Understanding the Trade-In Value of Your Vehicle

October 28, 2019 in Trade-In Value

Are you thinking of trading your car in for a newer model? Congratulations! Buying a new car is an exciting experience and one that you’ll always remember. 

But before you get your heart set on that beautiful new car, you’ll want to spend a little time making sure you understand the trade-in value of your vehicle. 

It’s easier than you think, and if you do it right, you’ll be rewarded with significant savings when you buy your new car. 

What Does Trade-In Value Really Mean? 

Simply put, trade-in value is the dollar amount a dealer will give you towards the purchase of a vehicle in exchange for your existing vehicle. 

The dealer will calculate the trade-in value of your vehicle based on several factors including the original market price, the current book value, and the vehicle’s condition.

The dealer also has to account for the costs they will incur while reselling your vehicle, whether they sell it to another driver or sell it at the wholesale auction to a different dealer. 

After taking all of these factors into consideration, the dealer will make you an offer for your trade-in. After any negotiations, the agreed value will be subtracted from the price tag of your next purchase, much like a down payment. 

And if you still owe money on your vehicle, always keep in mind that the dealer's trade-in offer will not necessarily cover the amount you owe. Their offer will be based on the factors above, not on your loan amount. 

Why Should You Trade Your Car In? 

You don’t have to trade your existing car in when you purchase a new vehicle. You could choose to sell the car yourself, keep it in the garage, or pass it along to a child or a loved one. But there are some very good reasons why you should consider trading in. Let’s take a closer look. 

The most obvious reason to trade in is the tax break. In many states, the value of your trade-in is subtracted from the new car purchase price before tax on the sale is calculated. So you end up paying sales tax on a much smaller purchase. 

If you purchase a new vehicle for $30,000 with a $10,000 trade-in and a sales tax of 8%, that adds up to a savings of $800 on your new ride. 

You wouldn’t pass up an $800 off coupon would you? So why pass up on the opportunity to save $800 by trading your car in? 

Another reason to strongly consider trading in is the hassle of conducting a private party sale on your own. You have to get the car ready, manage all of the associated legal paperwork, and allow complete strangers to test drive your car. 

You might get a slightly higher price by selling a car yourself. But before you decide to do it, make sure you’re comfortable with taking on the additional headache of the sale - as well as missing out on the tax break on your new car. 

Getting Ready to Trade Your Car In 

Getting your car ready for a trade-in is much easier than preparing to sell it to a private buyer. While it’s wise to clean the car up and handle minor repairs, you don’t need to worry about taking extensive photos or writing advertisements that cover every tiny detail about the car’s history and condition. 

There are a few things that you will need to gather up, however: 

  • All keys and remote entry devices
  • Vehicle registration 
  • Vehicle title (also known as a “pink slip”) 

If you have an auto loan for your current car, you will also need to provide documentation from the bank or credit union showing your payoff amount and other account information. 

Obviously, you’ll also need to bring your driver’s license and proof of insurance if you’re planning to drive away in a new car! 

Getting the Most for Your Trade-In

When the dealer evaluates your trade-in, you’ll want to set the stage for success in order to get the highest offer possible. 

While it’s important to be reasonable and understand the dealer’s perspective, there are some things you can do to ensure you get the offer you want: 

  • Have your vehicle cleaned and detailed 
  • Take care of minor cosmetic issues like missing knobs and buttons
  • Take care of minor mechanical repairs 
  • Gather up all of your maintenance records 

Staying on top of basic maintenance demonstrates that you’ve been a responsible owner and have kept the car in good shape. Whatever records you have, gather them together in a folder and give them to the dealer. The more records you have, the better. 

Major Factors in the Trade-In Value of Your Vehicle

The dealer will take many factors into account when they’re calculating your trade-in value. 

Some of these factors are complicated and difficult to research, like local market supply and demand. The dealer will likely use specialized software to understand how many cars like yours are already for sale in your local area. 

They will also look at their history to see how much success they have had selling cars like yours in the past. If they can sell your car for a profit easily, their offer will reflect that. 

But there are also several factors you can research on your own that will help you understand the offer you receive. 

Make and Model 

Was your car expensive or inexpensive when it was brand new? Some makes and models are renowned for their longevity and reliability, while others are not. If you’re trading in a discontinued make or model, you might get a lower offer if the dealer believes your car will be hard to resell. 

Mileage

Did you use your car as a daily driver for short commutes, or did you drive it all day every day as an outside salesperson? Did you take it on cross-country road trips for vacation twice a year? All of the above? Your mileage will have a direct impact on the trade-in value of your vehicle. As a general rule of thumb, most people drive about 10,000 - 12,000 miles per year. Is your average higher or lower than that? 

Age

Older vehicles have lower resale values. This is partially due to depreciation - every vehicle loses value over time. Older vehicles are also less likely to have all of the latest and greatest tech options like USB ports, backup cameras, and bluetooth stereos. 

Condition

People tend to think their own cars are in pretty good condition. But dealers have a unique perspective. They evaluate cars day after day, and over time they see the whole spectrum - from the most immaculate to the most messy. Are there stains, tears, and worn spots in your upholstery? Are there door dings and dents, or scratches in your paint? You can bet the dealer will notice them all, and the cost of repairing them will be a factor in the trade-in value of your vehicle. 

There are several other factors that will be taken into consideration, including your location, the current season, your options and upgrades, and even the color of your car. 

Ultimately, if you own a popular car that’s relatively new and in good condition, you’ll probably get a great trade-in offer. When you apply that offer towards the purchase of a new car, you might be surprised how much of a difference it makes in the price - and tax - that you’ll have to pay. 

Trading in can allow you to purchase a nicer model, invest in a few more options, or just enjoy a lower monthly car payment. 

If you’re curious about the trade-in value of your vehicle, use The Appraisal Lane to get your exact value today. We’ll give you an exact number in 15 minutes or less, and you can redeem our offer at a dealership near you.