How to Trade In Your Car

How to Trade In a Car

Before you get started with a trade-in, it's important to understand the process and try to maximize your vehicle's value. Here are some steps you can take:

1. Research Your Car's Value

The most important way to gain leverage is to research the value of your car. You can find pricing through websites like Kelley Blue Book, J.D. Power and TrueCar based on the unique aspects of your vehicle.

You may see a range of values that vary based on the condition of your car. Based on what you see, you can determine your ideal sales price, along with the minimum you're willing to accept.

Learn more: What Is the Book Value of a Car?

2. Prepare Your Car

A clean and well-maintained vehicle will likely receive a higher price than one that is not. Before heading to a dealership, take some time to clean and detail your car so the dealer can sell it quickly.

Similarly, it may make sense to make minor repairs, such as fixing small dents, paint scratches or windshield cracks, as well as checking for recalls. Paying for major repairs may not be worth it, however, because the cost to complete these repairs could be more than the value they add to your vehicle.

3. Get Offers from Multiple Dealers

Even if you have a dealer in mind for your next car purchase, it can still help to make an appointment with multiple dealers to see where you can get the best offer. You might also get quotes from online retailers like CarMax and Carvana to negotiate a better trade-in offer from your preferred dealer.

For in-person appraisals, ask if you can be with the appraiser to see how they calculate your car's value. Having a better understanding of their valuation process in a transparent way may help you negotiate better.

Keep in mind that meeting with multiple dealers can be a time-intensive process. If you don't have much flexibility with your timetable to buy a new car, you may need to skip this step.

4. Be Prepared to Negotiate

When you buy a car, dealers typically try to do some financial maneuvering to get the best deal they can. One of the more common strategies is to try to get you to focus on the monthly payment for the new vehicle—usually through a longer repayment term, which results in more interest charges for you.

As a result, it's best to negotiate the trade-in separately from the new car purchase so the dealer can't divert your attention away from the trade-in value. Use the information you've gathered in your research to help you negotiate a better deal on the trade-in.

Once you agree on a price, get it in writing and take that to the dealer's finance department or even another dealer if you want to shop around.

Learn more: How to Negotiate the Price of a Car

What Do You Need to Trade In Your Car?

Trading in your car is a relatively straightforward process, but you'll need some documents to negotiate a better deal and complete the transaction, including:

• Your driver's license
• Your car's title and registration
• Proof of insurance
• Trade-in offers and estimates
• Maintenance and service records
• Keys and remotes
• Ownership manual

If you have a loan on your car, be prepared to show your account number and loan payoff amount.

How Does Trading In a Financed Car Work?

When you trade in a financed car, the dealer will pay off your loan for you. The impact of the trade-in will depend on whether you have positive or negative equity in the vehicle:

• Positive equity: Having positive equity means that the car is worth more than the remaining loan balance. In this case, you can apply the difference to the new purchase as a down payment, reducing how much you need to borrow for the new car.
• Negative equity: If you have negative equity, you owe more than the car is worth. In this instance, the dealer will add the difference to your new loan balance, which may result in you starting your new loan with negative equity.

If you owe more than your car is worth, selling it to a private buyer can be a good way to minimize the impact of your negative equity. If the selling price is still lower than your loan balance, however, you'll need to pay the remainder out of pocket.

Learn more: How to Trade In a Financed Car

Reasons to Trade In a Car

There are several reasons to consider trading in your car. Here are some to keep in mind as you consider your options:

• You want an upgrade. If you've owned the same vehicle for a while and want a newer model with better features, trading in the car can help offset the cost of the vehicle purchase.
• The car needs major repairs. If your vehicle needs major repairs, that can impact the value of the trade-in. However, the potential lost value may be less than what it'd cost you to complete the repairs yourself, so a trade-in could potentially help you save some money.
• The car has high mileage. As your car gets up there in mileage, it'll likely need repairs more frequently. Trading it in for a model with fewer miles can be a good way to avoid costly repairs in the future.
• You don't have time to sell it. Although you can net more money by selling the car to a private buyer, that process can be time-consuming. If you don't have a lot of free time, or you simply don't want to spend that time selling a car, a trade-in can be a convenient alternative.

Learn more: When Should You Trade In Your Car?

Pros and Cons of Trading In Your Car

Trading in your car has some clear advantages, but it's also important to consider the potential drawbacks.

Trading In vs. Selling Your Car

Depending on your situation, it may be better to sell your car to a private buyer rather than trade it in. However, the decision between the two may not always be clear-cut. Here's what to consider:

• Sales price: If your top priority is maximizing your car's sales price, you'll likely get a better offer from a private buyer who isn't planning on flipping the car for a profit. Keep in mind, though, that sales tax benefits on a trade-in can help mitigate the impact of the lower sales price.
• Time: If you have the time to sell a car, the extra profit may be worth your efforts. However, if you're pressed for time or you're not convinced the extra work is worth the higher selling price, a trade-in may be better.
• Risks: When listing your car online, you'll need to be wary of scammers. You may also need to deal with low-ball offers and other frustrating situations. In some cases, there may even be post-sale disputes. Working with a reputable dealer eliminates these risks.

Take your time to evaluate your situation, needs and priorities to determine which option is right for you.

Frequently Asked Questions

Good Credit Can Reduce Your Payment

Trading in your car is a good way to lower your purchase price and, by extension, your loan payments. Similarly, maintaining a good credit score can save you substantial money over the life of your loan. That's because your credit score is a crucial factor lenders consider when approving your loan and calculating your interest rate.

Before you head to the dealership, check your credit report and FICO^® Score^☉ for free with Experian to see where your credit stands. If your credit needs work, consider taking some time to address any issues that could be dragging down your score. By improving your credit, you might secure a more favorable interest rate and save hundreds or even thousands of dollars in interest.