Tag Archives: Car Trade-in
We’ve all heard that to get the most money for your trade in, you should sell the old car yourself. But that’s not always practical. And many car dealers will give you a fair trade-in allowance if you approach the situation properly. Not only that, there are tax benefits to consider.
What you need to understand about trade-in pricing
When a dealer accepts a trade in, they’ve got to sell it in order to recover the money that they’ve given you. The dealer also has to make a profit on the deal, otherwise, they wouldn’t be able to stay in business.
To get the most money for your trade, you’ve got to approach the situation as if you were selling the car to some guy off the street. That means, clean it up. A dirty car makes a poor impression, and it automatically reduces the price in the buyer’s mind. $50-$100 for a good detail job will help your buyer (in this case, a car dealer) to see the car at its best. And it tells them that you’ve taken care of the car, which is very important.
When evaluating a trade in, the dealer is going to look at everything that’s wrong with the car. Do the brakes squeak? Are the tires worn? Is the paint scratched? Does the engine run properly? Do all of the accessories work?
There’s a number of things that the dealer is going to look at. Because each problem is going to cost them money. A dealer can’t sell a car that needs work, so they’ve got to fix everything to make it sale-able. And those issues will ultimately subtract from their offer.
If there’s nothing wrong with your car, then good for you. The dealer still has to make a small profit though. Not a big profit mind you. But there are costs associated with selling a car. You’ve got the office hours for the person processing the insane amount of paperwork (each state varies, but the dealer usually has at least 10 long forms to fill out), and if they have to settle with your old finance company, that could add several more hours to their labor cost. Then you’ve got the cleanup/detailing, and the advertising cost.
If your old car is just too expensive to fix, or too old to sell, they’ll usually send it to a dealer auction, where they will try to recover the wholesale price of the car. But they’ll have to pay the auction fees, and there’s no guarantee that your car will bring as much as they spent buying it from you.
Taking all of those reasons into account, Mr. Dealer is probably going to shoot you a price based on the Black Book, or something similar. These dealer-only price guides show the constantly/monthly updated prices that cars have been bringing at the dealer auctions. The Kelly Blue Book, NADA price guides are more retail-price focused, and their accuracy can vary based on location and market conditions. You can however, use their ‘Trade In’ prices as a rough idea of where the dealer’s offer is going to fall. And you can also check CraigsList to see what similar cars are going for in your area.
Armed with some pricing knowledge, and a clean car, your trade in experience should be pretty painless. As long as you’re not expecting to get an unreasonable retail price for the car, that is. If their offer falls within a reasonable range of what you think the wholesale/trade in price is, accept it. Otherwise, haggle with them a little bit. You are selling them a car after all.
What are you going to do with that old car when you buy a new one?
There are more options and considerations than you might think. You’ll probably get the most money if you can sell it to a private party, but a trade-in could actually net you more because of the tax implications. Donating to charity might give you a warm fuzzy, but you might just need someone to haul it off your front lawn so you can see your neighbor's trailer again.
Below is a flow-chart to help you figure out how to get rid of your old car. Before you get started, go to Edmunds and find out both the trade-in value and the private party sale value. You may also want to get an online appraisal from a used car dealer or Autotrader.com. The online appraisal number will likely be lower than the Edmunds trade-in number, but it will give you an idea of exactly how much you would get if you had to sell today. Participating car dealers are required to honor Autotrader online appraisals provided you are factual about the condition of your car.
A Flowchart to Determine How to Get Rid of Your Old Car
get the most amount of money for your trade-in.
Here are a few more resources to help:
When you get a lower than expected trade-in appraisal at the dealership, it can be tempting to stop negotiations. You may believe you could get a better offer somewhere else. While this may be true, you must remember to factor in tax savings to perform a true comparison.
Most states will credit the value of your trade-in when determining the purchase price for sales tax calculations. This can result in a nice discount off the total amount you’ll pay. If you were to sell your car independently, you would not be able to take advantage of this savings.
Remember this trade-in formula:
trade in value times 6%* = tax savings
*Sales tax varies from state to state, so use your own state's tax %, but 6% is the norm.
If you were to buy a $25,000 car and had a trade-in worth $15,000, your sales tax would be on $10,000 instead of the full $25,000.
If your tax rate is 6%, that would result in a savings of $900.
$15,000 X .06 = $900
So if your appraisal is up to $900 less than what you could get independently, you’re still better off selling to the dealer.
And of course it's less of a hassle as well.