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Need advice - trading in a more expensive car to buy a cheaper one?

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I'm currently driving a 2003 20th anniversary VW GTI, but in the next few months I'm looking to buy my first home. I can afford the houses I'm looking at with my current car payment (about $363 a month), but I'm considering "downgrading" to a cheaper car to make things a bit easier. 
So my question is, are dealers willing to take my car in as a trade in if I am buying a cheaper car from them? Seems to me they would be willing, as they are presumably making money on the car they are selling me and are planning to make money when they sell my car. It's just not something I've ever heard about being done so I'm looking for people's experiences. 
My car is worth about $1k more than I owe on it as a trade in, and I'm looking to find myself a car in the $8-10k range, something that I can pay off in 3-4 years for about $200-225 a month. Current frontrunner is an e36 325is or 328is.

Any help will be apprecited.

I didn't find the right solution from the Internet. 

3D Walkthrough Video

Thank you.

  • Haha 1

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