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One of the best ways to lower the cost of buying a new car is to trade in your old one. So, what happens when you trade your car in? The dealer evaluates your current vehicle’s value and deducts that amount from the purchase price of the car you want to buy. You then pay less upfront for your new vehicle.
Not sure whether to refinance or trade in to secure a lower car payment? This guide covers how trade-ins work, when it’s your best move, and when you should consider other options.
Knowing what to expect during a trade-in helps ensure you get the best deal. Here’s a breakdown of what the process typically involves:
Your current car’s market value determines how much the dealer will deduct from the new car’s price during a trade-in. That’s why assessing your vehicle’s value is a key part of how trading in a car works.
Most dealers determine a used car’s value by considering its age, mileage, condition, service history and current market demand. However, relying solely on the dealer’s estimate or quote of your car’s value puts you at risk of being lowballed. So, instead of first heading to the dealership, research your car’s value yourself.
Online valuation tools like Kelley Blue Book (KBB) and Edmunds make this easy. Simply enter your car’s vehicle identification number (VIN), year, make, model and other required details to get an estimate. The more accurate the information you provide, the more accurate your vehicle valuation will be.
Armed with your research, you can negotiate a more favorable trade-in value at the dealership. Keep in mind that the online estimate is more of a ballpark figure than a precise valuation of your vehicle. The dealer’s final offer may be a bit higher or lower depending on your car’s condition and current market demand.
Comparing trade-in offers from multiple dealers can help you pick the best deal. Listening to only one offer puts you at risk of missing out on a better one. Also, showing a dealer what others have offered might push them to sweeten their offer to close a deal with you.
Compare offers by visiting multiple dealerships with your vehicle and asking for an appraisal. Negotiate with each dealer to get their best trade-in value and compare them to determine the best one. If none match your car’s online estimate, go for the closest.
Besides the trade-in value, other offer details you should compare include the new car price and dealer fees. These costs will directly affect how much you end up paying or saving in the final deal.
Lastly, if you’re still paying off your current car, don’t forget to compare trade-in offers to what you owe on the vehicle. If the offers are lower than what you owe, you have negative equity. You’ll either cover the difference out of pocket or roll it into your next loan. While rolling it over might seem convenient, it increases your loan amount for the new car, leading to higher monthly payments.
After settling on a dealer, it’s time to negotiate and fine-tune the terms of your trade-in. This is different from the basic negotiating you did while shopping around. It’s also a crucial part of how trading in a car works if you want the most value from your transaction.
The whole point of a trade-in is you’re buying a new car, so your negotiation shouldn’t stop at getting a favorable price for your old car. You should also negotiate the new car’s price. Otherwise, the dealer may simply raise the new car’s price to cover losses on the bargain offered for your old car.
If you're financing the difference your old car’s value doesn’t cover, don’t forget to negotiate loan terms you can afford. Ideally, aim for the lowest interest rate available, and choose a loan duration and monthly payments that fit your budget.
Once you and the dealer have agreed on trade-in terms you’re happy with, all that’s left is to sign and finalize the deal. Finalizing typically involves transferring the vehicle title, handing over your old car and keys and collecting your new car.
If you are still paying off your old car, the dealer will typically take over the loan. This means they’ll pay the remaining loan balance to the lender on your behalf as part of the trade-in process.
Trading in can be a great option for quickly replacing your old vehicle, but it’s not always the right financial move. Here are questions to ask yourself to determine if trading in makes sense for you:
Answering these questions can clarify whether trading in your car aligns with your financial goals.
Before trading in your car, consider all your options to ensure it’s your best move. Here are a few alternatives to trading in, and when they might favor you more:
If you fully own your car or have positive equity, trading it in can significantly lower the cost of buying a new one. Remember to get an estimate of your car’s value before visiting a dealer to trade it in. Otherwise, you risk being lowballed.
For more auto loan refinancing and trade-in tips, visit our blog.
Here are our answers to popular questions about how trading in a car works:
Trading in simply means exchanging your old car for a new one at the dealership. The dealer will appraise your current vehicle and deduct its value from the new one’s price, reducing how much you need to pay to get it.
Yes, the dealer will pay off your car’s remaining loan amount to take ownership of it. However, the more you owe on the car, the less trade-in value there’ll be to put toward your next vehicle.
Dealerships often determine a car’s trade-in value by considering its make, model, mileage, market demand and overall condition. Heavily modified vehicles typically receive lower valuations, even if they’re in good condition, because they can be harder to resell.
Yes, trading in your car can lower your new auto loan amount. The higher your old car’s trade-in value, the less you need to pay for the new car, reducing the loan amount required for the purchase.
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