How Does a Car Trade in Work? (2024 How To Guide) (2024)

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When you trade in your car, the dealer determines the vehicle’s value based on the market and then deducts that amount from your new car’s purchase price. If you still have an auto loan on your old car, the dealer pays it off once the car is traded in.

Here are some things to do before trading in your current car for your next vehicle:

• If you have a loan, ask your lender what the payoff amount is.
• Consider repairing major damage.
• Get an estimate of your car’s trade-in value.
• Research the current market.
• Get your vehicle detailed.
• Collect paperwork about your vehicle, such as service records.

When trading in a car it is important to take the right steps to get the best value for your vehicle. Below is our recommended process for trading in a car for the best price.

1. Find Your Car’s Trade-in Value

Going prepared for a dealership or a private sale with a fair market value of your car will allow you to see if you’re getting a good deal. Use a car valuation calculator on a reputable site like Kelley Blue Book to find the value of trading in your car.

2. Compare Multiple Offers

To find the best deal, go to multiple different dealerships and get offers from private buyers so you are in the driver’s seat to negotiate. You can also get instant offers from online car-selling sites if you want quick pricing.

3. Get The Necessary Paperwork

When trading in your car the documents you need depend on whether you own the car or not. If you still have a loan, get information like your account number, payoff amount, proof of car insurance, and the price you want for your vehicle. When you own the vehicle outright, make sure to bring the title and registration information for the transfer to take place.

4. Prepare Your Car

If you want the best value for your vehicle, getting minor repairs done and cleaning the car inside and out helps. You can avoid costs by doing the cleaning job yourself or go to a detailer to get a professional job done.

5. Trade-in Your Vehicle

You’ll typically need to make an appointment with a dealer before finalizing a deal. Once your vehicle is inspected by the dealership and all documents are accounted for, you can close the deal. We recommend negotiating with the salesperson as often you’ll get a lower offer upfront than what they’re willing to pay.

You have two main options for trading in a vehicle which include selling it back to the dealership or finding a private buyer for your car. Below we will detail what you should know about each choice.

Trading Your Car In at a Dealership

Trading a car in at a dealership may require far less time and effort than selling to a private buyer. The dealership handles all the paperwork, and you won’t have to deal with strangers inquiring about your car or trying to test-drive it.

“​​Trading in your car at the dealership is easy, fast and secure,” says David Chou, CEO and co-founder of Motorenn, a startup that buys and sells luxury vehicles.

“You don’t have to deal with the hassle of selling your own car or ending up with two cars at the same time if you buy your next car before you sell your previous one.”

Before entering into the purchase of a new car, use a car loan calculator to get an idea of what a new auto loan’s monthly payments could be.

Factors That Affect Trade-In Value

Before giving you a trade-in offer, a dealership will take several things into account, including these:

• Vehicle age, condition and mileage
• Equipment and packages
• Time of year
• Local supply and demand

The dealership you choose could also impact your trade-in price. For example, if you have an Infiniti, take it to a Honda dealership. According to Edmunds, this tactic could set you apart from the competition and get you a bigger return since it may be the only vehicle of its kind on the lot.

What To Expect When Trading in Your Car at a Dealership

Car dealerships want to profit off of your trade-in, so be prepared for a lower offer. A strong counter-strategy is to negotiate your old vehicle’s trade-in value separately from negotiating your purchase of a new car. Get the offer in writing and take it to the dealer’s finance department. Better yet, shop around by taking the offer to another dealer to see if you can find a better price. Once your trade-in is settled, negotiate the purchase price of your new vehicle.

When people shop for new vehicles, dealers commonly try to highlight a car’s monthly payment rather than its sales price. They do this by suggesting a longer loan term, like 84 months, so you can have a lower car payment. This may seem like a good idea on the surface, but you’ll pay more interest over the life of your loan.

Selling to a Private Party

Unlike salespeople at dealerships, a private-party customer probably doesn’t buy cars frequently. You’ll likely get more money if you sell your used vehicle yourself. However, that means putting extra time and energy into attracting potential buyers.

If you go this route, the buyer might use a private party auto loan to pay you.

For the biggest return on investment for your used car, consider selling to a private-party buyer. However, if you prefer a faster and easier process, it may be best to go to a dealership. Depending on your state, trading your current car in can also reduce the sales tax you pay on your new car because it lowers the vehicle’s price.

Here are some of the benefits and disadvantages of trading your car in:

Not everyone is considering trading in a car under normal circ*mstances. Below we will highlight common situations which include trading in a car with a loan, without a title, and with positive and negative equity.

How Does Trading in a Car Without a Title Work?

If your car isn’t paid off and your lienholder still has the title, the dealer can get your title from your loan servicer. But if you don’t have a way to get the title, that’s an issue. Here are a few ways to overcome this obstacle:

• Replace the title: Contact your state’s department of motor vehicles to request a new one.

• Write up a bill of sale: If your car was made before your state started issuing vehicle titles, you may be able to use a DMV form or your own bill of sale instead. Your state may require you to get your bill of sale notarized.
• Look into other titling options: Some states allow you to get a title for a car that’s abandoned or has certain types of liens against it.

How Does Trading in a Car With a Loan Work?

When you trade in your car that still has a loan on it, the value of trading in the vehicle will go towards paying off your balance. If the trade-in value covers the whole car loan then you are free of debt. However, if there are still remaining payments that need to be made, your dealer typically rolls over your current loan into another when you finance a new or used car.

It is typically a better idea to consolidate your debt when going this route as you’ll end up paying more with separate loans. However, you should figure out if you can afford to buy a new car or a used vehicle before making a choice to trade in or sell your car with a loan.

Trading In Your Car With Negative and Positive Equity

Your vehicle’s equity is the difference between its value and what you owe on your car loan. Whether you have positive or negative equity makes all the difference in the trade-in value you get.

How Does Trading In Your Car Work With Positive Equity?

You’re in a good position if you have positive equity. If you have positive equity, your car’s worth more than what you owe on it. This means the value of your trade-in will likely cover what’s left of your loan with some left over to go toward your new vehicle.

How Does Trading In Your Car Work With Negative Equity?

Having negative equity means your loan balance is higher than the value of your car. This is also known as being upside down on your loan. For example, if your car’s current value is $10,000 but you still have $15,000 left to pay off on your loan amount, you have $5,000 of negative equity.

Don’t let car dealers mislead you by saying you won’t be responsible for the extra balance on your old loan. The dealer might want to roll over the remaining balance into a new car loan. In other words, you’ll still be the one paying it.

Review your paperwork to confirm that the dealer didn’t just add the $5,000 to the new car loan, subtract that from your down payment or even do both. Read the financing contract — look for specifics about your down payment and what’s being financed on the installment contract.

Steps To Take if You Have Negative Equity

First, check your car’s value on websites like Kelley Blue Book, Edmunds and J.D. Power. Here’s what to do if your car has negative equity:

• Read the dealer’s contract to find out how negative equity is treated with trade-ins.
• If you roll the negative equity into your new car’s financing, choose a shorter loan term to avoid paying more interest on the old debt.
• Only sign a contract once you understand all of its terms.

Alternatively, consider selling your car online on your own or postponing trading it in until you have positive equity.