* According to JD Power & Associates
Okay, so you have an idea of what new car you want and how you are going to pay for it (I hope!) and if you are going to pay cash, finance or lease. Sounds like all you have to do is test drive it and sign at the bottom line. Well, I hate to sound like a nag, but what are you going to do with your current set of wheels? Yeah, you're going to have to do something about that 1995 Nissan pickup. The good news is that there are two methods of parlaying the equity of your current car towards your new one—selling and trading in.
Let's get one thing straight. Selling your car to a private buyer can net you hundreds if not thousands of dollars over trading it in. When you trade your car into the dealership you are only receiving wholesale value, because the dealer has to prep the car for sale to a used car buyer. If you have the time and patience, selling your car yourself is the smartest move you can make. Individual buyers won't dock for dents and scratches as much as the dealer will. Newcars.com can help you Sell It Yourself by advertising your trade in on the internet.
If you aren't concerned about keeping more money in your pocket, or if you're too busy to deal with the sell-it-yourself process, you can trade in your car to your new car dealer. Note that you'll likely get a better trade-in price for your car if you're trading it in to a dealer that sells that make. In other words, you'll likely get more money for your Volvo from a Volvo dealer than if you traded it in to a Nissan dealer.
A common mistake people make when trading in their car is being upside down with their payments. Being upside down means that you owe more money on your current car than it's worth. If your car is worth $8,000 and you owe $12,000, you are upside down by $4,000. Trying to buy a new car while being upside down on your current car is a terrible, terrible mistake. If you are upside down $4,000 and the car you want is $20,000, you are adding $4,000 to your loan. This will make you even more upside down in your new car – leading to a never-ending downward spiral of debt. It makes more sense to get caught up on your payments so that you're on level ground before you buy a new car.
The only time that you can get away with trading in your car while you're upside down is when the new car that you wish to buy offers significant cash rebates that completely offset the amount you're upside down. For example, if you're upside down $1,500 and the new car has a $2,000 rebate, you come out $500 on the plus side.
Whether you decide to sell your car on your own or trade it in, make sure that your car is in the best shape possible. If you're a smoker, grab the Febreze, and start airing your car out. Make sure that it is totally clean—inside and out. Perhaps spending a little to get it detailed would help. First impressions count!
Many sellers estimate the value of their used car with Black Book. Black Book is used by banks, car wholesalers and dealers; it's the authoritative wholesale guide. The Black Book numbers are taken directly from wholesale auctions nationwide and the data is updated daily. So for the most up to date appraisal of your trade-in, we suggest you use the Black Book Appraisal Guide.
As you use the Appraisal Guide, be completely honest when estimating the condition of your car. There is nothing more embarrassing than negotiating a trade-in price and having the dealer point out that you've misrepresented the vehicle's condition. Make sure to take the printed Black Book appraisal form with you to the dealership (along with the Internet Price Quote). That tells the dealer you've done your homework and makes negotiation a breeze.
Once you are at the dealership ready to buy your new car, do not—I repeat, DO NOT mention that you intend to trade your car in to the dealer until you have finished negotiating the new car price. Otherwise, the salesperson may try to confuse you by referring to your used car as “allowance.” If the dealer asks if you plan on trading in your car, do not say yes or no, just say “It depends on what you offer me. Let's just talk about the new car price first.”
How you want to approach the trade-in/new car purchase:
The dealer will try to confuse you by referring to your used car as “allowance”. You don't care about the allowance, it's just a ploy for him to make more money—you want the actual trade-in value of the car. If the dealer insists on referring to your trade-in as an “allowance”, tell him “hog-wash” and demand to know the trade-in value.
How the dealer makes money off of your trade-in:
The dealer is looking to make a profit at every turn during the car buying experience. Know that he wants to buy your trade-in at the lowest price he can (wholesale) and then sell it for a 30-60% mark-up (re-sale). If you don't have a clue what the value of your trade-in is before you visit the dealer, you will not get a fair price for it.
Keep in mind, however, that there are legitimate costs involved for the dealer in buying your trade-in. He'll have to fix any significant cosmetic or mechanical problems as well as replace certain parts before reselling your car to a used car buyer. He also needs to pay commission to his used-car salesperson and pay rent on his used-car sales lot. In addition, he has to pay to advertise the car, and he has money tied up in it until he sells it.
NOTE: If you owe money on your car and you wish to trade it in, know that you won't get much of a return. If you owe $8,000 on your current car and the dealer gives you $9,000, you'll only be able to apply $1,000 to your new car down payment.
TIP: If you plan on trading your car in to the dealer, make sure to park far enough away so that the dealer won't pester you about it. Keep the dealer in the dark as much as you can in order to maintain control.
TIP: Do your homework first and get a used car valuation from Black Book. Take the printouts of your trade-in valuations to the dealer. If you have any questions with the negotiation you can refer to your paperwork for help.
BOTTOM LINE: In order to get the best value for your trade-in, sell it to a private buyer. If you don't have the time to do that, get several quotes—both online and through used car dealers. Trading your car in to the dealer is the easiest way, but not the most cost-effective. Getting the maximum value for your car will help take the sting off of the price of your new car.