Many buyers prefer to trade in their current vehicle when getting another one, because it's easy. All they have to do is drive to a dealership, sign a few papers, and drive away in a different vehicle. They can apply the trade-in credit to their down payment, reducing the amount they need to finance.

There can be tax advantages, too. Most states require sales tax to be paid only on the difference between the price of your trade-in and the vehicle you're buying, not the full price of the next car. But this tax benefit doesn't apply if you sell your old vehicle yourself. Check with your state's Department of Motor Vehicles (DMV) for details.

The downside of trading in your vehicle is that you might leave behind hundreds of dollars—if not thousands—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 far less than what you would expect to get if you sold it yourself. In addition, even if you've checked all of the pricing sources and think you know what your vehicle is worth, you'll probably have to haggle with a salesperson to get the best deal.

Here's 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 just taking it off your hands. If it ends up buying your car, it's because there's an inviting profit ahead.

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 a 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 a salesperson to mix the two, it gives him or her too much opportunity to manipulate the figures. It could end up that a good price in one area is canceled 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. Because dealers make good money reselling trade-ins, there's some incentive for him or her 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 the 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.

Retail vs. Wholesale

There's a good deal of markup that goes into the price of a used car. To show you the difference between a car's retail (think window sticker) and wholesale price (essentially the trade-in value, allowing for a profitable markup for resale), here are the base prices for five high-volume 3-year-old 2014 models with 36,000 miles in average condition, as priced by Black Book in early May 2017.

Model

Trim Level

Retail Price

Wholesale Price

Chevrolet Malibu

LS 4-cyl.

$13,100

$10,400

Dodge Grand Caravan

SXT

$15,575

$13,125

Ford F-150

XLT Supercrew 4WD

$26,050

$23,725

Honda Civic

EX sedan

$15,025

$12,185

Hyundai Elantra

SE sedan

$12,000

$9,350