Should You Trade In Your Car?

Saying goodbye to a used car can be an emotional journey for many, but it’s part of life. The emotions might come from the fact that your vehicle has been with you through many important events. You might get nostalgic knowing you need a different vehicle to tackle life’s next chapter. Of course, the emotions can also come from knowing you might have to drop a pretty penny on a new car.

Before you look in couch cushions or apply for a second job, know that your current car can make it much easier to manage new car prices. Your vehicle holds value you can use to invest in your next purchase. Some people opt for a private party sale, but this route can be a hassle to manage. When you consider you must advertise your vehicle and handle all the paperwork yourself, you might wonder if there’s an easier way.

The solution for many people is to trade in their vehicles to dealerships. Dealers are always on the hunt for used cars they can flip and sell to other customers. While dealers usually make money in these transactions, those trading their vehicles in also come out winners. You’ll appreciate not having to hunt down a buyer, not messing with repairs, and letting the dealer handle all the paperwork. Most importantly, you’ll have a decent amount of money to put toward your new purchase.

Before you trade in your car, learn more about the process via this guide. We explain the pros and cons, determine the best time to trade, and help you understand when selling to a private party might be more advantageous.

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What Does It Mean to Trade In Your Car?

You can probably assume trading in your car involves swapping out your vehicle for something in return. But what does the process entail? When someone talks about trading in their car, they usually refer to giving their vehicle to a dealership in exchange for credit.

The individual can put this credit toward the purchase of a new car at the dealership. A trade-in can occur as long as the vehicle has some value and the dealership is willing to resell it.

Is It Smart to Trade In a Car?

Though it depends on several factors, including your car’s current value, trading in your vehicle can be a smart move. Here are some of the top benefits of trading in your car:

Save on a New Car

As attached as you are to your current vehicle, the time to trade is likely upon you. Perhaps your current car is on its last leg or you need something bigger to accommodate your growing family. Regardless, a new car can put a big strain on your budget. In addition to high monthly payments, you’ll have to shell out some serious cash for car insurance, registration fees, and other expenses.

The good news is a trade-in can help make your new car much more affordable. A dealer will value your car and give you the appropriate credit to apply toward a new vehicle. This credit reduces the amount of money you must pay upfront and might even be enough to cover your down payment altogether. It can also lower your monthly payment, which leaves more money in your pocket to allocate toward expenses like maintenance costs.

In some cases, a trade-in allows you to basically swap out one car for another. For instance, imagine you bought a brand-new high-end SUV several years ago. Even though the vehicle has depreciated, it still holds significant value. The credit you get from a trade-in could help you downgrade to a more affordable vehicle while keeping your out-of-pocket costs as low as possible.

Avoid Repair Costs

Despite how much you love your used car, it’s likely seen better days. Perhaps it has bodily damage, a malfunctioning engine, or other problems that affect its performance or appearance. Scheduling repairs for your used car is not only a hassle but can also seem fruitless. After all, why would you want to spend as much on repairs as the vehicle is worth?

Fortunately, many dealerships aren’t picky when it comes to accepting trade-ins. What you consider trash might be a dealer’s treasure, as they can make a quick buck by performing the repairs and reselling the vehicle. While a dealer will usually lower their offer for a vehicle in need of significant repairs, the deduction is often well worth the repair savings on your end.

Take Advantage of Tax Savings

If you live in a state that charges sales tax, a trade-in might reduce your tax liability. Most drivers only have to pay tax on the difference between the value of their old car and the cost of the new car. For instance, imagine a dealer values your current car at $20,000. If you apply this credit to buy a $25,000 car, you’ll only have to pay taxes on the $5000 difference.

Enjoy a Hassle-Free Process

Selling your car on your own can sound like a hassle. In addition to getting it in top shape for potential buyers, you must advertise it and complete a bunch of paperwork. You might also have to meet with several potential buyers and supervise test drives before securing a sale.

Consider passing on this work to a car dealership by opting for a trade-in over a private sale. Those looking for the best deal will have to get quotes from many dealerships, but once you find the right one, you’ll be good to go. Most places take care of the entire process by walking you through the sales paperwork and transferring the title. You might even get the dealership to pay off your old car loan. Be sure to check the dealership’s policies before you conduct a trade-in to understand your responsibilities.

When Trading in Your Car Is a Good Idea

While trading in your car has its benefits, you’ll only fully reap the rewards if you capitalize on your situation. Here are some indicators that trading in your car is a good idea:

You Prefer Convenience Over Value

Because dealerships handle the entire process and put work into your car to resell it for a profit, you won’t get the most money possible. However, a trade-in is a good option for those who prefer convenience over value. Accepting a lower amount for your vehicle is often worth the less-stressful process of going through a dealership.

Your Car’s Mileage Is Climbing

There’s no magic number when it comes to the ideal mileage for a trade-in, but dealerships typically prefer a low-mileage car to one with higher mileage. Some people trade in their vehicles at around 30,000 to 40,000 miles to avoid the first major repairs. This milestone also marks the expiration of most bumper-to-bumper warranties, meaning trading in your car can help you avoid costly repairs.

If you’re looking to maximize the trade-in value, try turning in your vehicle before it hits 100,000 miles. Cars above this mileage won’t be worth as much because they won’t qualify for most dealerships’ certified preowned programs.

Your Car Is Still Relatively New

While mileage can be a good indicator of your car’s trade-in value, it’s not the determining factor. A high-mileage car can still be in great condition, and a neglected low-mileage car can have plenty of issues. Aside from mileage, consider your car’s age. Older vehicles tend to go for less as their demand decreases and new model year cars roll out. Generally speaking, a newer vehicle will have a higher trade-in value.

It’s Spring or Summer

Though you might not have initially considered it, the time of year can affect whether it’s a good idea to trade in a car. Car shopping is most popular during the spring and summer, meaning dealerships are willing to offer you the best deals on trade-ins to meet demand. So, if you don’t need your next car right away, consider waiting until this best time to trade.

Trading In Your Car vs. Selling It Privately

Selling your car to a private party might be more difficult, as you’ll have to manage the sales process yourself. However, it can be a desirable option if you want to avoid a low-ball dealer trade-in price and get the most bang for your buck. You’ll also be able to get cash instead of dealership credit, which is ideal if you’re not in the market for a new car.

How to Trade In Your Car

Here are some tips to get the best deals when trading in your car:

Get quotes from multiple dealers.Invest in minor repairs.Get it cleaned up and looking its best. Have your paperwork in order, including maintenance records and proof of registration.Be honest about any problems with your vehicle.Research the value of your vehicle before visiting the dealer to improve your negotiation leverage.

Can You Trade In a Financed Car?

If you want to trade in a car you haven’t paid off yet, that’s a possibility too. Many people go this route that involves the dealer taking over the auto loan and paying it off on your behalf. For instance, imagine you have a trade-in worth $7000. You still owe $3000 on the car loan and the dealer pays it off, leaving you with $4000 in positive equity you can put toward a new car.

Know that trading in a financed car won’t help you get out of your loan early, as you’ll have to pay the dealer the difference. Using the same example above, imagine you still owe $3000 on the auto loan, but your trade-in value is only $2000.

You’ll have to make up the $1000 difference by paying the dealer $1000 in cash or agreeing to roll the amount into your new car loan. Trading in a car when you have negative equity in your vehicle can be expensive in the long run, so carefully determine if this route makes the most financial sense.

So, Should You Trade In Your Car?

Selling your car to a private party can come with downsides, namely a more stressful and involved sales process. If you’re OK accepting less for your vehicle, a trade-in at a dealership is a good option. You’ll avoid unnecessary sales taxes and get the money you need for your next car quickly and easily.

Finance & Insurance Editor

Elizabeth Rivelli is a freelance writer with more than three years of experience covering personal finance and insurance. She has extensive knowledge of various insurance lines, including car insurance and property insurance. Her byline has appeared in dozens of online finance publications, like The Balance, Investopedia, Reviews.com, Forbes, and Bankrate.