There are advantages and disadvantages to trading in a used car on a new or used vehicle. When purchasing a car, one of the many decisions buyers need to make is what to do with their previous car. Should they sell it privately or trade it in to a dealership?
Advantages of Trading in a Used Car
Many people struggle to sell a vehicle privately. Selling a vehicle on your own requires time (most vehicles don't sell overnight), effort (advertising the vehicle), money (local classifieds and Internet sites typically cost money) and a bit of vulnerability (interested parties may call your phone number at odd hours). Trading a used car in at a dealership avoids all these inconveniences. Dealerships will make an offer for the vehicle on the spot and take it off your hands the same day. Some dealerships will make an offer to buy your vehicle even if you don't purchase one of theirs.
Financed Vehicles Are Okay
For one reason or another, some people trade vehicles in that they still owe money on. Regardless of whether the car is paid off or not, dealerships will take the trade. If a used car is not yet paid off, the dealership will contact the lender and pay off the balance. This is an attractive benefit. It allows you to get a new vehicle without first paying off your old one.
Additionally, in these difficult economic times, some people are upside-down in their automobile loans. Dealerships will take these vehicles in on trade, too, and pay off the loan. Granted, any balance that exceeds their purchase offer will be added to the loan balance on the vehicle being purchased. For those looking to get out of an unfavorable loan, this could be a means to accomplish it.
Down Payment Assistance Is Available
When a used car is traded in, dealerships will apply any positive balances to the purchase price of the new vehicle. Basically, if a car is being traded in that is either paid off or has positive equity (the value of the car is more than what is owed), you can use that money as a down payment on the vehicle being purchased. If you choose, this allows you to finance and drive the new vehicle off the lot with little to no up-front money out of pocket.
You Can Trade It and Forget about It
Even if a vehicle is sold "as is" through a private party, the buyer may come back and pressure you to pay for any mechanical issues that may arise. When trading in a used car, the dealership assumes all responsibility for the mechanical trustworthiness of the vehicle. A dealership will not contact you and ask for financial assistance to recondition the vehicle. Once the used car is in the dealership's hands, the prior owner has no further commitment to the vehicle.
Disadvantages of Trading in a Used Car
The Trade-In Price Is Low
The primary intention of a car dealership is to turn a profit. The quicker a dealership can make money on a particular vehicle, the stronger financial position they will be in. One of the easiest ways for a dealership to turn a quick profit is to purchase used vehicles at a discounted price and then resell them at a price higher than what they originally paid. Dealerships acquire used cars through various channels, but their primary avenue is to purchase used cars from people who are buying a new vehicle from the dealership.
The trade-in price is hardly ever greater than or even equal to the price you can receive by selling the vehicle yourself. This is perhaps the biggest disadvantage to trading in a used vehicle. Depending on the make, model, year and condition of the vehicle, most dealerships will offer a trade-in price that ranges from below Kelley Blue Book value to right at KBB value.
Money Spent on Maintenance Is Not Considered
One of the main responsibilities of owning a vehicle is the ongoing maintenance. Depending on the vehicle, it can be an expensive proposition to keep your car running efficiently. When a used car is traded in, dealerships generally do not take into consideration any money that you spent on upkeep. Common items such as recent tune-ups, new tires, and repair work are not factored in when the dealership makes an offer on a trade. These are costs that you do not recoup when trading in a vehicle to a dealership.
The Dealership May Not Want It
While it is true that most dealerships will take most vehicles on a trade in, instances arise where the dealership doesn't want the used car being traded in. The majority of vehicles traded in are actually able to be resold by the dealership. However, two common examples exist where a dealership may not want the trade.
First, dealerships may not want to accept a used car trade-in if the vehicle is out of favor with the buying public. When gas prices soared in the summer of 2008, large trucks and SUVs fell into this category. Second, dealerships may not want to accept a used car trade-in if they already have a multitude of similar vehicles on their lot. If a dealership has five black Honda Accords that haven't sold, why take another one? Most of the time, dealerships will still accept the trade and simply send the car immediately to auction. A vehicle's desirability, however, can significantly impact its trade-in price.