Trading in your car for a new vehicle offers numerous advantages that can enhance your driving experience and provide financial benefits.
Here’s some information on the top pros and cons of trading in your car for a new vehicle, the differences and details between privately selling your car vs. trading it in, the best time to trade in your vehicle, how the trade-in process works, and how your vehicle trade-in value is calculated.
The Main Benefits Of Trading In Your Vehicle
Value Of The Vehicle Goes To Your Down Payment
The first main benefit of trading in your car is that the value of the vehicle will go towards your down payment for the purchase of the vehicle, improving the affordability of an upgrade.
Depending on how much your trade-in is worth, it will determine if it will cover the entire down payment or if there’ll be a deduction, and you’ll have to pay the difference for the remaining down payment. This all depends on the age, condition, and the mileage of the vehicle.
Two terms you might run into when trading in your car is positive equity and negative equity.
Positive equity is where the car is worth more than what the payoff is (or zero). If your payoff is zero because you own the vehicle outright, that’s always instant positive equity.
Negative equity is when you owe money on the vehicle. Here’s an example to illustrate:
Someone might have a car that is worth $5,000, but they owe the bank (or lender) $8,000. That’s negative equity. They are $3,000 in the red on the vehicle.
Usually, dealerships won’t take a vehicle that has negative equity. We always advise potential customers that come to us to keep paying down on the vehicle until they get positive equity on it. If there is a very low amount owing on the vehicle (e.g. $500), sometimes we’ll just roll that much onto the balance and accept the trade-in.
You Get A Tax Break
The second advantage to trading in your vehicle is that you get a tax break. Whatever the amount the dealer is going to give you for the vehicle, you’ll save that amount in taxes.
Each of the states has their own tax amount, but in the state of Texas, for car sales, it’s 6.25% in sales tax. That means dealers will credit that amount in taxes to the sale price. Depending on how much your trade is going to be, you could be saving a few hundred dollars.
You Can Get Yourself Into A New Vehicle
In addition to reducing your down payment and getting a tax break, you’re also able to trade up from an older vehicle into a newer, more reliable vehicle or model.
Depending on what you get, that could mean less depreciation, not as many repairs or maintenance costs, better safety features, getting newer and better technology, better fuel efficiency, and better warranty.
Selling Privately vs. Trading In Your Car
The main differences between selling your car privately and trading in your car are the amount you’ll get for the vehicle and the ease or convenience of getting value out of your car.
In car sales, there are 3 values that can be given to a vehicle: retail value, loan value, and trade-in value.
Retail value is the highest value. This is the price you’ll be able to sell it at when you sell privately (or the one you’ll be paying at dealerships).
The problem with selling at retail value is that it’s a hassle. You have to deal with buyers, do test drives, deal with contracts and other paperwork, and possibly be subject to fraud.
If you don’t have time or want to deal with all the hassle that comes with trying to sell your vehicle, then, out of the options, you might opt for trading it in.
If you do trade it in, you’ll be getting the trade-in value of the vehicle. This will be the lowest price out of the three values, but it’s hassle-free. Trading in is fast, easy, and secure, so if those are your priorities, then trading in is probably the best option for you.
Loan value is somewhere in between the other two values. Banks and lenders use this value when giving out loans. If the dealer you’re buying from is selling at retail, you’ll have to make up the difference with a down payment.
Best Time To Trade In Vehicle
You’ll get the most money for your trade right after tax season — so in April, May, or June.
This is because demand is high at this time of year. That means there’s little inventory making dealers hungry for inventory and willing to pay top dollar. This drives the value of cars higher during this season.
However, this is a bit of a double-edged sword for a buyer. The downside of doing a trade in at this time is it means your buying price is also going to be high.
One way you might be able to avoid this is by buying a car that has been on the lot during tax season. That way the vehicle might be priced pre-tax season, so you’re getting a lower price, but still able to get the most from your trade-in.
How Trading In Your Car Works
Trading in your vehicle is a very simple process — below is how our process looks.
If the car is paid off, all that’s required is for you to bring in the title to the vehicle and your ID. We then verify the vehicle is in the customer’s name. If the name on the title and ID don’t match, we can’t and won’t accept the vehicle for trade-in.
If it’s not paid off, we would need a 10-day payoff letter from your bank or whoever the lender is (we can assist the customer in getting this). Then we can get the title off the bank — they’ll release it after we pay them off.
How To Calculate Trade-In Value
Appraisals can be very quick and simple.
At our dealership, we do a rough appraisal before we even look at the vehicle. We start the process remotely by getting the customer to send the VIN and mileage of the vehicle. From those two things, we give you the roundabout estimate of what the vehicle is worth.
If the customer is happy with the number, then we’ll ask them to come in so that we can do a visual inspection and sometimes a road test.
After we’ve had a chance to inspect the vehicle and test it, we give a final number, where we might deduct or even add to the value we initially gave.
We offer a generous trade-in value on the vehicles our customers bring in. One promotion we have is if your vehicle has been appraised at CarMax, we’ll give you $500 more for the trade-in value!
So if you have a vehicle, but you’re looking to upgrade, and you’re in the Houston and Pasadena areas, you can phone us or fill out our form to discuss trade-ins and what your car value might be. You can contact our team today with any questions you might have.
We are known for our in-house financing program. Our Buy Here, Pay Here car dealership offers the best rates to drivers in the Houston and Pasadena area, and we don’t check credit. Our motto is “we sell cars to people, not credit scores”, so if you want top customer service and care without judgment of your credit situation, then King of Cars Texas is your place!
We have a great selection of cars, trucks, and SUVs, with plenty of newer models you won’t see at other Buy Here, Pay Here dealerships. You can shop our inventory online or visit our Pasadena or Houston location.
If you’re looking for more information on buying a used car, you can check out our Consumer’s Guide to Buying a Used Car on our homepage for buying tips, common questions, and paying in cash vs. in-house financing.
