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Trading in your car is a convenient way to sell it and buy a new vehicle at the same time. But just because you can trade in your car, it doesn't mean you should. You can almost always get more by selling it to a private party, but a trade-in helps you avoid the headache of selling your car on your own.
Here are some situations where it can make sense to do a trade-in, as well as some where you should think twice before proceeding.
When Should You Trade In Your Car?
It can make sense to trade in your car in the following situations:
- You have good equity. If your vehicle is worth a lot more than your remaining loan amount, you can use the difference to reduce the cost of the vehicle you're buying. In some cases, you may even be able to request a portion of the proceeds in cash.
- You have low mileage. The more miles your vehicle has, the more its value will depreciate. Some experts recommend that you trade in a vehicle you bought new before its factory warranty expires, which can occur around 36,000 to 60,000 miles. There's also the fact that cars become less appealing to buyers around 100,000 miles, so a dealer might get more for yours before that milestone, resulting in more value for you.
- You have a high credit score. If you're trading in a car, that typically means you're buying a new one. While there are auto loans available to borrowers across the credit spectrum, you can maximize your interest savings with good or excellent credit.
- You have a large down payment. It's generally best to avoid a trade-in if you owe more than the car is worth (more on that in a minute), but if you have a sizable down payment to make up for that deficiency, it could still make sense.
When Should You Not Trade In Your Car?
Just as there are good times to consider a trade-in, there are also times when it might not make sense:
- You have negative equity. Negative equity means that you owe more than the current value of your vehicle. While it's possible to do a trade-in with negative equity, the dealer will typically tack your deficiency amount onto the new loan. If you don't have a large down payment, you may start off your new loan with negative equity as well, putting you in a dangerous financial spot if the vehicle gets totaled.
- Your credit could use improvement. Your credit score won't impact the trade-in value of your car, but it will affect the interest rate you're able to get on the next vehicle you buy. Check your credit score before you begin the process, and if it's in the mid-600s or below, consider taking steps to improve your credit before you continue.
- You want more money for your car. While a trade-in offers convenience, you won't get as much as you could if you sell the car in a private-party transaction. This is because private buyers typically don't turn around and re-sell the car for a profit the way a dealership does. If you sell your car instead of trading it in, you can put the extra cash toward your next car or pocket it.
Should You Sell Your Car or Trade It In?
The decision to sell your car or trade it in may depend on a few different factors. From a purely financial perspective, selling your car in a private-party transaction will leave you with more money than trading it in.
However, the selling process can be onerous. You'll have to clean the vehicle and take pictures, then post them on classified websites. Then, you'll need to field calls, make yourself available for test drives and negotiate with potential buyers who may be aggressive or try to lowball you. There's also no guarantee that you'll sell your car quickly. Then you'll be without a car for a period of time until you're able to buy a new one.
With a trade-in, you'll still need to negotiate the value, but the process is typically quick, and you can often leave with your new car the same day.
Ultimately, the decision is yours to make. Consider your personal preferences and available time, and also use Kelley Blue Book or a similar car valuation tool to get an idea of what your vehicle's trade-in and private-party values are. With all of the factors in mind, you can decide whether the selling process is worth the extra cash you can get.
How to Trade In a Car
Before you head to the dealership, it's important to understand how the process works to ensure you get the best deal possible on your vehicle. Here are some steps you can take:
- Find out how much your car is worth. Using Kelley Blue Book or a similar car valuation service, get an idea of what your vehicle's trade-in value is. You may see a range of values that vary based on the condition of your car. These services can provide a starting point for negotiations, but you may ultimately get more or less depending on the market.
- Get the car ready. You may not need to do a full detail, but a clean car will usually get a better offer than a dirty one. You'll also want to check for potential recalls and consider getting those fixed and making some minor repairs.
- Get offers from multiple dealers. Even if you already know where you want to buy your next car, it's still a good idea to shop your car around and see where you can get the best initial offer. If your preferred dealer doesn't give you the best deal, you may be able to use other offers during the negotiation process.
- Be prepared to negotiate. Once you've decided which dealer you want to trade in your car with, bring it in for an inspection. The dealer will then be able to give you a more accurate value for the vehicle. At this point, you can negotiate the price. If you've maintained the vehicle well, have your service records on hand to prove it. Even if you urgently need a new car, avoid sounding that way and don't be afraid to walk away if necessary.
The Bottom Line
Trading in your car can make sense if you don't have the time or desire to deal with the process of selling it, but there are still cases where it might not make sense. Take time to consider your situation and research all of your options to determine the best path forward for you and your vehicle.