Maximizing a trade-in value means comparing several vehicle appraisals, preparing the vehicle for trade-in, and separately negotiating the replacement cost, trade-in offer, loan payoff, financing options, and fees with the dealer. Buyers should also ensure that they know whether their equity in the vehicle is positive, break-even, or negative.
In a vehicle trade-in situation, the dealer takes the existing vehicle as a trade-in and determines the value of the existing car. The dealer also pays the outstanding amount on the previous loan, if any.
Research the Trade Before Visiting the Dealer
Get some real estimates before beginning negotiations. You should compare some online valuation calculators, instant purchase offers, and official valuations provided by competing dealers. Be sure to take into account the exact mileage of the vehicle, its trim level and options, whether it has a clear title, accident history, and its condition.
Make your vehicle ready by removing all valuable personal items, washing the automobile, collecting any maintenance reports, making sure that all keys are available, and fixing minor problems that might hurt your car’s value. However, steer clear of making any significant repairs unless the estimated gain in value is more than the expense.
In Arizona, qualifying trade-in credits may lower the tax liabilities associated with acquiring a replacement car because the associated trade-in value is deductible from the total sales amount of the vehicle. Tax treatment always depends on the nature of the transaction and the location, and hence the buyer should verify all computations in the purchase documents instead of just assuming any specific benefit.
Negotiate Every Number Separately
Even though a trade-in can provide convenience to car buyers, the situation leads buyers to give away their negotiating power to the dealer.
Negotiate and document these items separately:
- Replacement vehicle price
- Trade-in allowance
- Existing loan payoff
- Financing rate and term
- Add-ons, taxes, and dealer fees
A dealer may seem to give you an unusually high trade allowance while also increasing the price of the replacement vehicle, decreasing a discount, adding products, or providing unfavorable financing. Pay attention to the total amount financed and total cost of the deal, not just the trade-in value or the monthly payment. The Consumer Financial Protection Bureau suggests that you write down all the information so that you can compare offers accurately.
Understand Your Equity Position
Positive equity refers to when the trade value is more than the amount of the loan still owed. The resulting amount can be used toward buying a new vehicle.
In the case of break-even equity, the value of the trade is essentially equal to the value of the payoff.
Negative equity means that the payoff value is more than the trade value.
For example:
- Trade offer: $15,000
- Loan payoff: $18,500
- Negative equity: $3,500
The car dealer is incorporating $3,500 into the new loan associated with the purchase of the new vehicle. By doing so, the cost of the previous vehicle is included in addition to the price of the new car, thus leading to a higher total amount owed, interest charges, and monthly payments. The buyer should thus find out both the exact amount owed for the old vehicle and its value before deciding whether to pay off the amount, put off trading, or borrow against the unpaid amount.
Advantages and Disadvantages
Trade-ins offer a complete solution for the transaction that allows you to skip advertising and test-drives and ensure a seamless transportation process for the buyer. Furthermore, the dealer manages a lot of the paperwork required for the payment and title. The dealer can use an acquisition contract during the trade-in process for the Arizona vehicle whose lienholder has the title.
The drawbacks are a possibly smaller amount than a personal buyer, no rigid clarity about how figures have been calculated, and the danger of taking negative equity with them to a new mortgage.
A trade-in might fit the buyer who has already committed to buying another automobile, seeks convenience, and is looking to exchange a financed vehicle or secure immediate transportation. The buyer is likely to achieve optimum results if he obtains multiple appraisals, negotiates various components of the transaction individually, and double-checks the final figures that he receives.
