It is the simplest method for replacing your old car with a new one. All you need to do is deliver your current vehicle to the dealership.
The condition and market worth of the car are determined by the car dealer. The price value can then be applied as a deposit against the cost of your brand-new car.
This is an easy and quick way to replace your old car with a new one. You don’t have to stress about completing the necessary paperwork or closing the deal. Give the auto salesman a break on that right now.
You only need to bring your old vehicle into the dealership and leave with your new one.
Additionally, this strategy has tax advantages, which we shall cover in a moment. But if you want a simple, hassle-free, and quick way to buy a new car, this approach is for you.
The dealer will take care of all the appropriate documentation, vehicle preparation, and moving the operations fast and smoothly to make the entire car-trading process simple and uncomplicated.
In This Article...
When you still owe money, how does a trade-in work?
The dealer assumes responsibility for the loan and settles it on your behalf when you trade in a car for which you still owe money. They frequently take care of the title transfer procedure as well.
You have positive equity if the trade-in value of the automobile is higher than what you still owe on the loan; this value will help lower the price of the car you’re buying.
Let’s imagine, for illustration, that you are spending $10,000 on an automobile. Your $3,000 in equity lowers the price of the new automobile to $7,000 if your trade-in is worth $5,000 and you still owe $2,000 on it. The dealer pays off the loan.
Negative equity, on the other hand, is when your debt exceeds the value of a trade-in vehicle. While the dealer still pays down your prior loan, they will demand the difference from you in cash or may offer to roll it into your new loan.
With reference to the initial illustration, if your trade-in value is $1,000 and you still owe $2,000, you would either need to provide the dealer with $1,000 in cash up front or permit them to add that amount to your new loan.
Here are some details you should be aware of when you weigh your options:
- Your car’s trade-in value is: Utilizing online resources like NADAGuides and Kelley Blue Book, you can approximate this. You should be aware that they’ll give you a value range, leaving room for haggling at the dealership.
- To find out how much you still owe and to compare it to the trade-in value of your automobile, log into your lender’s online account. You must consider the payout amount, which takes into account interest that has accumulated since your last payment.
- Your budget: Consider how much you want to spend on the new car after determining whether you have positive or negative equity. Avoid situations where you roll negative equity into a new loan as much as you can because doing so can increase your debt. Additionally, think about if the monthly payment and interest rate for the new car loan fit into your budget.
- Your loan choices are: When financing a car purchase, you have a few alternatives. Initially, you can let the dealer handle it. They will present you with options while submitting your credit application to various lenders. However, keep in mind that dealers might pay a commission for securing the finance, which could push up your interest rate. The alternative is to obtain direct finance by making your own contact with lenders. Although it involves extra labor, it can help you save some money.
Additionally, keep in mind that selling your car privately can typically result in a higher price, but the process can take a while. Continue reading if you want to proceed with a trade-in for practical reasons.
Does trading in result in a better deal?
It hurts, as it happens. We crunched the figures and discovered that agreements with trade-ins cost an extra 1% of the average transaction price on average than those without trade-ins. Even though a 1% gain might not seem like much, it adds up. On trade-in deals, the dealer typically makes $250 extra, though it can be considerably more depending on the automobile. For instance, if you add a trade-in when you purchase a 2009 Infiniti G37, you run the chance of paying an extra $500 or more on average. Similar to how sales of 2009 Honda Accords without trade-ins raised dealer profit by $418 over sales of 2009 Honda Accords with trade-ins.
So, if you need to turn around a used car, how can you prevent a markup? Choose intelligently between the two options: selling to a private person or engaging in a dealer trade. Selling your used automobile to a private party can earn you roughly 10% extra money if you are patient and prepared to put in the work. But be ready to deal with bidders who make wildly improbable bids and could ruin your afternoon. And before rushing into that magical 10% rise, make sure to check the tax regulations in your stateit can be advantageous to do the trade-in transaction. Regardless of the value of the trade, several jurisdictions, including California, require you to pay the tax on the full purchase price of the new car. Other jurisdictions, like Wisconsin, only demand payment of the tax on the difference between the cost of a new car and its trade-in value.
Here is a straightforward method that will improve your chances of getting the greatest bargain if you decide to trade in your vehicle for the tax advantages or the convenience of getting the car off your hands promptly.
- First, when negotiating the purchase of a new car, limit your discussions to the new car only. You shouldn’t begin negotiating the specifics of a potential deal until you’ve decided on a buying price. With this method, you may compare the price of your new car transaction to the TrueCar price report without having to worry about the trade-in value, which is a complicated aspect.
- Second, negotiating a fair trade-in value is no less significant as the new car’s purchase price and should be treated as such. Check out the several trustworthy online resources (Kelly Blue Book, Edmunds, NADA Guides) for used automobile appraisal.
- Finally, best of luck! It always takes a little more work to get a fantastic deal, but you might wind up saving quite a bit of money.
How can I trade in a Toyota that hasn’t been paid off?
The remaining amount on your old loan can be transferred to your new one with the help of your lender. You can enjoy a new ride while simultaneously paying off the old loan and the new one by doing this. Look at outside options. You can go to the open market if you’re not happy with the trade offer you got.
Pro: Less hassle
One major advantage of trading in your car is that you can end up having to do less work. In general, the procedure is visiting a few dealerships to acquire quotes, deciding where to trade in your automobile, and concluding the transaction at the dealership by filling out the necessary paperwork. If you have an existing car loan, the dealership may pay it off along with the title transfer and registration of your new vehicle. However, you should confirm that the dealership is taking care of all of those details, since it would imply considerably less hassle for you.
Pro: Reduced taxable sales price
If you trade in a car, you can end up paying less tax if you reside in a state that levies sales tax. In many places, you are only required to pay tax on the difference between the value of the trade-in vehicle and the price of the new vehicle you are purchasing.
Con: Lower offer
Dealerships may offer you less money for your automobile than you might be able to earn if you sold it yourself since they want to make a profit on trade-in vehicles. Dealers typically offer less than the wholesale price of a car, which is the amount they could shell out to purchase it from the automaker.
Does buying a used car affect your credit?
If you trade in your car, your auto loan remains in place. Your car’s trade-in value, however, counts as credit against your loan. The entire sum may be covered by this credit. If it doesn’t, your dealer will roll over your loan, adding the balance owed on your new vehicle to the deficit. You can manage your payments more effectively if you combine your debts into one new loan.
What mileage should you trade in your car for?
30- to 40-mile range The closer your automobile is to this mileage, the greater your trade-in will probably be since the depreciation of your car will usually start to accelerate faster after this milestone.
Is it better to make a car payment before trading it in?
Almost often, it is advisable to pay off or reduce the balance of your auto loan before listing or trading in your vehicle. Whether you have positive or negative equity on your loan is the major issue. If you have negative equity, you should pay off your car loan before trading in your vehicle.
Positive equity
When you have positive equity on an auto loan, you owe less on the vehicle than its market value. As a result, if your loan balance is $10,000 and your car is worth $15,000, you have $5,000 in positive equity. If you decide to trade in your automobile, the positive equity can be used as a down payment for your next car, lowering the amount of borrowing you require.
Negative equity
The alternative is negative equity. You will have $2,000 in negative equity if you still owe $10,000 on your loan but your car is only worth $8,000 now. Lenders and financial columnists refer to this as being “upside down.”
You shouldn’t be in that situation. You’ll still have to pay the balance if you don’t trade in your car. Breaking even is also crucial since it keeps you from refinancing a loan with negative equity and paying for a car you don’t use.
Do your homework
Do some research to determine your car’s current trade-in value before you decide to trade it in. Remember that the value of your trade-in will be lower than it would be if you sold your automobile privately.
To determine the current sale price, you can consult resources like Edmunds and Kelley Blue Book, but you should also be honest with yourself regarding repairs and the state of your car.
According to auto expert Lauren Fix, many individuals believe they would receive the best value when trading in their vehicles, but because dealers need a profit margin, they will pay you less than the value indicated on these websites.
Prior to conducting trade-in value research on your car, wait to go car shopping or contact a dealership.
Take care of known mechanical problems
Keep in mind that your car’s mechanical and physical condition are important determinants of value. You should thus take extra care to address any problems you are already aware of, especially those that are simple to address.
According to Chris Brown of RateGenius, a marketplace for vehicle refinancing, if there is a warning light on the dash, such as a check engine light, the dealer may presume the worst and quote accordingly. However, by having the car’s major systems reset at a dealership, you might be able to fix this quickly.
Check to see if there are any active recalls for your vehicle, advises Brown. If so, you should take the time to bring your vehicle to a nearby dealership so that those issues can be fixed without charge. If you don’t, the dealership can give you a lower trade-in value for your automobile in order to account for the extra time and effort needed.
You might be able to achieve a significantly higher trade-in value with a quick, low-cost trip to the dealership or auto repair shop.
Shop around for trade-in value
When looking for a new (or new-to-you) car, it’s crucial to “search around for trade-in possibilities,” according to Zach Shefska of Your Auto Advocate. Before speaking with the dealer, he advises getting as many comparable quotes for your trade as you can.
For instance, prior to discussing your trade-in with the dealer you intend to buy from, you should obtain quotes from Carvana, CarMax, and any other significant used automobile dealerships in your neighborhood. Why? Because whether you buy a new car or not, Carvana and CarMax in particular will give you a price for your current vehicle. This cost can serve as a benchmark for trade-in value and be used in conjunction with other pricing research you conduct.
Negotiate trade-in value separately
Additionally, Brown advises that you bargain for various aspects of your new(er) car purchase separately. By doing this, you can ensure that the salesman you’re working with won’t try to raise the price of your new car to compensate for a greater trade-in value or give you a better deal on the new car while offering you less for your trade-in.
You can ensure that you receive the best trade-in valueor at the very least, what your car is worthand the best price on the new vehicle you’re purchasing by negotiating them individually.
Shefska concurs, cautioning customers to be wary of dealerships who attempt to merge the two transactions into a single transaction. They do this because managing two deals at once gives you more chances to make money as a dealer.
Make sure that your car looks its best
Fix notes that the best trade-in value is most likely to be obtained by a clean and well-kept vehicle. ” She advises cleaning the car both inside and out. “Like preparing a house for a sale, detailing the car is important.
In the interim, examine if you have any receipts for maintenance and repairs. These can demonstrate to the dealer or potential buyer how well-kept the car was.
To prepare for the negotiation, carefully clean your car and gather any records you may have.
Time your trade-in
Remember that depending on your automobile’s make and model, the weather, or other factors, trading in your car may be more advantageous at some times of the year than at others.
For instance, according to Cleveland, Ohio-based financial advisor Matthew Kircher of Fairpoint Wealth Management, he recently timed the value of his trade-in based on demand.
In the end, he traded in his old Ford Escape in January 2021 for a brand-new Toyota 4Runner. He planned his schedule well because he anticipated that all-wheel-drive SUVs would be in great demand over the winter and just before the start of the spring semester.
According to Kircher, “We waited until the ideal time to trade in our old vehicle to increase its worth.”
Additionally, we timed it precisely, taking advantage of the best deals on brand-new cars at the same time.