California Lemon Law Lawyer Blog

Car dealers routinely accept trade-in cars promising to pay off the existing loan as part of the deal. But what happens when the dealer goes out of business without paying off the loan? That leaves the consumer owing money on the trade-in with the finance company looks to the consumer to keep paying. With many car dealers going out of business in the past year, consumers are stuck with loan payments on a car they no longer own. Some folks end up with two car payments--one on the trade-in and one on the car they bought.

A bill of the California Legislature, SB 95, would help deter this abuse and would add protection to victims. The bill would raise the dealer bond to $100,000 and would add a requirement that dealers pay off loans on trade-ins within a short time period.

KABOB client Stefanie Feliciano is a typical of persons caught in this scenario. A dealer failed to pay off the loan on a trade-in car leaving her with the loan obligation. This weekend a Sacramento TV station, KCRA, featured a story and video on Ms Feliciano and the bill, SB 95, accessible at http://www.kcra.com/money/19553191/detail.html.

Accident rates for teen age drivers are pretty appalling. An aggravating factor is that parents often give older, unsafe cars to the kids. Given their driving habits, the kids should have the safest cars. Columnist Joseph White of the Wall Street Journal analyzed crash tests and reliability data to come up with recommendations for the best used cars for young drivers. In his article, White first eliminated sports cars for obvious reasons, pickups, SUVs that are prone to roll-overs, and very small cars. He looked for cars with stability control and excellent crash test results.

Using this criteria, among moderate priced cars, he recommends the 2004-06 Toyota Camry with the optional stability control, the 2008-09 Chevrolet Malibu, recent Ford Fusion models with stability control, and the 2006-09 Subaru Legacy. Among luxury used cars, White likes the 2003-06 Lexus ES, 2006 Audi A4 and the Prius models with stability control.

As everyone knows, Chrysler and GM are disenfranchising thousands of car dealers. Lots of used car dealers have gone out of business because of the rescission and poor sales. When dealers go out of business, bad things can happen to buyers.

Dealers may forget to pay off the loan on a trade-in car or to send in the paperwork for an extended warranty or a factory rebate. The dealer may promise to fix or add accessories and may not be around to follow through.

So--do not trade in a car if you owe money on it. Sell it yourself or pay off the loan. If a dealer promises to fix something or add an accessory, make sure the work is done before you sign a contract to buy the car. Or, if a dealer looks really shaky, buy somewhere else!