My son's "car appetite" has become bigger than his paycheck. When he bought the car 18 months ago, he thought the payment vs. income was OK, now he has other priorities (like rent, planning to marry, etc.) and he wishes his car payment wasn't so large. However, the dealer says his "highly desirable" little Honda is now worth about $5K less than the current payoff. How does a person ever trade down? It looks like if he trades in the car for a cheaper model, he only adds the outstanding debt to the value of a junker, but I doubt they'd add that much to allowable loan balance. If he just takes it back to the dealer, he's still $5K in the hole, and also trying to buy something cheaper at the same time. The car was about $14K when he go it. I wish he'd spent about $2,500 instead. What's his best route to getting out of it?

There really isn't, you have fairly well figured it out, He can try to sell it privately for as much as he can and then pay the balance out of his own pocket or a personal loan ( since to sell it, you have to pay the car off)

He can see if the loan can be taken over and he can try and sell it for 100 and take over the loan, ( find someone else who wants to pay too much)

But short of that, he is going to have to owe the 5000 if he trades or turns it back in ( if they will even take it back)

So perhaps a second job to help pay this car off sooner and work within a new budget. ( and with that, work out a new budget to be able to afford the car.

He may want to try to sell the car himself. Trade-in value to a dealer is always less than retail value. Although I don't know the year, make, model, and mileage, I would say he should be able to advertise it for what he owes and that should be pretty close to the retail value of the vehicle. You can look that up on www.kbb.com or www.nada.com . There are also other things to take into consideration when figuring a payoff. Did he take out an extended warranty, gap protection, credit life or disability? These products can all be cancelled on a pro-rated basis where he would get some of his money back on them. If he has a dealer-issued extended warranty, that can either be transferred to the new owner or cancelled for him to get some of his money back. If he were to sell the vehicle himself, he could use that in his advertising and in his negotiations. The good thing is that he has a Honda (I hate to say that because I sell GM cars). But, the Honda's are an easier sell than most.