“They paid my loan off” is what a co-worker told me, when he purchased a new vehicle. I have given up telling my co-workers things about finance (they don’t listen much). I knew what that meant, but it took a while for him to figure out what that phrase meant.
What did the phrase mean?
- Whoever has taken over the debt from the other loan will add this to the new loan (debt) for this new vehicle. What might this include:
- Penalties for ending the loan (or lease} early
- The balance still owing for the previous vehicle. The vehicle may not be worth as much as the balance owing
- Administration fees for closing the loan (for the new firm)
- Other fees
- If the other loan was at a lower rate, you will be using the new rate of this new loan
- The vehicle you are purchasing is most likely not worth the “new” value of this new loan, but that is your problem.
My co-worker did finally figure this out, once he got all the documentation, which explained all the details to him. He was less than impressed that his loan was now larger than the actual value of his new automobile.
Strangely there was no mention of “Negative Equity”, which seems to be a phrase no longer used in the automobile sales world.
Negative Equity ?
Debts do not just “disappear” without someone paying them off (with very few exceptions). Remember that when buying large items.
Someone may have “paid my loan” but what does that really mean?