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The Benefits of Trading in Your Car

Reduce the amount you need to finance

Last updated: February 2014

Many buyers prefer to trade in their current vehicle because it’s easy. All you have to do is drive to a dealership, sign a few papers, and drive away in a new vehicle. You can apply the trade-in amount to your down payment, reducing the amount you need to finance.

There can be tax advantages, too. Most states require that sales tax be paid only on the difference between the price of your trade-in and the new vehicle you are buying, not the full price of the new car you bought. However, this tax benefit does not apply if you sell your old vehicle yourself. Check with the Department of Motor Vehicles (DMV) in your state for details.

The downside of trading in your vehi­cle is that you might leave behind hundreds, if not thousands, of dollars for the dealer. As mentioned before, the best you can hope for when trading in is to get the car’s wholesale value, which is significantly less than what you would expect to get if you sold it yourself. In addition, even if you’ve checked all the pricing sources and think you know what your vehicle is worth, you’ll likely have to haggle with the salesperson to get the best deal.

Another problem you may encounter: If a dealer already has six used silver Chev­­rolet Impalas or Toyota Camrys on the lot, for instance, he isn’t likely to pay top dollar for yours. And if your trade-in isn’t one the dealer wants on the lot, it will probably be sent to auction and discounted accordingly.

Just remember, no matter how tired you may be of your current vehicle, a dealership isn’t doing you a favor by taking it off your hands. If the dealership buys your car, it’s because there’s an inviting profit at the end of the transaction.

How to get the most money when trading in your car

There are several things you can do to maximize the value of your trade-in:

  • The appearance of your vehicle is an important consideration when the used-car manager estimates its value.
  • If your car needs repairs, it could help to get an estimate to take with you. This could provide a little bargaining power when the dealer’s estimator starts deducting repair costs from the figure offered to you.
  • Try to sell your car to a used-car dealer. They’re always looking for clean, low-mileage vehicles for their lot. And if yours is a popular model, you just might be able to get more than the wholesale price for it.

What to look for when negotiating your trade-in

You’ll get the best deal by keeping the purchase and trade-in negotiations separate. If you allow salespeople to mix the two, it gives them too much opportunity to manipulate the deals so that a good price in one area could be cancelled out by a poor price in the other.

We suggest that you nail down the price of the car you want to purchase first, then discuss your trade-in allowance. Since dealers can make money reselling your trade-in, there is some incentive for the dealer to be competitive with a trade-in offer.

Keep your eye on the bottom line. What’s important is the net amount you have to pay. Be sure to read and understand any sales contract before you sign it. If you have a problem with any terms or conditions, ask questions. After you sign, you’ll have little recourse.

New Car Buying Guide

Learn more about choosing a car, what to do at the dealership, pricing, trading in your car, financing, closing the deal and more in our new car buying guide.

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