If you’re looking to buy a new car, you might also be considering trading in your current vehicle. The trade-in process can seem daunting, and as always OneRequest is here to help! Here are a few tips to facilitate the trade-in process and boost the trade-in value of your current vehicle.
Getting Started – Trade-In 101
Typically, a trade-in means you exchange your current vehicle to cover at least a portion of the cost of a new vehicle. In other words, the value of your trade-in is subtracted from the price of the new vehicle. The higher the price you can get for your trade-in, the less cash you’ll have to come up with to pay for your new ride.
Does Your Car Still Have a Loan?
Do you still owe loan payments on your current vehicle? It is not a problem if you do: many people trade in a car they are still paying off. The trade-in value of your car essentially becomes a credit towards repaying the remaining balance of your loan. Dealerships will typically repay the loan on your behalf as part of the closing process for the new vehicle (if you choose to sell your existing vehicle privately, you will need to handle the repayment step on your own). If your current vehicle is worth more than the remaining amount due on the loan, you have positive equity. If your car is worth less than the amount due, you have negative equity. Here are examples of both.
Positive Equity. Your car is worth $10,000 and your car loan has a remaining balance of $4,000. That $6,000 difference will be applied towards the price of your new vehicle.
Negative Equity. Your car is worth $10,000, but your car loan has a remaining balance of $11,000, which means you must come up with an additional $1,000 to repay your loan balance (dealerships will usually consider rolling this into a loan for your new car). Because your equity is “negative” there is no trade-in value to reduce the price of your new car.
Quick Research Will Pay Off
Make sure to look up the current trade-in value of your vehicle. This will help you determine if you are dealing with positive or negative equity. Of course, if you have already paid off your current vehicle, the value of that vehicle will simply be subtracted from the price of your new vehicle. Understanding current trade-in value will also allow you to set expectations for offers from dealerships. A few quick searches will prepare you to negotiate the trade-in value. Common resources include Kelley Blue Book and Edmunds.
Let’s be honest. It won’t hurt to have your car clean. Yes, this includes the exterior and the interior. Although this doesn’t guarantee success, you increase your chances of getting the most for your trade-in. The last thing you want is a dealership to low-ball your trade-in due to a few exterior scratches or interior mess. Leave nothing to chance!
This varies state to state, but don’t forget about sales tax. In most states, car buyers must pay sales tax on the difference between the trade-in value and the price of your new vehicle. So, if your trade-in value is $10,000 and your new vehicle’s price is $22,000, you’ll need to pay sales tax on the remaining $12,000.
Because of this quirk, trading in your vehicle to a dealership could end up saving you money, even if you can find a higher price selling your car privately. The key here is to understand your state’s sales tax on vehicles. If you’re considering searching nationwide, we recommend checking out OneRequest Concierge to complete your search and negotiate your trade-in. Our Concierge team can handle everything for you, allowing you to six back and relax versus spending hours researching state sales tax.
Don’t forget to review your contract. It doesn’t hurt to double check to make sure the agreed upon amount is accurate on the contract you’re signing.
Be aware of the financial implications, both good and bad, of trading in your vehicle. It’s important to understand if your vehicle has positive or negative equity if you are still making loan payments. If you own the vehicle and no longer make car payments, maximize your chance at a higher trade-in value through a quick tune up and wash.