How and When to Trade In a Car


Original Post by  Chuck Smith, TDECU 

Car advertising can definitely be seductive and you may be in the market for a new vehicle.  But before you go out shopping for the car you’ve been eyeing, you should do some homework – particularly if you plan to trade in your current ride.

What is Your Current Car’s Value?

You are probably counting on selling or trading in your current vehicle and using the proceeds to help you purchase your new car. Before you head to the showroom, though, you will want to evaluate what your current vehicle is really worth

Using Kelley Blue Book  and NADA Guides

There is some dispute about which of these pricing sources is more accurate. It is worth checking both, since neither is consistently higher or lower, but bear in mind that Kelley Blue Book allows you to take into account the condition of the car. This flexibility can go a long way toward giving you a more realistic price, since a dealer will definitely evaluate a trade-in’s condition before making you an offer.

What if You Are Upside-Down?

Being “upside-down” simply means that you owe more on your current car loan than your car is worth right now. The dealer may try to talk you into using that upside-down car as a trade-in.  If you agree, you will end up financing the outstanding balance of your current care on your new car loan. To avoid adding your car’s negative equity to your new car loan, you can make a cash down payment and make up for your negative equity. There is no magic formula to get you out of the upside-down position, except time or money. Try to pay more than the minimum payment each month or delay that new car purchase until you are right-side-up again.

Private Sale or Dealer Trade-In?

The big advantage to trading in your car to a dealer is convenience. They make the process pretty painless, taking care of paperwork and removing all the hassles of posting ads, making appointments, allowing potential buyers to test-drive it, negotiating payment, and so forth. Consider whether you have time to invest in a temporary part-time job as a car salesperson. If you have the time to advertise and sell your current car privately, you could end up with a better price. Also, remember that if you trade in the vehicle, the value the dealer gives you on the trade will lower your sales tax on the purchase of the new vehicle. This can be up to 8.25% or as low as 6.25% of the trade value, depending on where you purchase the vehicle. However, if you really just need to get into a new car ASAP, just give the car a deep cleaning and arrive at the dealer with all repair records in hand so you can negotiate the highest possible trade-in price.  Also, it’s a wise strategy to negotiate the price of the new vehicle before you let them know you have a trade in.  It often results in the best possible situation on both cars.

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