How does a new/used car dealer make money? -

We have a loan on a sedan on which we owe $10,000. Now we want to get rid of this sedan and get a mini van. A new/used car dealer has a van we like costing $9,000. He wants to take our car, pay off the $10,000 loan and give us the mini van in return. With the mini van comes a new payment plan on which now we would owe $20,000. That s what I don t get. So now we gave up the sedan which frees us from the $10,000 debt. So, we have no sedan, but also no $10,000 debt. But simultaneously we obtain the $9,000 mini van on which we should owe $9,000 plus interest which would add no more than $2,000 to the $9,000. Total we should have a new debt of about $11,000 and a mini van. So the dealer must be trying to earn some 8 or 9 thousand dollars on the deal which we would have to pay since it would be reflected on our new loan. Are my calculations right?|::::|Dealers love ripping people off. Use kelly blue book or nada to figure out the real values of both cars and do the math. Go to another dealer if you can t get a fair deal.|::::|no hes trying to rip u off. Find out what the trade in value is on your van. lets say its 8k. If the dealer says he ll give you the 8K and you owe 10K Then what the guy should do it take the van u have and sell you his 9k van to you for 11K.|::::|You are not understanding some fundamentals of car financing. You owe $10K on your sedan, but you are apparently upside down on your loan -- the sedan is not worth as much as still owe. Sure, the dealer will pay off your $10K loan, but he s giving you much less than $10K for the old car. He s adding in the difference to your new loan. Your $10K debt on the old car doesn t go entirely away when you trade with an upside down loan. Are you sure the dealer is giving you a fair price for your trade? (check www.kbb.com). Are you sure you re getting a fair price on the new car (check www.kbb.com)? Are you sure your new interest rate is reasonable, given your credit score (check www.bankrate.com)? The other thing that might be happening here is that you are looking at the total of all your payments on the new loan, which includes finance charges (interest). So, when you finance a $9K car, with negative equity rolled in from your old loan, the total of all your payments over the life of the loan is much more than $9K.|::::|new cars are priced to make a small profit, the sticker is based on a dealership profit of anywhere from 500 to 2500 over cost. most dealerships make their money in used vehicles by giving to little for the trade and then marking it up to retail price. so sounds like they actually charging you to take your sedan because worst case if you owe 10000 on the sedan and then get a van for 9000 you have 19000 in debt so where the other 1000 comes from i don t know, but no dealership takes the old debt from your trade in upon themselves. you should check out nada.com and find out what your sedan is worth before you trade it in though because if it s worth more than the 10000 you owe then you could reduce your new debt instead of adding to it because you have equity in the sedan. in other words if you owe 10 but its worth 13 then you get the ten to pay it off plus 3 to put towards the new van so your new debt would be 6000 (hypothetically speaking since i don t know what your trade is worth or the value of what you re looking at buying). basically do some research before you buy a new car, to find out what the trade in and the purchase are worth and don t let a dealership take advantage of you. sounds like you re getting a really bad deal at this point.|::::|Dealers pay wholesale for vehicles that are traded. They may have repair costs, clean up costs, etc. and still need room to sell the car for a reasonable retail amount in order to make money. Just like every other business, buy wholesale, sell retail...the difference is the profit. Now on to your situation. Just because you owe $10,000 doesn t mean it s worth $10,000. Kelley Blue Book has a great tool to value your trade (www.kbb.com)...go find the trade-in value for your car. Trade-in values are subjective so the kbb number will be a ballpark, not the final number. Ok, you owe $10k on the car. if it s worth less (and probably will be) you will have negative equity . You owe the $10k to a bank, the dealer will give you $x and you have to come up with the rest to pay off the loan or you can roll the negative equity into the new loan (if the new bank will finance that much). If the car is worth more than the payoff, it works the other way...the amount left after the loan is paid off is deducted from your purchase price. If you numbers are correct it appears the dealer is going to give you $0 for you car so you will roll the entire payoff into the new car. This can t be right. There must be a misunderstanding somewhere. Here s how the numbers work: New car purchase price: $xxxx Value of trade-in (subtract) $xxxx (this is the wholesale value) Sales taxes (add) $xxxx Final sale amount (total) $xxxx Loan payoff (add) $xxxx (this is the remaining principal) Total $xxxx The total is what you will finance with the bank and the APR and term will determine the monthly payment. Here s what you need to do. 1) go to kbb.com and get the trade-in value for your car; 2) call the bank you currently have the auto loan and get the payoff. The payoff is not the total of the remaining payments, it s the remaining principal amount (plus a little interest since your last payment). Subtract the kbb value from the payoff and you know how much will roll into the new loan. Now you have more information before you return to shopping for a new vehicle. Good luck.