As you’re thinking about purchasing a new car, what do you do with your old one? A trade-in might be for you.
But before you think of trading in as an easy way to get rid of your car, you’ll want to make sure the process is worth it financially. Understanding the steps needed to trade in will help you decide whether it’s the right choice for you.
What is a car trade-in?
A trade-in is when you exchange your old car for a new one, usually during the purchase of a new car.
The car dealership estimates the value of your current vehicle and subtracts it from the cost of your new car. This figure reduces the amount you need to finance or pay out-of-pocket.
7 steps for trading in your car
1. Understand your trade-in options
There are two methods for trading in your current vehicle: selling it privately or trading it in at a dealership.
- Selling privately - This route is typically more profitable since you do not need to factor in profit margins like a dealership. You also have more control over the negotiation process. However, you must deal with potential buyers and handle the paperwork yourself.
- Dealership - Working with a dealership is convenient and less time-consuming, but you may get a lower trade-in offer than what you would get through a private sale.
2. Research your car’s value
Conducting research before trading in your vehicle will help you understand your car’s current market value and prepare you with the information you need to negotiate if you choose to trade in with a dealership.
Research the following to come to a conclusion about your car’s value:
- Make, model, year and condition of your vehicle - These factors, along with your odometer reading, play a significant role in determining the worth of your car.
- Utilize online resources - Several popular and reputable websites like Kelley Blue Book, Edmunds, and NADA Guides provide an estimate of your car’s value. Gather the numbers from several websites to settle on a value range.
- Analyze local listings - Browse through classified ads or online platforms like Craigslist and Autotrader. Checking how similar vehicles are priced in your area on these listings will help you understand what buyers might expect to pay for your car.
- Check for recalls – The National Transportation Highway Safety Administration (NHTSA) keeps a database of vehicle recalls. If your car needs to be repaired as part of a recall, this could affect your car’s value. Plus, having this information will help you disclose information to a potential buyer should you sell your car privately.
3. Prepare your finances
Before trading in your car, it is essential to be aware of the cost factors of the existing unpaid loan balance associated with your current vehicle. Outstanding loan balances affect your equity in the car.
If you currently have a loan on the car you want to trade in, get your payoff balance before you trade your vehicle in. You can find the payoff balance either by calling your bank directly or by getting it from your online account.
Any negative equity you have in the vehicle will be rolled into the new car financing. It is better to pay cash for the negative equity rather than finance it in a new loan.
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4. Prepare your car for trade-in
Before you head to the dealership, preparing your car for trade-in can maximize its value. And if you’re choosing to sell it to a private individual, these tips will help you sell your car quickly.
Here are some steps to take:
- Clean your car inside and out - A clean car can significantly impact how much a dealer is willing to offer you in trade-in value. Take the time to thoroughly clean the exterior of your vehicle, including the tires and wheels. Remember to clean windows, mirrors, dashboard surfaces and door jambs. Also, clean the interior carpets, floor mats and seats, including the armrests. If the headlights are foggy, clean them or have them professionally cleaned. You may want to hire a detailing service to go over the car.
- Repair minor issues - If any minor issues on your car, like scratches or dents, could negatively affect its value or appeal during an appraisal process, consider getting them repaired before trading it in. If you have recall notices, speak with your dealership about having them fixed.
- Gather relevant documents related to the vehicle - To expedite the trade-in process and avoid delays caused by missing paperwork, have pertinent documents ready. You will need your title or payoff information, your registration, insurance card, maintenance records and any other documentation like inspection paperwork or owner’s manual.
5. Visit a car dealership
Now it’s time to visit a dealership. Here are some tips to help you prepare for your visit:
- Make an appointment - To save time at the dealership, make an appointment ahead of time by calling or going online. You want to schedule a time when they are not busy, so you have time to ask questions you might have about trading in your car with personalized attention.
- Research multiple dealerships - Get the best possible deal by talking to more than one dealership. Visit several dealerships to receive different appraisals for your car’s value. This will allow you to compare offers and have more leverage during negotiations.
- Pack your documentation - Bring the relevant documents related to the vehicle that you gathered.
6. Negotiate the best deal
Negotiating with dealerships is essential to trading in your car, as it can help you get the best deal possible. To settle on a price you’re happy with, follow these steps:
- Research and compare offers – Use the trade-in value you gathered from online sources as a baseline for negotiation.
- Separate trade-in from new purchase discussions - Treat the trade-in discussion separately from purchasing or leasing a new vehicle. This way, you can focus on getting the best deal for each transaction without being overwhelmed by too many details at once. This will also give you a clear picture of your negative equity, if any.
- Be prepared to walk away if necessary - If the dealership isn’t providing an adequate return for your trade-in or appears uninterested in further negotiation, don’t hesitate to walk away and look for other opportunities and dealerships who will accept a fair price.
- Know when not to negotiate - In some cases, there may be little room for negotiation, especially when trading in a high-demand used car model that has retained its value well over time. However, this should not deter you from trying to negotiate.
- Timing is everything – J.D. Powers reports that the average trade-in as of April 2022 was at a high of $31,300. According to Edmunds, the trade-in value averages hit a high of $25,556 in June 2022. Since then, the values have continued to drop, and Edmunds reported that these values were 14% lower in January 2023 than the previous January. Most trade-in values since the COVID-19 pandemic were inflated due to a lack of new car inventory that inflated used car prices. The industry expects the trade-in values to continue to decline. The longer you wait, the lower your trade-in value may become.
7. Finalize your decision
Before deciding to trade your car, consider the pros and cons. Keep the following in mind when you are ready to finalize your decision:
- Evaluate your financial situation – Decide whether it is more economically advantageous to trade your current vehicle in and buy a new car or sell it to an individual and consider a car subscription.
- Analyze the trade-in value - Make sure that the trade-in offer from dealerships is fair based on what you have learned from your research.
- Negotiate confidently – Don’t hesitate to negotiate for better terms on both your trade-in value and your new vehicle purchase.
- Familiarize yourself with all details - Understand every aspect of the agreement before signing any documents, including financing terms, warranty coverage, and additional fees.
An alternative to trading in
If, after weighing these factors, you decide that trading in your current vehicle isn’t right for you at this time, consider exploring alternative options like car subscriptions.
Car subscription services like FINN can provide flexibility and cost savings over traditional ownership models by allowing subscribers access to vehicles without long-term commitments or hefty down payments. Learn more and find out if a car subscription is right for you.
Trading a car in can be an effective way to upgrade your vehicle and save money on a new one. However, it’s essential to understand the process, research your car’s value, prepare your finances and your old car and negotiate effectively with dealerships.