Are you getting ready to buy a new car? There are a lot of questions you’ll have to ask yourself. What type of car do you want? What is your budget? Are there any special features you’re looking for? Dreaming about your new vehicle is fun, but it leaves out one crucial question: what will you do with your old car?
But there’s a catch. When you trade your car in, you almost always get less value for it than you would by selling it on the open market.
The question is, how much money will you lose you by trading your car in rather than selling it?
The quick answer is car owners “lose” an average of $2,340 on used vehicles. But this is a just an average. It all depends on the details, such as the age, model, and mileage of the car. The figure is based on the latest data from NADA, which sets the average profit on used-vehicle sales at about 11.7%. Based on an average retail price of $20,009, that gives you $2,340.
The average “loss” with a trade-in may be $2,340 but that figure is meaningless without context. Learn how to calculate how much you would lose in a trade-in.
Selling a car yourself is hard, so you might be tempted to bring it to the dealership to offer as a trade-in. In one convenient stop, you can sell your old car while you buy your new one. It also reduces the cost of your new car right off the bat.
Of course, this figure is meaningless. It equates the profit of the dealership with the car owner’s loss. Dealerships have to invest in marketing, repairs, and storage before they can resell a trade-in. To determine what makes sense in your case, you need to understand how dealerships calculate the value of your car.
Calculating your losses
It’s no secret that selling your car to another person is more profitable than trading it into a car dealer. After all, dealers won’t make a profit if they buy your car at full price. If they want to keep their business above water, they have to offer less than your car is worth. Consider it a convenience fee.
Trade-ins are a big deal for dealerships. According to the latest data from NADA, 23% of dealership inventory comes from trade-ins.
But how does a dealer decide how much to offer for a trade-in? And what factors affect how much value you’ll lose on your car? Let’s dig deeper.
How will the dealership sell your car?
When you trade your car in, the dealership will re-sell it as a used car. But can they sell the car on their car lot, or will they have to send it to a wholesaler or auction?
Wholesaling and auctioneering can reduce the value of the car to the dealership. Accordingly, this lowers the price that they can afford to offer you.
On the other hand, if a dealership can sell your car on their lot, they can get more money for it. As such, if your old car could viably be sold at the dealership (i.e. trading an older Ford to a Ford dealership), you can usually get better value on it.
How much will it cost to tune up your car?
When a dealership accepts a trade-in, they don’t just toss the car on the lot and hope it sells. They also take steps to improve its value. They might give it a new paint job, tune up the engine, and perform any other necessary repairs to get the vehicle into good shape.
How much you get for your car depends on what condition your car is in. Make sure it looks its best before you try to trade it in.
How much will it cost the dealership to store your car?
When the dealership takes a car as a trade-in, they’ll have to pay the costs of keeping that car in inventory. If you have an oversized vehicle, it may cost them more than if you were trading in a Smart car. And if you’re selling a popular vehicle that will sell quickly, it will not cost the dealership much to host it for a few days or weeks.
Of course, you can’t do much to affect this particular cost, but it’s important to consider when estimating the reduction of value on your car.
How well can you negotiate?
Like everything at a car dealership, the value of your trade-in is negotiable. Dealerships are in the business of making money, so they’ll offer you the lowest price that they think you’ll accept. The Consumer Financial Protection Bureau suggests checking what similar cars have sold for in your area before negotiating a trade-in.
If you don’t like negotiating, or tend to fold too early, that will impact how much money you can get from your trade-in. While negotiation is also important when selling your car to another person, the salespeople at dealerships negotiate for a living. If you’re selling to another regular person, you’re likely to be on a more level playing field.
When considering whether to sell your car to a buyer or to trade it in at a dealership, ask yourself the following questions.
Is your car is in rough condition, and likely to go unsold for a long time on a dealer’s lot? If so, you may wish to take the time to find a buyer and sell your car to them. But if your car is in good condition, is of the same make as your dealer of choice, and is likely to sell fast, a trade-in won’t hurt your wallet. That goes double if you’re a skilled negotiator.
If your new car costs a good deal more than the old vehicle you’re trading in, you might need an auto loan. Not sure how to get started? Just click here to get a slew of personalized quotes from top auto lenders. It only takes a minute, and getting pre-approved won’t hurt your credit!