When buying a new or used car, exchanging your old one is a very good way to reduce the total cost and save you money on the monthly payments. In fact, 45% of car purchases in 2022 trusted trade-ins for part of the financial equation, based on Edmunds.
The process of exchanging a car includes preparation from you, an appraisal through the dealer, negotiations along with a final offer. Thinking about exchanging your current vehicle for any brand new one, this is what you need to know.
Factors That Impact Your Trade-In
When you bring an automobile to a dealership to trade in, there are several various things they appear for to determine its trade-in value. That may include:
- Supply and demand in the local market
- Time of year
It's also important to notice that different dealers will have their own formulas for calculating trade-in prices. And if you're planning to shop around for your forthcoming car, it's wise to do the same with your trade-in value.
Can I Exchange My Car for a Lease?
If you're considering leasing a new vehicle instead of buying one, you can trade in your current vehicle as a down payment.
Of course, the leasing process is different from the buying process. When you lease an automobile, you typically possess a contract for two to three years. In that time, your payment per month goes toward covering the vehicle's depreciation, plus interest.
As an effect, leasing is usually less expensive than buying, a minimum of in terms of a monthly payment. Over time, however, building equity in the vehicle and selling it when you wish a replacement can be more financially beneficial.
So is leasing a car advisable? It really depends upon your budget, preferences and goals. Leasing usually allows you to get into a new vehicle for under what you'd pay if you took out an auto loan, and cycling via a new lease every 2 to 3 years ensures that you're always driving a newer car. That may save you money on costly maintenance and repairs that be frequent as vehicles grow older.
On the other hand, lease agreements often include strict limitations and restrictions, including how many miles you are able to drive each year and the inability to make changes towards the vehicle, such as upgrading to some better audio system. And, at the end of the lease, you won't own the vehicle. Once you have paid off the loan on your purchased car, however, you'll own the car outright and may use it as a trade-in or potentially drive it for a long time without needing to create a car payment every month.
Take your time to weigh leasing versus buying to look for the right fit for you.
How to Get the Best Price for Your Trade-In
It's important to note that trading in your vehicle isn't the the easy way maximize your profit if you are ready to sell your car. Dealers pay affordable prices on trade-ins because they're turning around and selling the vehicles for a profit. In contrast, let's say you sell the vehicle in a private-party transaction, you are able to usually have more money since the buyer isn't in the industry of buying and selling cars and it is typically buying it for his or her personal use.
That said, if you prefer the benefit of the trade-in, here are a few things you can do to negotiate the best price in the dealer.
Research the Car's Value
In many cases, dealers come with an unfair edge on car buyers. Not only do they have all the details they have to negotiate at their fingertips, but they also bring experience towards the table.
So it's crucial that you gather as much information as possible to level the arena. The most important way to do this is to research your vehicle's value. You can find pricing through websites like Kelley Blue Book and NADA Guides based on the unique facets of your automobile. You will also be able to see what you could get should you sell the car privately instead.
You may also get in touch with some online car retailers to obtain a quote. Carvana, Shift and Vroom can provide you with offers which you can use to further nail down what you would like to get in the dealer.
Clean Up the Vehicle
At the very least, it's a good idea to have the car detailed therefore it is ready for the dealer to market it quickly. If the vehicle has some minor cosmetic defects, like a small crack around the windshield, a scratch within the paint or perhaps a small dent, look for ways you can fix them affordably.
Depending around the cost of the fix, you may not get enough extra money in return to make it worthwhile. Still, researching your choices can help you create a better decision.
Negotiate the Trade-In Separately
When you buy a car, dealers typically try to do some financial maneuvering to get the best deal they can. One of the most common strategies is to attempt to allow you to focus on the payment per month rather than the sales price.
Dealers often make use of a longer repayment period to reduce the payment per month making it appear to be a better deal. By getting you to definitely concentrate on that single figure, they can divert your attention from the cost of the trade-in. However in the finish, you'll pay more income in interest having a longer payment term.
As such, it's a good idea to negotiate the cost of the trade-in separately from the sale from the new vehicle. Using the information you've gathered inside your research, you will be in a better place to negotiate a better deal by doing this.
Once you agree with a price, get it in writing and take that to the dealer's finance department or even another dealer if you wish to look around.
What Is Negative Equity?
Trading in a car is a convenient method for saving money on your next vehicle, but in some cases, it may not be worthwhile.
Negative equity is really a term used to explain a scenario in which you owe more about your current auto loan compared to car's value. According to Edmunds, 44% of new car sales having a trade-in involved negative equity in April 2022.
So what goes on if you have negative equity? Generally, the dealer will offer you to pay for the full balance of the items you owe and add the deficiency to your new car loan. This is the most convenient option, however it means you will have a higher monthly payment in your new auto loan than should you have had positive equity.
Selling your vehicle to some private party might be a good way to avoid this, especially if the improvement in sales prices are enough to wipe out the negative equity. But if it's not, you will need to pay the deficiency in a lump sum, which may not be possible without having the required cash.
As with every other area from the trade-in process, it's imperative that you consider all of your options if you have negative equity due to there being no right answer for everyone.
Your Credit rating Is Another Easy way Lower your Payment
Trading in your car can reduce your payment per month on a new auto loan significantly. But depending on the value of the automobile, having a good credit score may be better still. Your credit rating is a vital factor in a lender's decision to approve the application and determine your interest rate.
If you've excellent credit, you'll typically get approved for a financial loan with single-digit rates of interest. But if your credit is poor, you could get a higher rate, which may be up to 20%.
Check your credit rating before you begin the car-buying process to determine what your location is. In case your credit needs work and you are not in a rush to get a new car, take a moment to address regions of your credit file that are hurting your score.
That may include getting caught up on past-due payments, paying down credit card balances and disputing any inaccuracies in your credit reports. Also, take steps to build up good credit habits, for example keeping the credit card balances low and avoiding unnecessary credit applications.
This process of enhancing your credit may take time, however your efforts will finish up saving you tons of dollars in interest.