Consequences When a Dealership Fails to Pay Off Your Auto Loan During a Trade-In
When dealing with a trade-in at a dealership, it's important to understand the financial and legal implications if the dealership fails to pay off your current auto loan. This article will explore the various consequences and what steps you can take to protect your interests.
Understanding the Situation
Technically, if the dealership does not pay off your current auto loan during a trade-in, you may still be responsible for the remaining balance. This is due to the legal and binding contract between you and the bank. In such a scenario, the dealership is legally liable for paying off the loan, and if they fail to do so, you may have to step in to cover the remaining amount.
Assuming you are no longer making payments on the old car, and the dealer is not either, the natural consequence is that your credit will be affected, potentially resulting in a damaged or ruined credit score. This is due to the delinquent payments that will be reported to the credit bureaus.
Legal and Credit Implications
Your credit report will reflect any delinquent payments, and this can harm your credit score. Therefore, it is essential to take steps to prevent this from happening. You have the right to file a complaint with the government agency that licenses car dealers in your state. Additionally, you may have a valid lawsuit against the dealership.
Steps to Take
The first step is to contact the financial institution that holds the loan on your current vehicle. Inform them of the situation and seek their assistance. Next, inform the dealership that you will file a complaint if they do not properly pay off the vehicle. This will put pressure on them to act.
It is also crucial to understand that the dealership cannot legally resell your vehicle without paying off the loan and obtaining the title. Your bank should not penalize your credit if you explain the situation in detail.
Dealerships generally have a legal obligation to request a payoff from the financial institution within 10 days of accepting the vehicle as a trade-in. If they fail to do so, it is considered illegal. If your credit is damaged as a result, you may file a lawsuit; however, it might be simpler to address the issues and move forward.
A Case Study
This situation is not uncommon, having occurred with a local dealership in this town. The car loan remains a contractual agreement between you and the bank, with the dealership acting as a third party. Even if they cannot sell the vehicle, the lien on the title still applies. You are technically still responsible for the loan, and the promise to pay it off was part of the original deal. This creates a complex contractual issue.
You have the right to sue the dealership to fulfill the contract and pay off the loan, return the trade-in vehicle to you, or cancel the entire deal due to their failure to follow through. However, because lending institutions are separate entities, this scenario can create a logistical nightmare, complicating the resolution process.
Conclusion
Dealing with a trade-in where the dealership fails to pay off your auto loan can have significant consequences, including credit damage and potential legal action. Understanding your rights and taking proactive steps can help you protect your financial interests and mitigate these risks. Always keep thorough records and consider seeking legal advice if the situation becomes too complicated.