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    "Kicking The Trade" - A Worrying New Trend

    Kicking the trade is a perturbing trend that is on the rise in America. It is a practice that has been happening relatively discreetly until the Wall Street Journal covered it in an in-depth report.

    This is something that works in favor of dealers and lenders, but not for borrowers.

    So, what is “kicking the trade”? In simple terms, car dealers advise customers with upside down auto loans to stop making payments on the existing car, and get a new loan for a new vehicle.

    Customers are told that the old loan will be dissolved once they turn the car to the lender.

    However, at the end of the process, customers get stuck with two payments, mostly because the lender can’t recover the outstanding amount by auctioning the older car.

    A Short Term Solution To A Long Term Problem

    New cars are becoming increasingly expensive. Besides this reality, a large number of Americans are facing the dilemma of higher debt-to-income ratios.

    Many consumers prefer lengthy financial terms simply to keep their monthly payments manageable. 

    That results in a significantly higher interest rate over the loan period.

    As a result, many customers wind up with their car loan "underwater" and it is no easy task to get out of an upside down or underwater loan. 

    Meanwhile, lenders are suggesting borrowers stop making payments on the existing car, and urge them to take a new loan for a new car.

    Once done, the lender asks the customer to put the older vehicle up for a voluntary repossession.

    The truth is that, when the lender takes the vehicle, they try to sell it to recover the outstanding loan balance. 

    In most cases, they can’t recover what is due. Accordingly, borrowers end up paying for two loans and dealing with a negatively impacted credit score.

    Kicking the trade might grant you temporary relief, but it isn’t a solution and rather a gateway to larger long-term problems.

    The Consequences

    Most lenders suggest kicking the trade when you’re missing out on car loan payments.

    They don’t show you the complete picture, and instead prefer to lure you into taking a new loan.

    Here’s what happens when you give into this option:

    -  Your existing car’s resale value won’t cover the outstanding balance. So, even if the lender auctions your vehicle, chances are they won’t be able to cover the balance. This means you’ll be asked to pay the remaining balance.

    -  You already took out a new auto loan. Now, you’re stuck paying monthly installments on the new loan as well as the older loan.

    -  When you stop making payments on an ongoing loan, this delinquency is marked on your credit history, which dents your credit score. With a bad credit score, you won’t be eligible for attractive loan conditions in the future.

    -  Even if you receive a loan, you’ll have to succumb to higher interest rates and stringent terms.

    Is It Legal?

    It is a shady practice that most lenders deny doing, but it happens under wraps.

    It will ruin your credit if your car is repossessed. When you give into this trap, you’ll have to face the consequences for a long time.

    Although dealers bluntly disagree to the fact that they recommend this option to most bad credit consumers, this contrasts sharply with the WSJ report. According to TransUnion, there were close to 24 million auto loans in 2018 in the US.

    In addition, more than 300,000 vehicles were repossessed - a 17% increase despite the expanding economy.

    Just read some borrower stories and you’ll realize that kicking the trade is a type of auto loan fraud.

    There Are Other Ways

    It is quite understandable if you miss out on a couple of payments owing to poor financial health.

    However, allowing a voluntary repossession can lead to major problems.

    There are other better alternatives to tackle financial instability and pay off your outstanding auto loan balance:

    • Calculate the negative equity using online tools like Kelley Blue Book. If you think you can cover the difference with your savings, you should use it rather than opting for a new debt.
    • Connect with your lender to figure out alternative options like refinancing.
    • Use trade-in sites like Swapalease to find interested buyers and simultaneously reduce debt.Consider selling the vehicle to gather a portion of the outstanding balance.


    Credit experts recommend that you shouldn’t opt for this option given it will hamper your credit score and force you into more financial distress.

    If you’re already having difficulty repaying, you should immediately contact your lender and discuss available alternatives.

    Kicking the trade is a recipe for disaster, and we recommend that you steer clear of it.