 Dear Terry,
In 2005 I bought a 1998 VW Beetle for $13,650 from a dealer and financed with them. It had 82,000 miles, but it still looked good and drove well. I know I made a huge mistake; I shouldn't have bought that car in the first place (first-time buyer & new college grad). I kept making payments on time and now I owe them about $6,500. I was thinking of buying a new car -- trading in my Beetle since it's been having trouble with engine lately. I have to pay about $2,000 to get it fixed, which I think could be my new-car down payment. The problem is I don't have $6,500 to pay it off, and I think I'll only get $2,500 to $3,000 on a trade. Will it ruin my credit score if I trade in my car that still hasn't been paid off? What should I do?
--
Nikki
 Dear Nikki,
Trading in a car that still has a balance owing won't have any significant effect on your credit rating. Your report will show the loan was paid off when the transaction is completed with the dealer. What could affect your credit score, however, is rolling over the approximate $4,000 difference between what you own on your VW and what it's worth. What you'll end up with is a loan on the new car that's more than the vehicle is worth -- never a good idea. My advice is that if you have the money to fix the Beetle, you should do that and nurse it along until it's paid off. Then go shopping for a new car. By the way, $13,650 in 2005 for a 1998 Beetle with 85,000 miles was a rip-off. Next time, do some homework at sites such as
Kelley Blue Book or
Edmunds.com to find the true value of a car before you buy.
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