Legally reviewed by Nicholas H. Mattison - Feferman, Warren & Mattison
When you trade in a vehicle that you still owe money on, the dealership will typically agree to pay off the remaining balance as part of the transaction. Unfortunately, not every dealership follows through on this obligation, and if you recently traded in your vehicle, only to discover that your former lender is still requesting payments, you most likely have several questions about what you should do next. Please continue reading to learn more about what can happen when a dealership fails to pay off a trade-in loan and how a New Mexico consumer and car dealer fraud lawyer from Feferman, Warren & Mattison may be able to help.
What happens when a dealership fails to pay off a trade-in loan?
When a dealership accepts a financed vehicle as a trade-in, it will usually contact the lender, determine the loan’s payoff amount, and account for the remaining debt in the new transaction. For example, if your vehicle is worth more than you owe, the equity may be applied toward the purchase of your new vehicle. On the other hand, if you owe more than the vehicle is worth, the remaining negative equity may be added to your new loan.
That being said, simply turning your vehicle over to the dealership does not automatically eliminate your responsibility for the old loan; until your former lender receives the full payoff amount, you may still be considered responsible for making payments. Surprisingly, dealers frequently fail to pay off trade-in vehicles, despite their promises to do so. A dealership’s failure to pay off your old loan can result in:
- Additional monthly payments on a vehicle you no longer possess
- Late fees, interest, and other financial penalties
- Missed payments appearing on your credit report
- Collection calls or letters from the lender
- Problems involving the traded vehicle’s title
- Difficulty refinancing or securing new credit
- The possibility of repossession proceedings
Dealerships will sometimes claim that the delay is merely the result of paperwork still being processed. Though brief administrative delays can occur, repeated excuses, ignored telephone calls, and an unpaid loan that remains open for an extended period may indicate that the dealership has failed to handle the transaction properly.
What should I do if my old car loan is still open?
First, you should strongly consider speaking with a lawyer who can investigate the situation. You should also determine the current balance, when your next payment is due, and whether any late fees or negative credit reporting have already occurred. From here, you should gather and preserve all documents related to the transaction, including:
- Your purchase agreement
- Your financing contract
- All trade-in documents
- The written payoff quote
- Statements and payment records for the old loan
- Emails and text messages exchanged with the dealership
- Credit reports showing new negative information
- Notes regarding telephone conversations with dealership employees
You should communicate with the dealer in writing whenever possible, as doing so can create a record of what the dealership promised, when the payoff should have been made, and how the dealership responded after learning that the loan remained open.
Can I take legal action against the car dealer?
Depending on the circumstances, you may have grounds to bring a claim against the dealership. This may be the case if the dealer falsely promised to pay off the loan, misrepresented the terms of the transaction, mishandled payoff funds, or otherwise engaged in an unfair or deceptive business practice.
If a dealership violates state or federal law, an affected consumer may be entitled to actual damages, statutory damages, injunctive relief, and, in certain cases involving willful conduct, enhanced damages. A successful consumer may also receive reasonable attorney’s fees and legal costs.
Recoverable losses may include payments made toward the unresolved loan, late fees, credit-related losses, and other measurable damages caused by the dealership’s conduct.
If a New Mexico dealership accepted your trade-in but failed to pay off the remaining loan, you should not be forced to carry two vehicle debts because of the dealer’s actions. Contact an experienced New Mexico consumer lawyer from Feferman, Warren & Mattison today for a free evaluation to discuss your situation and learn more about your legal options.
