How to trade in a car in 6 easy steps

When you buy a new car, you may want to get rid of your old one — which means trading in your car may be the ideal solution.

Usually, when you trade in your car, a dealer buys your old car from you and you buy a new car from them.

If you’re trading in your vehicle, there are steps you can take to help make sure you get the best offer for you. Every dollar counts, especially if you plan to finance your new car — more money for your trade-in can mean you’ll need to borrow less. It’s also important to consider the potential benefits and drawbacks of a trade-in versus selling your car privately.

You could just take your used car to any dealer, see if they want to buy it and then sell it to them if they do. But taking the time to do your homework could pay off.

• How does trading in a car work?
• What to consider before trading in a car
• 6 steps to trade in your car
• Pros and cons of trading in your vehicle

How does trading in a car work?

When you trade in a car, a dealership gives you credit toward the price of a different car that you want to buy. The value of that credit depends on several factors, including the type and condition of your car, its market value, and your negotiation skills.

When you apply the trade-in value of the car you’re selling to the cost of the car you want to buy, your purchase price goes down.

What to consider before trading in a car

If you’re ready to upgrade your ride or at least offload your used car, there are several things to consider. You’ll want to do some research to understand how much you can reasonably expect a dealership to offer. Here are a few things that can help you maximize your trade-in value, simplify the trade-in process and be on your way in your new vehicle.

Consider repairing major damage

If your car has major damage, you may want to consider getting it repaired before you sell it or trade it in. Cosmetic issues can signal to dealerships that the car has not been well maintained, which can affect your appraisal. And if the dealership buying your car must make major repairs, they might deduct the repair cost from their offer. 

On the other hand, a dealership can usually make a repair for much less money than it would cost you to take it to an independent mechanic. So, you may be better off skipping the major repair and taking a hit on the offer price when you trade in your car.

6 steps to trade in your car

Research the current market

Many factors can influence how much dealerships are willing to pay for a used car. Auto dealers consider the make and model of the car, as well as its age and condition. But other items, including supply chain disruptions, new car inventory, gas prices and overall consumer demand, can also increase or decrease your trade-in value.

Collect paperwork about your vehicle

It may be more fun to start thinking about your next car, but don’t overlook the important step of gathering all the paperwork related to the car you’re trading in. This includes the title, if you own the current car outright, or any loan information if you owe money to a bank or another dealership.

1. Research the value of your trade-in vehicle

As soon as you buy most cars, their value begins to depreciate. Websites like Kelley Blue Book and Edmunds allow you to input information about your car, like make, model, mileage and condition, and receive an estimate of the fair market value of the car. Knowing how much your car is worth can help you get a sense of what a dealer may offer for your trade-in and negotiate a trade-in price.

2. Determine whether you still owe money on your current car

You may be upside down, or have negative equity, on your car loan. When you have negative equity, you owe more on your car than it’s worth. In these cases, you may still be able to trade in your car. But the outstanding balance on your old auto loan could be rolled into your new car loan, which can increase your monthly payment and potentially make you even more upside down.

3. Get an estimate from several dealers

Getting multiple estimates can help you make sure you get the best price. You can get estimates from the dealer where you’re considering buying your vehicle, as well as from other dealerships that sell your car’s make and model.

For example, if you have a Toyota, your local Toyota dealer may be willing to buy your vehicle back from you. Consumer Reports also suggests taking the vehicle to a used-car dealer, because they’re often looking to buy well-kept vehicles with low mileage.

Pay close attention to any special offers the dealer provides and read the fine print carefully. Some may guarantee a certain value for your trade-in, even if it’s in poor condition.

Others may claim they’ll pay off your loan, no matter how much you owe on it, when you trade in your car. But if you’re underwater, they may just roll over your negative equity into your new car loan. Do your research and ask the right questions when an offer seems too good to be true.

4. Freshen up your car

Spending some time and money to give your outgoing car some love can go a long way in increasing its potential value. 

You can pay a professional or do the work yourself but consider thoroughly cleaning the interior and exterior and springing for minor repairs like dents or windshield damage. According to Kelley Blue Book, this can up your trade-in value by hundreds of dollars.

5. Negotiate your trade-in price

You don’t have to accept the first offer the dealership makes on your trade-in vehicle. You can counter-offer with a higher trade-in amount. Dealers often begin with a low-ball offer.

And if you plan to buy a new car from the same dealership that’s buying your old car, make sure the dealer doesn’t mark up the price of the new vehicle to make up for the trade-in amount they gave you. In fact, you may want to think about the process as two separate negotiations: one for the value of the car you’re trading in, and the other for the price of the car you’re purchasing.

6. Close the deal

Once you’ve agreed on a price for your trade-in, it’s time to close the deal. If you’re buying a new vehicle from the dealer and getting a credit for the trade-in value, make sure this is clearly listed in your contract and that the right amount has been deducted from the price of your new vehicle.

If you’ve sold your car to a dealer but aren’t buying a new one right away, you’ll likely get a check for the value of your trade-in, which you can opt to use as a car down payment there or anywhere else. 

While this process can take time, it can help you get the most money you can when trading in your car — after all, it may be worth thousands of dollars.

Pros and cons of trading in your vehicle

Trading in your vehicle comes with some benefits and drawbacks. Depending on your financial situation, you may decide that selling your car on your own may make more sense.

Pros

You don’t have to deal with trying to find a private buyer for your vehicle and scheduling test drives or inspections. You just take your car to a dealership. And if you’re purchasing a vehicle from the same dealership, trading in your car can simplify the process, getting you back on the road faster.

Also, if you live in a state that charges sales tax on the purchase of a new vehicle, you may only pay sales tax on the difference between your trade-in value and the price of the car you’re buying.

Cons

You may be able to get more money if you sell your car to a private buyer. Dealers won’t likely pay the sticker price for your car because they need to be able to sell it at a profit. Instead, they may offer you the wholesale value, the cost a dealer would pay to buy it from a car manufacturer — or even a little less.

Plus, depending on market conditions and other factors, you could have trouble finding a dealer to buy your used car. For example, if your local dealer already has an inventory of similar makes and models to your current car, they may not be able to make an offer on it, or it could be substantially lower than you expected.

Next steps

If you’re ready for a new set of wheels, it’s time to buckle down and do some homework.

First: Compare your trade-in offers to what you could likely get for selling your car on your own. Consider the difference, along with the pros and cons of trading in your car, to decide whether a trade-in is right for you.

If you do opt for a trade-in, here’s what to do next.

• If you’re upside down on your current car loan and thinking about rolling the loan balance into a new car loan, make a plan so that you’re in a good place before taking on a new car.
• Take a close look at your finances and your budget to help determine how much car you can afford.
• Do your research and compare offers to help make sure you get the most money possible to use toward your new car.

FAQs about trading in a car