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What is a Trade-In Allowance?

Trade-in allowances are commonly used as sales incentives on car lots.
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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 09 October 2014
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Trade-in allowances are financial incentives utilized in many different businesses. Essentially, it is the amount that a seller reduces the purchase price of new property in exchange for the acquisition of property owned by the buyer. Depending on the amount of trade-in extended by the seller, such an allowance may yield a significant reduction in the price paid by the buyer.

One of the most common examples of the use of a trade-in allowance is with the sale of motor vehicles. As part of the sales approach, car lots may advertise a specific minimum trade-in allowance to anyone who purchases a new car or truck. With this type of sales promotion, the vehicle used for the trade-in can be in any condition and still qualify for what is known as a push-pull-or-drag allowance. The potential buyer brings in a vehicle that is owned free and clear, and surrenders ownership to the dealer. In return, the dealer subtracts the amount of the allowance from the cost of a new vehicle.

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However, there is no set rule that a trade-in allowance must be a fixed amount that is applicable on any trade-in. Many auto dealers allow trade-ins that are based on the condition of the vehicle offered by the potential buyer. After inspecting the potential trade-in, the dealer will make an offer of allowance to the owner. If both parties agree on the offer, the value of the allowance is applied to the sticker price of the vehicle that the buyer intends to purchase. From that point, financing is arranged to cover the remainder of the balance due.

The concept of a trade-in allowance is sometimes offered in other retail environments. Appliance dealers sometimes will extend such an allowance on items like refrigerators or stoves in exchange for consumers purchasing newer versions of like items. Buyers have the benefit of not having to pay for the removal of older appliances and also enjoy a reduction in the purchase price for the new items.

Even real estate transactions sometimes employ a trade-in allowance approach. Buyers may offer a house or other piece of property as partial payment for a different property. If amiable, the seller will accept the trade-in property at the current market value and discount the purchase price of the new property accordingly. This approach can allow a buyer to avoid having to go through the process of selling property before being in a position to make a purchase of a new home.

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John57
Post 5

When it comes to buying new appliances, I think wondering how you are going to get rid of the old ones is one of the biggest things to consider.

When we remodeled our kitchen, we take advantage of a trade-in program with all of our big kitchen appliances. We received a trade-in allowance on our refrigerator, dishwasher and our stove. They also came and removed them from the house when they brought the new appliances.

I think you save more taking advantage of this service than you do actually receiving much of a credit towards the new appliances. They didn't really care what kind of shape they were in as the trade-in allowance seemed to be the same no matter what.

honeybees
Post 4

When it was time for me to replace my washer and dryer, I wanted to find a place that would give me a trade-in allowance on my old set. Even more important was needing someone who would come and remove the old set and deliver and set up the new washer and dryer.

This service alone was probably more important than anything. Since I am single, I didn't want to mess with getting rid of my old washer and dryer and getting the new ones installed correctly.

In the end I don't know how much I really saved with this trade-in allowance. Both the washer and dryer I traded in still worked, but it was just time for an upgrade and this turned out to be the easiest way to take care of it.

SarahSon
Post 3

There have been very few times when I have bought a difference car that I have taken advantage of the trade-in allowance a dealer was going to give me. Many times I am able to make at least $1000 more if I sell the car myself.

I know a lot of people don't like to go through the hassle of doing this, but I think the extra money is worth it. When my son was a teenager and buying a different car, I was frustrated with the amount the dealer was going to give him for a trade-in.

This car was older, but it was sporty and in good condition. Once he advertised it, he sold it within a couple of weeks. This gave him $10000 more dollars to apply towards a new car.

Depending on the circumstances a trade-in allowance offered can be a good deal, but I have found that most of the time I am better off selling the old car myself.

LisaLou
Post 2

I have taken advantage of a push-pull-or-drag allowance at a local car dealership. I had been looking for a new car for a few months. The car I was driving was very old and not very dependable. I figured making a car payment would be cheaper than the amount I was spending on maintenance every month.

At this promotion they were guaranteeing you a certain amount of trade-in auto allowance for each car that was brought in towards the purchase of a new car.

There were many things I liked about this promotion, and one of them was the fact that I didn't have to worry about trying to sell my old beat-up car myself. It was nice to drive away with a new car knowing I got more out of my old car than I would if I had tried to sell it myself.

cesilia1005
Post 1

What's meant by allowances in price of marketing mix(4Ps)?

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