Everything You Need to Know About Trading in a Car

Fran Majidi
December 30, 2020

Excited to buy a new or used car and you’ve got your old car to trade in too? Here’s what you need to know about trading in that old car. The dealer will buy your old car from you and in many states the amount the dealer pays gets taken off the price of the car you are buying. To start the process, let the car dealer know that you want to trade in your old car. The dealership will have a mechanic take a look before giving the car a test drive. They will then appraise the car’s value and make you an offer. As mentioned earlier, in many states the money from the sale of the trade in gets applied to the new or used car you are buying. To accept a dealer’s offer, just sign over the car’s title. You also can choose to sell your car in a private sale. You’ll likely make more money in a private sale than from a dealer but it may take a whole bunch of time and effort to sell the car. You’ll need to market the vehicle, show it to potential buyers, negotiate the price and do the paperwork to finalize the sale of the car and transfer the title. When you trade in a car at a dealership, you drive your old car in and you drive your new car home all in the same day.

Advantages of Selling a Trade-In Car at the Dealership

There is a ton of paperwork involved in selling a car. And when you sell your car to the dealer, the dealer takes care of all the paperwork. All you have to do is sign the papers.

In many states, the trade-in value of the old car can be deducted from the price of the new car. Let’s say you want to buy a new car for a negotiated price of $25,000. You have a trade-in car and the dealer makes an offer of $5,000. You take the offer and the $5,000 gets subtracted from the $25,000 price of the new car. In many states you would pay sales tax on $20,000, instead of the $25,000, the original new car price. This is an advantage to trading in a car with a dealer.

Disadvantages of Selling a Trade-In Car at the Dealership

At a dealership, you’re only likely to receive the wholesale value of the car and this price would be a lot lower than the price if you sold the car in a private sale.

So weigh the pros and cons carefully. A dealer sale of a trade-in car can be easy and you may save money on sales tax. The private sale may take more time and effort but you’ll be likely to get a larger sales amount on your trade-in when you do land a sale.

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Leasing and Trade-Ins

Before examining leasing and trade-ins, let’s take a look at how a lease works. Lease customers only pay for the depreciation that occurs during the term of the contract plus interest and fees. And this amount is broken down into a down payment and a series of equal lease payments.

By applying the money that you receive from a trade-in car as the down payment on a lease, you can knock down your monthly lease payments or the amount due at signing or even both amounts if the trade-in value is big enough. So trading in a car at the start of a lease has its advantages.

How to Get Your Car Ready for Trade In

Here are four steps to getting your car ready for trade-in.

Get Paperwork. The first step is gathering up the paperwork. You’re looking for service records and receipts, which show the maintenance you’ve put into the car. The more records you can find the more you build a case as a responsible car owner.

Get the Car Clean. Wash the exterior of the car and clean out and vacuum the interior. Remove personal belongings. Empty the glovebox and empty the trunk. Be ready to turn over the keys to the car dealer once you strike a deal.

Check Out Your Car’s Value. Sites such as Kelley Blue Book and Edmunds can tell you the value of your car. This is important knowledge to have before you get to a car dealership. Is the dealer’s offer a good one? You won’t know if you haven’t done some research in advance.

Bring the Car’s Title. Ready to sell a car today? You’ll need to bring the car’s title with you to the dealership.

How the Dealer Appraises the Trade-In

Wondering how the car dealer appraises the value of your old car? Here is a look at the different things a dealer is looking for when assessing the value of a trade-in car.

What is the age of the car? The value of the vehicle declines with age and newer models are worth more. How old is your car? If it’s a newer model, you’ll get a better deal.

What is the mileage? A car’s value declines the more it is driven. Do you drive more than 12,000 miles per year? If you do, the value of your car will take a hit. On the flipside, low mileage is a positive price factor.

How many owners has the car had? If you’ve been the only owner of the car, the car is viewed as more valuable than a car with multiple owners.

How are the tires? Do the tires match and do they have good tread left? If the tires are in good shape that is a big positive for the car’s value.

How’s the car run? The appraiser will check the mechanical condition of the car. If the car is running smoothly, that is another positive sign.

What is the seasonal demand? Car dealers want cars they can sell right away. Trading in a convertible in winter and there’s a good chance you’re not going to get a very good deal. But make it a SUV in winter and you’re bound to get a good offer.

What is the color of a car’s paint? Classic and neutral colors sell the best as used cars and that’s what the appraiser is looking for. So if you went neutral on your paint color, it will pay off in the sale of your trade-in car.

Car Insurance

Whether you sell your car and buy a new one or decide to keep what you have, make sure you’re getting the best price for the best coverage. SmartFinancial can help you do that by comparing over 200 carriers in just a few minutes. All you have to do is answer a few easy questions. Start by entering your zip code below.

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