Explanation of a Car Trade-In

Trading in your old car is one way to use its value.

Trading in your old car is one way to use its value.

Your current car isn’t doing it for you anymore and you decide it is time to get a different one. Going to a car dealership and using the value of your old car to lower the net cost of your new car is what trading in a car is all about. While that sounds simple enough, there are both advantages and disadvantages to a trade-in that you should consider before stepping into a dealership.

Procedure

When you tell the salesperson you want to trade in your car, you will be asked for your keys and the salesperson and/or a mechanic will take the car for a test drive. They will evaluate the car’s condition and take into account its age and mileage. The salesperson will then give you a trade-in value. You can try to negotiate a higher trade-in value or you can simply accept the salesperson’s offer. The trade-in value will be deducted from the cost of your new car.

Advantages

When you trade in a car, it is almost always evaluated the same day you bring it into the dealer. In this sense, trading in a car is convenient. You don’t have to advertise it, be available for potential buyers, or arrange a test drive. Trading in a car can also have a tax advantage. In most states you pay sales tax only on the difference between the cost of the new car and the trade-in value of your old car. So if your new car costs $20,000 and your trade-in value is $8,000, you pay sales tax on only $12,000 instead of $20,000. If you live in a state with a high sales tax, this could save a lot of money.

Disadvantages

The dealership is going to offer you the wholesale value of your car. This might be hundreds if not thousands of dollars less than you might get if you were to sell your old car yourself. The dealership will try to wrap the trade-in value of your old car into the price of your new car. For example, if the car lists for $14,000 and your trade-in value is $4,000, the dealer might try to bump the price up to $18,000 without your knowledge. He can do this in any number of ways, such as saying that the car you are buying has extras not included in the list price. To maximize the return on your trade-in and minimize the price you pay on your new car, keep the transactions separate if possible. If you’ve done research and know what you should be paying for your new car, and what the wholesale value of your used car is, you might end up haggling over prices of two cars instead of just one.

Selling Your Car Yourself

It is often more profitable to sell your old car by yourself than to trade it in. Sites like Kelly’s Blue Book and Edmunds.com can give you an idea what your car is worth in a private sale. Using that as a basis, advertise the car in your local newspaper and on sites like Craigslist. You will need to be available to answer the phone and schedule test drives. Be prepared to negotiate. Have your buyer pay you with a money order or cashier's check. When he hands it over, sign the title for the transfer and give that, along with a receipt, to the new owner. If you don’t want to deal with the hassle of a private sale, there is another way to sell your car by yourself that might put more money in your pocket than a trade-in. Visit several used car dealers and get a price quote. If you will be changing car manufacturers, visit new car dealers of the car brand you are selling. For instance, if you have a Camry but will be buying a Kia, consider selling your Camry to a Toyota dealer where it will have more value to the dealer than on the used car lot of a Kia dealer.

 

About the Author

Diane Stevens' professional experience started in 1970 with a computer programming position. Beginning in 1985, running her own business gave her extensive experience in personal and business finance. Her writing appears on Orbitz's Travel Blog and other websites. Stevens holds a Bachelor of Science in physics from the State University of New York at Albany.

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