Trading in your current vehicle can be a great way to ease your overhead costs and get you closer to a deal on a new one. Here’s what you’ll need to know.
Doing a trade-in deal as part of a new vehicle purchase is usually pretty straightforward. You’d just let your salesperson know that you’re planning on trading in your current vehicle as part of the deal. The dealer will usually want to do an inspection of the vehicle’s condition before making an offer. Once they’ve completed their appraisal, they’ll make an offer on the vehicle and you’d used that equity against your new vehicle purchase.
That’s how things have typically gone. But these are not typical times in the automotive industry. Current inventory shortages have driven up demand for used vehicles. This means the value of your trade-in may be higher than normal. And, thanks to that lack of inventory, an offer that includes a trade-in will be more attractive than a competing offer without one.
The benefits of trading in your car on your next vehicle purchase are manifold.
One common question is: can I trade in a car that I still owe money on. The answer is yes, and the process is simpler than you might think. If you have positive equity on your current loan, the difference between your loan balance and the value of the vehicle will be applied to your new loan. For obvious reasons, this works better the more equity you’ve already put into your old vehicle. It’s important to check with your lender as to what your loan’s pay-off amount is because that can differ from your current balance thanks to fees and other fine print.
While it’s perfectly advisable to trade in a financed vehicle with positive equity, the opposite is true for a loan that currently exceeds the value of the underlying vehicle. When the current market value is less than your loan balance this is known as being “underwater” on the loan. While dealers will gladly offer to roll that difference into the new loan, it’s usually best to decline such an offer. Rolling old debt into a new loan with an even higher balance means you’ll be paying interest on that same money for even longer. Plus, your new loan would also be “underwater,” thus perpetuating the same cycle.
Once you’ve determined that trading in your vehicle is the right move, here are the steps you’ll want to take.
As we mentioned at the outset, with inventories where they are, you may be able to get a better deal now than ever on your trade-in. To do so, you’ll need to know what the market trade-in value is on your vehicle, have competing offers, and be willing to negotiate in good faith. And remember, no matter the currently hot market, a trade in deal is only as good as the new car you’re trading for, so shop wisely.