How to Trade In Your Car
When you buy a car, you may decide to trade in your old one so that you can get a lower monthly payment as you upgrade to a better vehicle. Dealerships usually make the process of trading in an old car quick, easy, and transparent.
How do trade-ins work? What if you still owe money on the car loan for the vehicle you are trading in? How can you get the best possible deal on a trade-in?
What Is a Trade-In?
When you trade in your car, you are selling it to a dealer in order to get another one at a lower price than you would have had to pay otherwise. The dealer will either subtract the trade-in value from the purchase price of the car you want or offer cash in exchange. The trade-in value is the best price the dealer can offer for your used car.
- If you own the car outright, trading it in is more convenient than selling it yourself. The trade-in value will be deducted from the price of the new car, and you will pay the remaining amount with a car loan or with cash.
- If you are downsizing and the value of your used car is greater than the value of the new one, the dealership will give you a check for the balance.
- If you are still paying for the car, the situation becomes a little more complicated. When the trade-in value of the car is more than the outstanding balance of the loan, the equity (difference) will be subtracted from the sale price of the new car. If your car has negative equity or is valued at less than the amount you owe, the trade-in is considered upside-down. This means that you must pay the difference between the trade-in value and the loan balance.
How Does It Work?
Car dealerships welcome trade-ins. Before the exchange, the dealer will assess the value of your car and offer a deal. You can negotiate to try to get a better deal. Once you accept the dealer’s best offer, he will apply the positive balance to the purchase price of the new vehicle. The dealer will resell your car on the lot or at an auction.
How A Trade-in Is Appraised In Canada
Car dealerships in Canada do not all follow the exact same procedure for determining trade-in value. But they do tend to look at the same aspects of the car you propose to trade in.
- The vehicle’s make, model, and year.
- The relative popularity of a make and model.
- Add-ons and trim packages.
- The history of maintenance and repair of the car.
- The kilometres recorded on the odometer.
- Accident history, if any.
- Amount of wear and tear of the interior, exterior, and under the hood.
- The prevailing selling price of similar vehicles in your area.
Canadian car dealers also consider how much it would cost to recondition the car to make it sale-ready.
Increase The Trade-in Value Of Your Car
You can increase the trade-in value of your car by removing minor imperfections like scratches, chipped paint, leaks, worn-out wipers, and burnt-out bulbs. A good first impression is crucial when proposing a trade-in. So make sure your car is mechanically sound and well-polished.
You will need to provide documents like the vehicle title, vehicle registration, your driver’s license, the record of your loan payments (if you took out a car loan), proof of purchase, and receipts for maintenance services. These documents may improve the trade-in value of your car and speed up the process.
Follow The Trade-in Procedure
Call your preferred dealership and make an appointment for an appraisal. Typically, the dealer performs an inspection and test-drives the car to assess its mechanical condition before offering a deal. If you think that the offer is unreasonable, see if another dealership can give you a better deal. Shop around, and don’t rush to accept the first proposal that sounds good. Compare offers and make sure you get a good deal. Then close the deal and make the trade.
Advantages of Trading In a Car
Trading in your current vehicle is a convenient and easy way to get rid of an old car while enjoying certain financial advantages.
A Trade-in Saves You A Lot Of Work, Expense, And Stress
Selling the car yourself entails getting it ready for sale. Getting it ready means detailing, fixing minor and major problems, and cleaning. Then you need to prepare and post an ad. You need to field the calls and emails you receive and arrange for times to show your car. You may have to meet many prospective buyers before you find the right one.
With a trade-in, you are spared much of this trouble. You can focus on getting the car ready for the dealer’s inspection, assessing its current market value, and negotiating a trade-in price.
A Trade-in Helps You Save Money On A New Car
The trade-in value will be subtracted from the cost of the new vehicle, helping you save money, perhaps a lot of money. Suppose you receive a $10,000 offer for your old car, and you want a car worth $25,000. Then you will need to take out an auto loan for only $15,000, not for $25,000. You also save money on the interest you will be paying.
A Trade-in Helps You Avoid Sales Tax
When you buy a new car, you will be taxed based on the purchase amount. If you trade in your old car, you will pay only the difference between the trade-in value of your car and the purchase price of the new one.
Disadvantages of Trading In a Car
You get less money for the car you are trading in.
When you trade in your car, you may lose hundreds or even thousands of dollars. The best you can expect to get is the wholesale value of your car, markedly less than what you would get if you sold the car yourself.
You Limit Your Options For Buying A New Car
When you trade in your used car, you are obligated to purchase your next car from the dealership. There is no provision that lets you trade in the vehicle at one dealer and buy the new car from another dealer. In other words, if a dealership does not have the car you want, it is not the place to trade in your current car.
Research the Value of Your Trade-In
To determine the current market value of your car, do some research before contacting a dealership. Several popular online tools can help you estimate the trade-in value of the car, including Canadian Black Book, VMR Canada, Autocar, and Kelley Blue Book. Simply input the make and model of your car to get an idea of its current value.
When assessing the car’s trade-in value, view it the way a dealership would. Flaws like dings and dents and rust will reduce the trade-in value.
What to Expect at the Dealership
Car dealers want to profit from any trade-in deal. And they want to do it fast. The quicker they can make money from your car, the stronger their financial position will be.
The price that a dealership offers for trade will almost certainly be lower than the price you would receive if you sold the car yourself. Regardless of the make, year, model, and condition of your vehicle, the trade-in price will probably be lower than you hope for.
Dealerships do not take into account your expenditures on things repairs, new tires, or tune-ups. They look at the current value of the car regardless of whether you paid a lot or a little to maintain it.
Sometimes a dealer will not want your car, possibly because the car model is out of favour with car buyers or because the dealer already has many similar vehicles in his inventory.
Negotiating the Best Trade-In Price
Everything is negotiable, so don’t feel impelled to accept the first offer you receive. A good rule of thumb is to have your car appraised by a number of car dealerships before accepting an offer. Practice the art of negotiating.
The time of the year is also relevant. You will receive a more generous offer if you trade in your old car before the new models start rolling out.
Know the history of your car and its current condition. As soon as a car hits the road, its market value starts to decline. That’s inevitable. But if you have carefully maintained and used the car, you will get a better trade-in value than if you had been negligent. If you believe that it is worth $8,000 but the dealer offers $5,000, try to negotiate. Meet the dealer halfway or get an appraisal from another dealership.
To avoid confusion, keep your trade-in negotiation and purchase negotiation separate. Dealers make money by reselling trade-in vehicles, so they become more competitive when offering trade-in prices to someone who is also buying a new vehicle from them. Do not let the dealer mix the two deals, because then he can try to manipulate the figures. Keep an eye on the net amount you must pay. It is best to discuss the purchase price of a car you like before negotiating the trade-in allowance.
After you have negotiated a trade-in, make sure you clearly understand what you are committing to when you agree to it. Read the details of the contract carefully to make sure that you are getting a fair deal, and don’t be afraid to ask about any provisions that are unclear to you. Always look out for your best interests.
Frequently Asked Questions
Can you trade in a car if it isn’t paid off yet?
Trading in financed vehicles in Canada is common. Many dealerships provide this option for car owners who want to upgrade their vehicles. If you are dealing with the same car dealership, it will subtract the current amount due on the old loan from the trade-in value of your old car, and then subtract the result from the purchase price of the new car. The difference between the trade-in value of the old car and what you still owe on it, called equity, is subtracted from the purchase price of the new vehicle.
Will a car dealer give me the true value of the car?
The trade-in value of your car depends on its condition, unique history, the dealer’s current inventory, the local ownership history of the model, and sales data for similar used cars. After appraising and test-driving the car you are trading in, the dealer will determine its value based on his own method of taking the relevant factors into account. Some dealers show you the math and provide supporting documents for the valuation. Others do not. Dealerships will give you the best possible offer that will provide them with profit.
What do car dealers look for in a trade-in?
Car dealerships base their decisions on the make, model, and trim level of your vehicle. They will rate it as being anywhere from fair to excellent, depending on the condition of the mechanical, interior, and exterior parts. A dealer will also look at total mileage, the value of the car in the local area, accident reports (if any), and previous repairs.
Can you trade in a leased vehicle?
Yes. The car dealership will work with the lease company to take care of the remaining balance. On your behalf, the dealer will pay the outstanding amount on the lease so that the car can be transferred to a new lessee.
Trading in your leased car is best to do if you are downgrading to a smaller vehicle or if the leased car is costing you a lot of money for parts and maintenance in addition to the lease payments. The leasing company can either pay the balance of the lease installments or roll it into a new lease, along with all the fees and penalties.