A woman trades in her car.
A woman trades in her car.
A woman trades in her car.

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How Does Trading in Your Car Work?

Trading in your car can be a convenient way to upgrade to a newer vehicle while reducing the overall cost. But how does trading in your car work, and how can you ensure you get the best deal?

Step 1: Understand how trade-ins work

When you trade in your car at a dealership, the value is assessed based on several factors, including the make, model, year, condition, mileage, and current market demand. The dealership then offers you a trade-in value, which is applied as a credit toward your next vehicle purchase.

If you own your car outright, the trade-in amount goes directly toward your next purchase. If you still owe on your vehicle, the dealer will pay the remaining balance and factor that into your trade-in deal or the new loan amount.

Step 2: Know your trade-in value

Before heading to the dealership, research your car’s trade-in value using online pricing tools, such as Kelley Blue Book, Edmunds, or the J.D. Power Values.

Your trade-in value will depend on mileage, condition, demand, and local market trends. Dealerships generally offer less than private-party sales, but trading in is faster and more convenient than fielding questions from and setting up appointments with individual buyers.

Step 3: Gather the required documents

To complete your trade-in, you’ll need:

Additional documents that may help:

Note: If you still owe money, you must bring a payoff letter from your lender.

Step 4: Determine your positive or negative equity

Your loan status determines how much credit you’ll receive for your trade-in. Positive equity means your car is worth more than you owe, which can lower the amount you need to finance.

If you have negative equity, where you owe more than your car’s current value, the dealer will roll the remaining balance into your new loan. This action increases your loan amount and can lead to higher monthly payments.

If you have negative equity, paying down your existing loan before trading in your vehicle may be beneficial.

Step 5: Get multiple trade-in offers and negotiate

Shopping around is one of the best ways to maximize your trade-in value. Requesting offers from a few dealers allows you to compare and negotiate for the best deal.

Remember, a well-presented vehicle makes a stronger impression and could lead to a higher trade-in value. So clean your vehicle and conduct any needed maintenance before taking it to a dealership.

You should also consider the timing of your trade-in. High-demand seasons, such as spring and summer, often yield better offers as dealerships stock up on used inventory.

Additionally, it’s a smart strategy to separate trade-in negotiations from your new car purchase. Discuss your trade-in value first before negotiating the price of your next vehicle. This approach prevents dealerships from adjusting the numbers in a way that may seem beneficial but doesn’t maximize your trade-in credit.

Step 6: Finalize the trade-in and purchase

Once you agree on a trade-in value and begin finalizing your purchase, verify the trade-in credit is correctly applied to your new car and that the dealership is handling any remaining loan balance. If you don’t fully understand the final cost and monthly payments, be sure to ask questions.

Is trading in your car the right choice?

Pros:

Cons:

A viable alternative to private selling

Trading in your car is an expedient way to upgrade to a new vehicle while reducing your loan amount. While you’ll make less than selling to an individual, there are ways to mitigate that. Research your trade-in value and negotiate smartly to ensure you get the best possible deal.

If you’re looking for financing options for your next car purchase, Credit Acceptance works with over 15,000 dealerships nationwide. Start the auto financing pre-qualification process today!