How To Trade In a Car (and get the best value)
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How To Trade In a Car (and get the best value)

By Autolist Staff | April 22, 2019

Trading in your car is a convenient way to upgrade your ride. As long as your current vehicle is in reasonable shape, you can give it to a dealer in exchange for credit toward the purchase of a new car, eliminating the need to sell to a private party. To get the best trade-in value, though, it's crucial that you do your research and avoid common mistakes. All the paperwork involved in trade-ins can get dizzying, and you may lose money if you're not careful.

How to Trade in Your Car: Preparation

Before bringing your used vehicle to a car dealer for the trade-in process, you should figure out the car's value by consulting a price guide. The Edmunds and Kelley Blue Book price guides, for example, provide fair price listings for a wide range of cars, factoring in details such as a car's mileage and condition. Also, look to the NADA Guides (National Automobile Dealers Association) for input on your vehicle's value.

CarMax, a used-car retailer, also provides appraisal services. You simply bring your current car to CarMax for a detailed inspection, and CarMax makes a written purchase offer that's good for seven days. You can even use this offer as proof of your car's value at a dealership. Once you have a good estimate of the purchase price of your car, you're ready to haggle with potential buyers.

Next, gather up all the important items associated with your automobile that must be handed over during a trade-in, such as your license, title, keys and registration, and make appointments at several dealerships so you can compare offers.

When you go to the dealerships, don't forget to bring your Edmunds, Kelley Blue Book or CarMax price appraisals, so you can back up the market price of the car. Also, bring any car loan documents if you have an unpaid auto loan on the vehicle.

Although you shouldn't worry about reconditioning your vehicle before selling it, since you're unlikely to recoup the cost of those fixes, it's a good idea to make the car as presentable as possible, such as by cleaning up any messes under the seats and driving the car through a car wash. If it's a nicer car with plenty of value left in it, consider a decent detailing service; you'd be surprised how nice it will make your vehicle look -- inside and out.

How Do Car Trade-Ins Work?

When you take your old car to a dealer for a trade-in, they usually test-drive and inspect it before making a trade-in offer. Since most people don't know how to trade in a car for the best price, some dealers may low-ball the car's value, and they can be aggressive negotiators. For this reason, you should stand your ground, just as if you were making a private-party sale. Just keep in mind that dealers are a business and they do need to make a profit on your vehicle, so you may not get the exact market average for your car (and you'll certainly get less than if you sold it privately).

If you still owe money on an old loan for your car, the dealership can take the loan from you after the trade-in. After the amount of the loan is subtracted from your car's value, any equity left over is subtracted from the price of the new car. However, if you're upside-down on your loan, meaning you owe more on the loan than the car is worth, then the dealer can add the negative equity to the balance of the new car loan.

This strategy might be tempting, especially if you need a new vehicle right away and don't have much money to spend on paying down your loan first, but it's also risky. As soon as you drive off the lot in your shiny new Ford or Toyota, its value depreciates, pushing you further into the red. When it comes time to trade in for your next car and get a new loan, the negative equity is going to follow you. If you can't pay back the underwater loan and missed payments appear on your credit report, your credit score may suffer. You may find it easier to pay off any negative equity with credit cards before making a trade-in.

Other Considerations When Making Trade-Ins

Knowing when to trade in cars can be tricky to figure out. Generally, you want to trade in your car when it's in high demand, as dealers are more likely to give you greater offers. In addition, you can sometimes get better offers at the end of the year, since dealers are trying to make room for new models and may make more generous trade-ins to get vehicles off their hands.

Remember that you can trade in your car even if you're leasing it, though it's generally only wise to do this if a dealer offers you more than the buyout cost of your lease. That way, you can pay off the lease contract and fund a down payment on the new car.

One advantage of making a trade-in is that, in many states, you only have to pay a sales tax on the new car price minus the trade-in value, not the entire car cost.

Another consideration when car buying is that you may get a better trade-in deal if the price of your new car is high since the dealer is more eager to get your business.

Common Mistakes

Trading in an old car can be intimidating, especially for people who've never done it before. Many common trade-in mistakes stem from small oversights.

Although dealers seem intent on helping buyers as much as possible, such as by handling loan transfers, they may charge fees for some of these services. It's always a good idea to include these fees in your decision whether to trade in your car.

Another mistake is to use price guides that don't include data from the National Automobile Dealers Association, the most reputable authority on the subject.

Buyers also tend to trust the dealer's judgment too much when handling lease and loan details. Even if the final arrangement doesn't serve the buyer's best interest, these details can be confusing, and buyers are usually too exhausted from negotiations to study each document they sign. To ensure you get the best deal, carefully read the dealer's policies in advance and ask any and all questions that come up, so you can sign with confidence.

Perhaps the biggest mistake buyers make is to overestimate the value of their car. Price guides offer the average market values for cars, and dealers want to buy cars below the average to make a profit. It's tempting to cling to the highest value among price guides when trading in your car, especially if you're emotionally attached to your vehicle. Doing so may lead to disappointment when a dealer shoots down your offer. Be honest with yourself when evaluating the condition of your vehicle; most guides will provide a range of values, depending on your vehicle's condition. If you look only at the "like-new" values but your car is actually in "average" condition, you could have unrealistic expectations of the car's worth.

Yet another mistake buyers make is to hide negative information about the car. Dealers can find any registered car's history on Carfax, and they have an eye for flaws regardless, so this approach rarely works. If you claim to have higher offers from other dealers than you do, the dealer is likely to request the offer in writing. Dealers have a good idea of how much other dealers are prepared to deviate from the market average when making a trade-in, so they're not easy to fool.

To get the best value for your trade-in, you need to learn how much your car is worth, shop around for the best trade-in deals and negotiate with confidence. Trading in your car saves you money and takes your old vehicle off your hands at the same time, making it a win-win opportunity.