Here’s the script for the “How To Trade In Your Car” video above:
Now that you have a better idea of how you want to buy the car, whether, through cash or financing, it’s likely that you already have another vehicle to trade-in, so let’s explore some of your considerations and look at how to trade in your car and valuation from a dealer’s perspective.
When you trade-in a car as part of the purchase, it’s extremely convenient for the buyer because the dealership treats any equity you have in the car as a cash downpayment. For example, let’s say that you owe $8,000 on the car, and the dealership is willing to give you $10,000 for it. That $2,000 you have in equity is treated as a two thousand dollar down payment. The dealer will send the other $8,000 to the current lien holder to release the title to them.
This is why it’s important to know what you owe to your current lien holder and to bring your account information or statement so that the dealer can get a 14-day payoff quote. In most states that equity also has the benefit of reducing your sales tax on the new purchase. In the previous example, if you live in a state with a 6% sales tax and trade a car with $2,000 in equity, it will reduce your overall tax on the purchase by $120.
Trading in a car can tend to be one of the more contentious parts of the negotiation. First of all, everyone thinks their car is worth more than it is likely because you have developed an emotional attachment. Dealers, on the other hand, don’t share the same emotional attachment as you do any more than a convenience store owner has an attachment to a pack of gum. Used car valuation is strictly an issue of logic, and a car dealer only exists to generate a profit.
Most buyers don’t understand everything that goes into owning a car lot. Every single spot in the yard has a dollar value attached to it. The longer a car sits there, taking up space prevents the dealer from realizing revenue on something that will sell. The dealer has overhead in terms of property taxes, rent, building maintenance, utilities, an hourly or salaried support staff, they need to pay their detailing department to make it clean, and their service department to make sure it’s roadworthy, plus they pay a commission to everyone in the sales department involved with the transaction.
If the dealer keeps the car that bought on trade, it must be worth something over a few thousand dollars, or they won’t even keep it. They will just send it to auction where it will be picked up by a no credit no problem dealer. Some cars are worth so little that a dealer won’t even give you fifty bucks for it just because even the process of sending it to auction is a waste of resources. If you have a twenty-year-old rust-bucket with 200,000 miles, it’s best to just take it to the junkyard and get paid its weight in scrap. It likely lacks many modern safety features at that point and may be dangerous to give to a friend or family member. Just put it down.
That being said, most of you will have a car that isn’t ready for scrap yet, so how do you get the most for it? Understanding valuation is essential here when learning how to trade in your car. Many customers go to Kelley Blue Book for valuation because that was the gold standard back before the internet since the 1960s, so that’s what your parents tell you to do because that’s what their parents told them to do. I can’t tell you how many times a day customers would leave our dealership frustrated because we wouldn’t offer what KBB said we should.
The real winner for actual market value is Edmunds.com. Look at this comparison for the exact same car, same options, same mileage, and same location. The KBB value is almost $3,000 higher than the true market value! As of the time of this publication, the only way that a dealer would give you $12,000 for that car is if you’re paying sticker price for theirs!
Can you see where I would have a massive problem trying to sell you a car if you want $3,000 more than what your car is actually worth? Kelley only wants to pump you up about the value of your car so that you give them your information to be sold as a lead. Cars aren’t the commodity on their site. Your information is! For years now, Edmunds has been the place to find the true valuation of your car.
One final note on running your online valuation. Only a brand new car is ever in “outstanding” condition. Even the “clean” condition almost never applies. Unless your car has some crunched up body damage to make it poor, then it’s average. Get over it; just click average and move on. No dealer thinks your six-year-old car meets the definition of clean.
Now would you like to know how to trade in your car for the most cash instead?
Trading in your car during the purchase of another is very convenient, but that convenience does come with a price. If you want the most possible cash for your car, and to remove it as a point of negotiation on your new purchase, then just sell it to Carmax. Carmax will pay you closer than anyone to the market value without negotiations. You drive it to your nearest Carmax dealer. They’ll do an appraisal and offer you a check. All you need do then is deposit the check they gave you and apply it to your down payment on your next car. You will forfeit the reduction in sales tax benefit if you go in this direction, but this should only make a significant difference when your equity exceeds $10,000. In that case, it can be worth the effort to take your Edmunds valuation to a dealer and negotiate the trade.