Trading in your car can be an easy way to get rid of your old vehicle and into a new one. It’s a very popular option for most car buyers. However, it’s important to understand the process before you go to the dealership to ensure you get the best value for your car.

Two women reviewing paperwork for a car sale.

By trading in your car you are essentially selling it to the dealership and the value of your car will be applied to the purchase price of a new vehicle. To get the most out of your trade-in, it’s important to understand how car trade-ins work.

Before talking to a dealer, you should evaluate your car’s value, prepare it for trade-in and negotiate with dealers to get the best deal possible. You should also understand how trading in your car can impact your car loans, payments, insurance and taxes.

Key Takeaways

  • Understand the car trade-in process before going to the dealership.
  • Evaluate your car’s value and prepare it for trade-in to get the best deal possible.
  • Be aware of how trading in your car can impact your car loans, payments, insurance, and taxes.

Get Help Trading in Your Car

Get connected with a car dealer near you that specializes in vehicle trade-ins.

How Car Trade-Ins Work

If you’re trading in your car then you’re basically selling it to the dealer you’re buying a new car from. The dealership will assess the value and apply any equity, negative or positive, to your new car loan.

The assess value of your car is typically lower than the market value since the dealership needs to make a profit as well to be interested. However, that doesn’t mean you should take the first offer given to you. Keep reading to learn more about the trade-in process.

The Trade-In Process

The process of trading in a car involves a few steps but overall is a pretty simple process. The dealership will handle nearly everything for you so there isn’t much for you to do aside from your own research to protect yourself.

The first step is to bring your car to a dealership for an appraisal. The dealership will inspect your car and assess it’s current condition.

The second step is when the dealership performs an appraisal. The dealership will look at things like the condition of the body, mileage, previous repairs and any accidents the car may have been in. As soon as their team runs through the car and pulls vehicle history information they will create an offer for you.

The third step is to review their appraisal offer. They will give you a price they are willing to pay for the car and it’s up to you to determine if that price meets your needs. You can either accept it or negotiate for a better offer.

If you have an outstanding loan on the car they will also tell if what kind of equity you have, either positive or negative. If you have positive equity that means your car’s value is more than you owe with your current loan. If you have negative equity that means your car’s value is less than you owe and you’ll either have to pay the rest in a cash down payment or roll it into your new loan.

The final step is making a decision to accept or negotiate. If you accept the offer then the dealership will take possession of your car and handle all the paperwork. If you have an active loan they will pay it off and give you the difference, if there is one. You can also use this amount towards the purchase of a new car.

Pros and Cons of Trading In

Trading in a car has both advantages and disadvantages. It’s important to weigh the pros and cons and make an informed decision that’s right for you.


Here are a few things to consider:


  • Convenience: Trading in a car is a convenient way to get rid of your old vehicle and put the value towards a new one.
  • Lower taxes: When you trade in a car, you only pay taxes on the difference between the trade-in value and the price of the new car.
  • Lower down payment: The trade-in value can be used as a down payment on the new car, which can lower your monthly payments


  • Lower value: The trade-in value is typically lower than the market value of the car, as the dealership needs to make a profit when they resell it.
  • Limited options: Trading in a car limits your options to the dealerships that accept trade-ins.
  • Negotiation: The trade-in value is negotiable, so you’ll need to be prepared to haggle with the dealership to get a fair price.

Evaluating Your Car's Value

When it comes to trading in your car, understanding its value is crucial. You want to make sure you’re getting a fair deal and that requires evaluating your car’s worth.

Assessing Car Condition

The condition of your car is one of the most significant factors that affect its value. A car in excellent condition is worth more than one in poor condition.


When assessing your car’s condition, consider the following:

  • Exterior: Look for any dents, scratches, or other damage. If there are any issues, get an estimate for repairs.
  • Interior: Check for any rips, tears, or stains on the seats and carpets. Make sure all electronics are in working order.
  • Mechanical: Get a thorough inspection to ensure everything is in good working condition.

Considering Mileage

The mileage your car has is a big factor that affects your car’s value. The higher the mileage the less it is worth. If you are trading in a car with over 100,000 miles on it then you should expect to get below market value.

To evaluate your mileage you should:

  • Average Mileage: Look up the average mileage for your car’s make and model year. If your car has more miles than average, it will be worth less.
  • Maintenance: If you’ve kept up with regular maintenance, it can help offset the lower value due to higher mileage.

Online Tools for Valuation

There are many online tools available to help you determine your car’s value, such as Kelley Blue Book and Edmunds. These tools take into account factors such as make, model, year, condition, and mileage. It’s a good idea to use multiple tools to get a more accurate estimate of your car’s worth.

Negotiating with Dealers

Negotiating with dealers can be a daunting task but if you want to get the most out of your car then you’ll have to do it. With the right approach you can get a fair deal for your car. In this section, we will cover some tips and tactics to help you negotiate with a car dealership.

Choosing a Dealership

It’s important to choose the right dealership. You want to work with a dealership that has a good reputation and track record of great customer service. You should look at online reviews or even ask for recommendations from friends and family.


You should also look at the different offers these dealerships have. There are some dealerships that may offer extra incentives for trading in your car and others may even offer a bonus discount if you get a new car at the same time.


You should also consider looking more at franchise dealerships for your car as many times the manufacturer will provide extra incentives to get old cars off the road and get you into a new car.

Negotiation Tactics

When it comes to negotiating with a car dealer there are a few tactics you can use to get a better deal:

  • Know your car’s value. Before you start any negotiations you need to research the fair market value of your car. There are several online tools you can use and this will give you a baseline for negotiations.
  • Talk to multiple dealerships. You should get your car appraised by at least 2-3 dealerships before making a decision on who to go with.
  • Be prepared to walk away. The goal of the salesman is to make as much profit on your car as they can. Don’t let them pressure you into making a deal you’re not comfortable with or that may put you in a worse financial position.
  • Negotiate the price of a new car separately from the trade-in. If you’re buying a new car at the same time then focus on getting the right deal for the new car first. Negotiate with the dealer on a price that you’re willing to pay and make sure you find the MSRP for the car you’re interested in.
  • Negotiate the price of your trade-in separately from financing. The dealer will likely try to bundle your trade-in with financing and many times they’ll slip in additional service fees or other programs that will lower the value of your trade-in.

Managing Car Loans and Payments

If you’re trading in a car then the dealership will handle all paperwork related to your current loan and the new one. They will pay off the current loan you have and you’ll likely get away with being able to miss a payment or two before paying on your new car.


As you go through the trade-in process you’ll likely have a discussion around the equity of your car. You will either have a positive or negative equity.

What is Equity?

Equity is the difference between the value of your car and the amount you still owe on your car loan. Positive equity means that your car is worth more than what you owe on your loan. Negative equity, on the other hand, means that you owe more on your loan than your car is worth.

Trading in a Car with Negative Equity

If you have negative equity on your car then it can be challenging to trade it in but most dealerships are equipped to handle this situation. You will have to pick from two options: rolling over the debt or paying it off.

The first option, and the one most car buyers do, is to roll your negative equity into your new loan. Most lenders will allow you to roll your negative equity over but it may come with unfavorable terms like a higher interest rate. The “rolling over” is fairly simple in that any amount you owe after the value of your car is applied is still charged to you but baked into your new agreement.

The second option is to pay off all the negative equity you have before trading in your car. You can do this multiple ways but most people will just put a larger down payment on the car. This option highly depends on your financial situation but may give you more favorable terms with the lender.

For example, if you owe $7,500 on your current auto loan but your car is only worth $3,000 then you will have $4,500 in negative equity. If you’re buying a car worth $20,000 then the dealership will add that $4,500 onto the loan making it a total of $24,500 owed.

Negative equity? Not a problem.

Get connected with a car dealer near you that specializes in special financing situations.

Trading in a Car with Positive Equity

If your car is worth more then what you owe then it’s assumed that you have positive equity on your car. This means you can use the difference as a down payment on a new car or receive cash back.

Understanding Trade-In Offers

If you’ve met with multiple dealers then you’ll likely have multiple offers to think about. Understanding how these offers work is crucial to make sure you get the best deal possible. In this section, we’ll cover how to decipher offer terms and compare offers to ensure you’re getting a fair price.

Deciphering Offer Terms

Trade-in offers can be confusing, but they’re essentially the amount of money the dealership is willing to give you for your car. It’s important to note that this amount is typically less than what you could get if you sold the car yourself. However, trading in your car is often more convenient and can save you time and effort.


When you receive a trade-in offer, it will include terms that you should be familiar with. Here are some of the most common ones:

  • Trade-In Value: This is the amount the dealership is willing to pay you for your car.
  • Incentives: Some dealerships offer incentives to trade in your car, such as a cash bonus or a discount on your new car purchase.
  • Instant Cash Offer: Some websites, such as Autotrader, offer instant cash offers for your car. These offers are usually based on the condition of your car and can be a good starting point for negotiations.

Comparing Offers

It’s important to compare offers from multiple dealerships to get the most value out of your car. This will also give you a better idea of what your car is worth. In many cases, car buyers will pit dealerships against each other or use one offer to leverage the dealer they want to work with.


You’ll want to make sure you’re reading over all offers clearly and looking at them side-by-side as they will slip in incentives or other fees into the offer that may raise or lower the price. In some cases they may offer you a larger upfront value for your car but it gets reduced with additional service fees.


Don’t be afraid to use the offers as leverage with the dealership you want to work with. In many cases they will increase their trade-in offer to match to secure your business.

Selling Privately vs Trading In

An alternative to trading in your car is to sell it privately. By selling your car privately you can typically get more value for your car but it does come with some drawbacks. Keep reading to learn about the difference between the two to decide which route is best for you.

Benefits of Private Sale

Selling your car privately can often result in a higher sale price than trading it in. This is because you can set your own price and negotiate directly with potential buyers. Additionally, you may be able to sell your car faster since you can advertise it online and attract a larger pool of potential buyers.

Risks of Private Sale

While selling your car privately can result in a higher sale price, it also comes with some risks. For one, you are responsible for advertising and showing the car to potential buyers, which can be time-consuming and stressful. Additionally, you will need to handle all the paperwork and legal requirements associated with the sale, which can be confusing and overwhelming.


There is also the risk of scams and fraud when selling your car privately. You may encounter buyers who try to negotiate a lower price or refuse to pay the agreed-upon amount. Or, they may try to pay with a fraudulent check or engage in other illegal activities.

Advantages of Trading In vs Private Sale

Trading in your car can be a faster and more convenient option than selling it privately. You can simply bring your car to a dealership and receive an offer on the spot. Additionally, you can use the value of your trade-in to offset the cost of a new car, which can be helpful if you are looking to upgrade.


Another advantage of trading in is that you don’t have to worry about advertising your car or handling the paperwork associated with a private sale. The dealership will take care of all of that for you.


However, it’s important to keep in mind that trading in your car may result in a lower sale price than selling it privately. Dealerships need to make a profit on the cars they sell, so they may offer you less than the car is actually worth.

Preparing Your Car for Trade-In

You want to make sure it is in the best possible condition to get the highest value. This means taking care of maintenance, cleaning and the overall presentation of the car.

Car Maintenance

Before you trade in your car it’s important to make sure it’s in good condition. This means you should get any necessary repairs or maintenance done beforehand. If there are any issues with the car the dealership will likely lowball the offer.


You can usually pay $50-100 to have a mechanic inspect the car to ensure there are not major problems before taking it to a dealer.


However, if the cost to repair the car is more than you’re willing to pay or you won’t see that money return in the overall value of the car then we suggest not fixing the issues. This is usually the case for things like new tires or brakes. A dealership will usually not “bump” the value of the car up for common maintenance items so it’s suggested that you don’t fork out the money to fix these beforehand.


A clean car is more attractive to a dealer than a dirty one. Make sure to give your car a thorough cleaning before taking it to the dealer. This includes both the inside and outside of the car.


For the interior, vacuum the seats and floors, wipe down the dashboard and console, and clean the windows. For the exterior, give your car a good wash and wax to make it shine.


In addition to cleaning your car, you want to make sure it looks presentable. This means taking care of any cosmetic issues such as scratches or dents. While major repairs may not be necessary, it is a good idea to touch up any minor issues to make your car look its best.


You also want to make sure you have all the necessary paperwork, including the title, registration and maintenance records. This will show the dealer that you have taken care of your car and make the trade-in process smoother.

Finalizing the Trade-In

Before you pop the champagne there are still a few things you need to take care of to ensure a smooth and hassle-free transaction.

Handling Paperwork

You will want to gather all the necessary paperwork and take it with you to the dealership. You’ll want the registration, title, a copy of your driver’s license and all the other documents to buy a car.


The dealership may ask for all of this paperwork and do a quick check over it to make sure everything is there and in order. They will also review your current outstanding loan, if you have on, on the car.


If your previous appraisal and purchase of your new car didn’t happen on the same day then it’s common for the dealer to give your car another appraisal. The value may change depending on if anything happened, however, it usually doesn’t.


If you’re still happy with the negotiated trade-in price then you can sign over the title and transfer ownership to the dealer.

Transferring Ownership

The dealer will take care of most of the paperwork that comes with the title transfer but you will need to sign a few documents before it’s official.


The first document you will need to sign is the bill of sale. This document confirms that you have sold the car to the dealer and that they are now the legal owner of the vehicle.


You will also need to sign the title over to the dealer. This is done by filling out the back of the title with the dealer’s information and signing it.


Finally, you will need to transfer the registration of the car to the dealer. Depending on the dealer, most will file the paperwork for you so there is nothing for you to do here.

Impact of Trade-In on Insurance and Taxes

Changes in Insurance

When you trade in your car, you will need to update your insurance policy to reflect the changes. The insurance rates for your new car will likely be different from your old car. You may also need to adjust your coverage levels to meet the requirements of your lender or state.


For example, if you are financing your new car, your lender may require you to carry comprehensive and collision coverage.


Before you trade in your car, it is a good idea to shop around for insurance quotes for your new vehicle. This will help you budget for your new insurance costs and ensure that you are getting the best rate possible. You should also consider bundling your auto insurance with other policies, such as homeowner’s insurance, to save money on premiums.


Keep in mind the dealer will not let you drive the car off the lot without having an active auto insurance policy.

Sales Tax Implications

When you trade in your car you may be able to reduce the amount of sales tax you owe on your new car. In most states, sales tax is only charged on the difference between the trade-in value and the purchase price of the new car.


For example, if you are buying a car for $20,000 and your trade-in is worth $10,000, you will only pay sales tax on the remaining $10,000.


It is important to note that this tax benefit may not apply in all states. Some states may require you to pay sales tax on the full purchase price of the new car, regardless of the trade-in value. Additionally, if you sell your car privately instead of trading it in, you will not be eligible for this tax benefit.

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