Roxanne Langley ~ Money Coach

May 21, 2021

Steps to determine if trading the new truck for a cheaper car is correct for you

In Texas, we most definitely like our trucks but sometimes it comes at a cost. This month I received the following question and felt it would be a great post for this week.

I have a truck I just bought for $35,000. Upon checking on average it’s worth about $31,000. To reduce my debt I am considering trading it for a $20,000 car. What happens when I still owe on the truck and have an upside-down situation? 

It’s common to buy a car and want to trade it in the next year for another new or used vehicle, thinking we’re making a good decision. In my own life, one upside-down car loan cost me thousands of dollars. It was mainly due to the fact that I never sat down and worked the numbers, nor did I know-how. Whether it’s an auto or any other item you’re paying on monthly payments, if you owe more on something than it’s worth, that is known as being upside-down. This applies to roughly half of all new-car buyers, according to

How I crunch the numbers

You bought a truck for $35,000, but now worth $31,000. That’s a $4,000 reduction in value. If you financed $35,000 for 60 months (5 years) with a 4.27% interest rate, your payments are about $648.85/month. Your loan balance after 12 months would be approximately $28,584*. If the truck depreciated 25% or about $8750 in year one, the trade value is about $26,250 even though the Kelly Blue Book value is $31,000. Word of caution, unless you sell to an independent buyer, you hardly ever get the book value when you trade with a dealership.

Based on this scenario, you’re upside-down on the loan about $2,334 after one year. The new car purchase price is $20,000, but you owe $28,584. The truck is only worth $26,250, so you are now paying $20,000 plus the balance of $2,334 to pay or finance a total of $22,334. (see below for the amortization schedule I used for this client)

Can you avoid an Upside-Down Car Loan?

While it is not foolproof it can help to be aware of the upside-down scenario. Try to avoid buying new cars unless you have the funds to put at least 20% down. Unfortunately, many of us don’t understand the complicated financial consequences of buying, selling, and trading vehicles. Once you’ve cleared up your problems with an upside-down car loan, do what you can to keep yourself from ending up in the same situation again.

*Car Loan Amortization Schedule Year 1
Payment: $7,786.20
Principal: $6,416.31
Interest: $1,369.89
Balance: $28,583.69
Purchase Price ($35,000) Depreciation $8750=$26,250
Loan Balance after one year = $28,583.69 – Trade Value $26,250
You owe $2,334 more on the car than it’s worth.

Purchasing an automobile, whether new or used is as much emotional as it is financial. Do your research online and visit dealerships after hours to walk around and take photos. Spending time evaluating and talking it over with your spouse or accountability partner can save you thousands of dollars. In the end, knowing you made the correct decision for you is priceless and you’ll enjoy the truck or car more.

Do you have a situation with an auto loan, student loans, or credit cards you want to work through the numbers to determine what is the right decision for you? 

Contact me at and let’s talk.

Your Money Coach,


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