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Should I Trade in My Old Car When I Buy a New Car?

Trading in an old car may result in a higher purchase price on a new car.
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  • Written By: Tricia Ellis-Christensen
  • Edited By: O. Wallace
  • Last Modified Date: 12 October 2014
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Many financial experts suggest that one not use an old car as a trade in when purchasing a new car. In fact, it may ultimately cost you more on a new car, to use an old car as a trade in.

Most auto dealers have a certain amount of price flexibility. In fact bargaining is the soul of any good auto deal. Most cars are marked up in various fashions, and the greater one lessens profit margin, the less money the salesperson makes on commission. Few auto salespeople actually work for a salary that is not at least partly based on commission from sales.

If one uses an old car as trade in, and the person is offered high blue book value, the highest possible value for the car, this means the price flexibility in the car will change. The person is likely to pay more for the new car, thus rendering the trade in less valuable, even if the bluebook value price is met.

Further, getting high bluebook value for a trade in is often difficult. Auto dealers want to take your old car and profit from it. Therefore, they are likely to offer low bluebook value so they can sell the car at high bluebook value.

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However, if you are selling your car independently, instead of using it as a trade in, one is likely to receive more money up front. Additionally, because you have not depended on the dealer to give you a good price on your trade in, you have better ability to negotiate on the price of a new or newer car. Essentially you have achieved greater price flexibility.

Also, a greater influx of cash for a down payment often means negotiating better financing terms if you must borrow money to pay for the new car. Smaller amounts borrowed mean smaller payments, or shorter-term loans.

In some cases it may be impossible to avoid using an old car as a trade in. If for example, one is still making payments on the car, then one may be able to trade it in and get a newer car. If money owed on the trade in exceeds what the dealer would give you, this will mean you will have a higher auto loan payment. You will essentially transfer debt owned on the old car to debt owned on the new car.

When possible, if you can sell the car at a price equal to how much you owe, you will save money when you purchase a new car. Many auto sellers now also offer attractive terms with no money down, so that it may not be necessary to have money up front to purchase a new car. As well, you won’t be paying the cost of absorbing your old debt.

Some cars, however, have a high enough resale value that one can not only pay off their debt but also have money left over for a down payment on a new car. Generally, selling the car independently to accomplish this still makes the most financial sense. Also, if you have just paid off a car loan, this will look very good to potential creditors and may get you a lower interest rate on money borrowed for a new car.

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Shivam Searching-frnds
Post 3

As per my experience about the used cars, i would like to say you that if you are planning to buy a used car, then you already made a smart decision, and yes it's a good idea you can go with this and about your vehicle trading think in both ways. there are various offers and schemes available at the dealers place. hope it will help!

Fiorite
Post 2

If you are planning on trading your vehicle in, try and think of the process as two separate transactions. Separating the two will make it easier for you to wrap your head around the real deal that you are getting. Like the article said, it is easy for a dealership to transfer value from one vehicle to the next to make your buy price sound better. Go to the dealership and negotiate the price of your vehicle first; then tell them you’re going to go home and sleep on it. When you return the next day you can begin negotiating the value of your trade. Once you have a written offer an honest dealer will not go back on that. It may be a good idea to shop around at multiple dealerships so you can compare the various buy and trade in offers from each. You can also use those other offers as negotiating tools at the dealership you like most.

Georgesplane
Post 1

From my experience with buying cars, I also encourage selling the vehicle in a private sale and then going to the dealership to make your purchase. This can be a bit of a hassle, but if you prepare in advance, you can lessen the stress. I usually research the car that I want to buy first. Once I have a good idea on what I need to spend, and what type of credit I would likely be able to qualify for, I begin the process of selling my old car. The first thing that I do is fix any problems with the vehicle, as long as it makes economic sense to do so. It's always best to be upfront about any problems you haven't fixed; no one wants to be a jerk. I then give it a good wash and vacuum. Next it is time to list and sell the vehicle. Be prepared for numerous inquiries that do not pan out though, and be realistic with your asking price. If you adequately researched your next vehicle before you sold your current vehicle, you'll spend less time sharing vehicles or driving a rental. If you are ordering a vehicle configured to your specifications then it may be best to just trade your old car in. Ordering a vehicle can take a month or more depending on the popularity of the vehicle you are ordering and the options you want.

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