Cars typically aren’t lifetime commitments, at least not unless you happen to lay your hands on a priceless antique. Otherwise, the day will almost certainly come that you’ll want to trade yours in for a new set of wheels. You won’t be alone. Edmunds indicates that almost half – 45 percent – of all new car purchases in 2019 involved a trade-in.
You have several options for trading your car in, and the one you choose can depend on how much time you want to invest, how old your car is and how many miles you’ve put on it. A newer car will bring the best results.
Your First Steps
Take a deep breath before your grab your keys and motor off to the nearest dealership. You’ll want to take some preliminary steps first.
Hit the internet. Access the appraisal tool on the Edmunds website, or visit Kelley Blue Book or Consumer Reports. Enter the pertinent information about your car and get an honest assessment of what it's worth so you’ll know if you’re being low-balled when you’re quoted a trade-in value. Keep in mind that “honest” is the keyword here. You’ll want to clearly describe the vehicle’s condition. It might have served you well and you might have some fond memories attached to it, but no one is going to give you more money for it because of the way you feel about your current car.
Another option is to have the vehicle appraised. Most dealerships have used car managers or someone else assigned to gauge vehicles’ trade-in values. You’ll want to enter the car buying process armed with some facts wherever you end up trading your car in, so two appraisals – plus those online estimates – are better than one.
Print out your online estimate and get the appraisals in writing. It goes without saying that you’re initially going to be offered a rock-bottom value, so have something in hand to prove that the car's value should be higher.
Visit Some Dealerships
Now you’re ready to head to some dealerships. Include the one where you’re thinking of buying your new car if you visit more than one. You might find that you’ll get a better offer here if the dealership knows that more business is in the transaction for them.
Another option is to return to the dealership where you initially purchased the car. You’ve already established a relationship with them so you can present yourself as a loyal customer. When it comes to negotiation, every edge counts.
It can help to time your visit, too. Go at the end of the month, or whenever you’ve determined that the dealership is more interested than usual in moving new cars off of its lot or bulking up its used car inventory. Their flashy advertisements can clue you in that they're currently looking for one or the other. And make sure you have your service records in hand, along with written proof of those appraisals you had done and your internet estimates.
Read More: How to Find the Best Car Deals
Go Back to the Internet
You’re certainly not limited to brick-and-mortar dealerships. You might be able to trade your car in online.
Sites like Edmunds aren't limited to providing you with a trade-in value. Some will actually make you an instant offer on your car after you input all the necessary information. You might have only a limited period of time in which to accept it, however, and there’s typically no room for negotiation. Edmunds gives you seven days to make up your mind. Simply take the offer to a dealership if you accept it and you can trade in a car with no headaches or haggling.
Some valuation sites like Kelley Blue Book are affiliated with dealerships. You can ask one or more of them to make you an offer.
Trading in vs. Selling Your Car
Maybe your current vehicle is older and not in the greatest condition, and you have some time to invest in getting the best deal possible. You might consider skipping the trade-in process and all those negotiations and instead auction the vehicle. At the very least, you can advertise your vehicle and sell it to a private party. You can simply take the resulting cash to the dealership in either case.
You’ll probably get more money for your car if you sell it to a private party rather than auction it, or even rather than trade it in. The buyers at “wholesale” auctions are typically dealers, so they’re not going to pay any more for your wheels than they figure they can recoup when they sell it – plus a profit.
Private buyers aren’t usually concerned with any profit they might realize if they turn right around and sell your car again, but finding one might require a time and energy commitment. Not only would you have to hunt up a buyer through advertising or word of mouth, but then you must go through the hassle of arranging the sale. You’ll probably have to engage in some negotiations in either case, whether you trade the vehicle in or sell it.
But here’s one big plus in favor of trading in a car rather than selling it: The taxman might have his hand out for less money if you trade it in. Sales tax only applies to the difference between the cost of your new vehicle and the value of your trade-in in some states, whereas you’ll have to pay the full amount if you sell your car privately and take the cash to the dealership.
When Your Car Has a Loan Against It
Of course, you’re probably limited to trading your vehicle in if you still have a loan against it – at least unless you want to come cash out of pocket to pay off the loan first before selling it.
The dealer will arrange to roll your outstanding loan into your new loan when you trade your car in at a dealership, even if you’re “upside-down” on the financing – you have negative equity in the vehicle because you owe more than its trade-in value. You’ll have to make a cash payment to make up the difference if you sell the car to a private party for less than the loan amount. And you could end up with negative equity the minute you drive off the lot if you’re upside down on your trade-in’s loan and that balance is rolled into the balance against your new wheels.
Read More: How to Trade in a Car With a Balance on It
Beverly Bird has been writing professionally for over 30 years. She is also a paralegal, specializing in areas of personal finance, bankruptcy and estate law. She writes as the tax expert for The Balance.