My wife and I are looking for a more family friendly vehicle, and we will need to get rid of one of our current vehicles when we buy a new one.
The good news is, we aren’t in a rush to either buy a car or sell a car, so we have time to do the research and make the best decision for our needs. This isn’t always the case if you are in a rush to buy a car – for example, your vehicle is totaled in an accident, or if it is stolen. But since we have time, we closely examining our options.
Should You Trade in Your Vehicle or Sell it Privately?
Before you go out and buy a new vehicle, you should consider what you are going to do with the vehicle you are replacing. The two easiest ways are to sell it to the dealership when you buy your new car, or sell it to a private individual. So let’s compare the two options and see which one will give you the best return.
How Much is Your Used Car Worth?
Before deciding what to do with your car, you should get a good idea of the value. In my opinion, the best place to go for used vehicle prices is Kelly Blue Book. They have a great price engine that analyzes local and nationwide vehicle sales to give you a rough valuation based on your vehicle’s condition.
The cool part of the KBB car values is that they show average prices for trade-in values, private party sales, suggested retail vale (buying the car from a dealership), and Certified Pre-owned vehicles (again from a dealership). What you will find is that the Certified Pre-Owned vehicles usually have the highest values for a specific model, followed by the suggested retail value, private party sales, then the trade-in value.
The trade-in value is the lowest because the dealerships need to clean/prep the car for sale, then make a profit. The Certified Pre-owned vehicles usually have the highest trade-in prices because they have been certified against manufacturer checklists to meet certain quality levels. This often involves multi-point inspections, changing certain fluids and consumables like wipers, and sometimes even replacing the tires or brakes. These quality controls are some of the benefits of buying a certified preowned car.
You’re ready to go car shopping once you have a rough idea of your car’s private resale value and trade-in value.
Pros and Cons of Private Sales
Pros – price. You can usually get the best price if you sell your used car to another individual as opposed to trading it in or selling it to a dealer. It can often be easier to negotiate with an individual and on your own time line versus negotiating with a dealership on a short time line.
Cons – it’s a hassle! Selling your car privately can be a hassle. It take a time and energy to sell your car. You will need to take pictures of it, write down the specs and other details, list it online or in the classified ads, and be ready to answer numerous phone calls and questions. Then you have to deal with test drives, tire kickers, low-ballers, negotiations, etc. You also need to be aware of potential scams or thieves (some people who take you car for a test drive may never return, offer to pay with a rubber check, etc).
Tips for selling your car privately. Be prepared to be flexible on the price and with your availability to let people look at it. Only accept cash or a cashier’s check from a local bank, and preferably if you are there when it is printed. Craigslist is a great place to list your car for free. You can also list your car on Ebay, but be prepared to pay a listing fee. The added benefit is being able to reach a much larger market. This can be invaluable tool if you have a rare car or live in a small market.
Prepare your car! You might be surprised by the number of people who don’t take the time to clean their car before listing it for sale. Cleaning your car thoroughly, inside and out, before taking photos and listing it for sale is always a wise investment. These additional tips can help you get the most value out of a private sale.
Be on the lookout for scams! High ticket items are a target for online scams. Be careful accepting money orders or checks from someone over the internet unless it is someone you know and trust. Another popular scam is someone buying the car or other high ticket item and requesting you to ship it. The buyers will often offer to send you a check for more than your asking price to cover shipping and “your time.” They have your car or other item by the time you find out the check was fake.
Pros and Cons of Trading in Your Used Vehicle
Pros – quick & easy, and potential tax benefits. The biggest benefit to trading in your car is saving time and the hassle of selling your vehicle by yourself. There may also be tax benefits for trading in your car. In most states, when you trade-in your car when purchasing another vehicle, you are only required to pay sales tax on the difference between the trade-in value and the price of the new car. (See below for a break-down showing how you can save money by trading in your vehicle).
Cons – usually lower selling price. You may get less for your trade-in than if you sell it privately. Even with the tax breaks mentioned above, you may find that you will still make more money by selling it on your own. It’s best to run the numbers to see what you would have to be able to sell it for privately to make it worth your time and energy. In come cases it will be close, and in others there is a clear advantage to selling it on your own.
Tips for trading in your used vehicle. Negotiate trade in price separately from the purchase price of your new(er) vehicle. A favorite dealership trick is to complicate negotiations by negotiating both the purchase price of the vehicle you are buying, and your trade-in at the same time. Some dealership will also quote you a very low price on your newer car, knowing you will be happy with the price—then they will undercut you on the trade in. Negotiating each price separately makes things a little easier to track. You should also thoroughly clean and detail your car before taking it to the dealership for a trade-in. A clean car may get you a better price.
Tax Benefits of Trading in Your Car
Let’s look at an example that explains why I believe it can be better to trade in your car:
- New car purchase price: $30,000
- Taxes paid (7% of $30,000): $2,100
- Used car sold by owner: $16,000
- Total cost of new car: $32,100 – $16,000 = $16,100
With Trade-in: (Remember, in this example, the price of the trade-in is deducted from the price of the new car for tax purposes).
- New car purchase price – $30,000
- Trade-in Value: $15,000
- Taxes Paid (7% of $15,000): $1,050
- Total cost of new car: $31,050 – 15,000 = $16,050
I admit, these numbers work perfectly, but you will find that even with lower numbers, the final result is very close. For example, when you buy a $25,000 car and have the option of selling your car yourself for $11,000 or trading it in for $10,000, selling the car on your own results in an extra $300 after tax benefits are considered.
How to Estimate Your Car’s Value
All of this is just theory unless you know what your car is worth. Edmunds offers a great car appraisal estimator.
Using their tool you can enter details about your vehicle and get a good estimate of what you can expect to get from both a trad in and private party sale. It’s really easy to use and even lets you pick paint colors and packages for the vehicle you are driving.
Is Trading in Your Car Always Better?
No. Sometimes the dealership will only be able to offer you an auction price, which will likely be much less than you would be willing to accept. And sometimes you can sell your car quickly and easily to a family member, friend, or coworker and not have to worry about the issues listed above. The tax benefits are also less substantial in states with low sales tax.
But, trading in your car is all about convenience. In the second example above, the net difference was only $300 savings for selling the car yourself. When you add up the time and costs involved, that extra $300 may not be worth the hassle.
The last time I bought a new car, I traded my old car in. I estimate I could have made an additional $1,000 on the sale price vs. trade-in price, but after the tax considerations, the total difference would have been in the ballpark of $500. I had other reasons to trade-in as well – I lived in a small town at the time, and actually drove several hours to a large city where I saved well over $1,000 on the price of my new car. That savings more than made up for the difference of trading my old car in.
Trading in your car can save you time and money. When you trade-in your car, the deal happens that day. You do not have to place advertisements, locate a buyer, arrange test drives, wait for the buyer to line up financing, or deal with any other issues, including future liability. At the dealership you sign a few papers, and the car is no longer your responsibility.
The next time you buy a car, investigate how much you can get by selling your car or trading it in. You might just find out that trading your old car in is actually the best deal.
Do you have any tips for either selling your vehicle privately, or for getting the most value on your trade-in?