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.