just called your old lender 2 weeks after you trade in your car to confirm the loan was paid off by the dealer.

As far as the bank is concerned, they still have a car loan with you, not with any car dealer. The note is in your name until it is paid off. Of course you foolishly think the dealer has the car and they paid off the loan. But you never confirmed it with the lender did you? Thus in the lender's eyes, you have the loan and you have stopped paying them and they want their money now. Because of all this your credit gets dinged with these late car payments. If you try to sue the dealer, the judge will ask to see your contract with the dealer obligating them to pay off your old car loan. Of course there is none, these guys cover their tracks well.

How to Avoid the "Forget To Pay Off Your Trade In" Scam

We here at for years have always recommended against buying a new car when you still owe money on your current car. This is a constant source of devastation and teeth gnashing for too many consumers. Your best bet is to avoid this situation altogether. Avoid this scenario and you avoid the scam, its simple physics. Here is what we recommend that you do when you owe money on a car that you wish to get rid of:

When buying new cars, if you ignore our advice and you trade in a used car which you still owe money on, insist that the dealer put in writing that they will pay off your car loan in 10 days or no deal. Then the dealer is liable because you took steps to protect your rights up front. Most lender's early loan payoff figures require full payment within 10 days of the quote otherwise interest starts to accrue and the payoff figures have to be recalculated.

You never want to end up without proof that the dealer agreed to pay off your trade-in. If the dealer refuses to put these promises in writing, it means they will pull this scam on you. Once they refuse to put it in writing, you should then leave immediately, taking your business to a more reputable dealer. has affiliate relationships with multiple web sites. We are paid referral fees for leads or sales generated from visitors that click on some links or fill out certain forms on this site. Please view our advertising policy page for more information.