Sunday, June 17, 2012

Auto Trade-Ins 101 – Your Guide to Trading in Your Car

Buying a new car (whether brand new or used) is expensive. For most buyers, having a trade-in is not only a good idea, but an absolute necessity. Trading in your old vehicle knocks down the price of the car you’re buying, which cuts down significantly on the amount of interest that you’re going to pay on your auto loan, and can even make the difference between being approved and being denied the loan that you need. Of course, if you don’t go about it the right way, you might not get much money for your trade-in (or any at all). What do you need to know?

Appraise Your Car’s Condition

Even a "little" damage can be a lot!
The first thing you’re going to need to do is figure out what condition your car is actually in. The better the condition, the more money you can expect to get with your trade-in. First, get a copy of the Kelley Blue Book – this is an invaluable resource that will not only help you figure out just what shape your car is in, but what you can expect to get for it as a trade-in or as a direct sale to someone else.

Investing a few dollars can raise the
price significantly. The cost of this
repair was about $350.
Many different factors go into a car’s condition, including the exterior appearance/condition, what shape the interior is in, the mileage and maintenance on the vehicle and more. Be honest in your appraisal – does your car look like it should be in the junkyard? If so, you need to take steps to remedy the situation.

The Lie of Market Value

If you are going into the trade-in process under the impression that the dealer is going to give you fair market value for your vehicle, you’re in for a huge disappointment. Dealerships NEVER give fair market value. If your car could sell on the curb for $2,000, you can expect to receive less than half that amount from the dealer. In addition, there are a few factors that might make the dealer completely reject your car even if it has a high market value.

The most important factor in the dealership’s offer on your trade-in is going to be your car’s condition. However, other factors include the number of identical/similar vehicles the dealer already has on its lot, the demand for your vehicle in the local area and whether the dealer intends to sell your trade-in at wholesale. In every case, you can expect significantly less money than you would get if you were to sell your car outright.

Dealers can’t offer you market value for one very simple reason – they have to make a profit on the car. Therefore, you can expect them to offer you a lowball figure (say $500) and then sell it for market value ($2,000). Why do they need so much profit from it? It all comes down to the dealer’s overhead.

Think about it this way – every day that your car spends sitting on the dealer’s lot and not selling, it costs them money. It’s not a direct cost, but your vehicle is taking up space that could be occupied by something that might bring them more money, faster.

Sell or Trade-In?

The information above begs the question – should you sell your car outright instead of trading it in? Actually, this is an excellent option and will usually work out better for you in the long run. However, it’s also time consuming and can be more expensive to you in the short term. For instance, to sell your car, you’ll need to invest in a professional detail job, repair any damaged areas/components, pay for a vehicle history/CARFAX report and more. Those costs come straight out of your pocket, though you’ll recoup them when you sell the vehicle.

It also takes time to sell your car outright. Whether you choose to put it by the side of the road with a “for sale” sign in the windshield or list it with one of those “trader” magazines, run an ad in your local paper or something else, it’s going to take some time for your car to sell (if it does at all).

For most would-be buyers, the simplest option is to trade in the car, even though that means getting less money for it in the long run. Often, selling outright can be a hassle, especially if you need a new vehicle in a hurry.

Give Your Ride Curb Appeal

Whether you decide to sell your car outright or use it as a trade-in, you’re going to need to give it as much appeal as possible. The better the first impression your car makes, the better things will go all the way around. How do you boost curb appeal, though? It’s pretty simple.

Washing the car can be fun too!
Fist, make sure your car is clean, inside and out. You need to wash and wax the exterior, and fully clean the interior. That means you’ll need to remove all your personal effects, vacuum the floor and shampoo any stains that might detract from the interior’s appearance. Spend some extra time on areas like your tires and wheels, as well as the dash and your car’s windows. If you don’t have the time or patience for this, taking it to a professional auto detailer is an excellent choice (actually, that might be the best option even if you do have the time).

Second, you need to do a few things to boost your ride’s image. Take a look at your tires – are they old and just about worn out? Consider having a cheap set of tires put on. You should also make sure that any necessary maintenance is taken care of – replace the brake pads if necessary, change your oil and air filter, check your other fluids, inspect the belts and hoses, etc.

Essentially, anything that you can do to maximize the appearance and condition of your vehicle is a good idea, even if you’re trading it in. The more a dealership thinks they’ll get out of your car, the more they’ll offer in trade-in value (but it will ALWAYS be below market value).

Where to Trade in Your Car

Trading in your car is only done at the dealership. However, not all dealers are created equal. You need to ensure that you’re making a smart choice in order to maximize the amount of money you get for your trade-in. In addition to maximizing your car’s curb appeal and taking care of any maintenance necessary, you’re going to need to do a little bit of legwork.

While you might have a “preferred” dealership in town, you need to visit several in your area to conduct research. Hit the lot and check out the dealer’s selection of vehicles. Do you see your make and model represented? If so, how many cars just like yours are already taking up space on the lot? If there are more than one, you can expect a very lowball offer, or nothing at all. It’s not uncommon for a dealership to decline your trade-in if they don’t think it will sell (it’s a business decision, after all). Do the same research at several dealerships in your area and make notes about those that have few or no vehicles that are similar to your own. Those will be your best option when trading in your ride.

Tips to Remember

Trading in your car is a bit more complicated than many people think. Remember the following tips and you’ll do better.

1. The dealer is not going to take a chance on a car they know isn’t going to sell.

2. The dealer is not going to offer a high price for a car they know they’ll not be able to make at least $1,200 for at auction (the key word there is “auction”).

3. “Blue Book” value is not always the best indicator of what you’ll get either with a trade-in or an outright sale. Many other factors affect the ultimate price, including condition, demand and market saturation.

4. Your vehicle history will play a HUGE role in the amount of money you receive. If the CARFAX shows an accident, you can expect a low price.

5. Curb appeal is important, but the condition of your car’s paint and the number of miles on the vehicle are also immensely important considerations for the dealer (or a private buyer).

6. Trading in your car can give you access to credits against sales tax (depending on your state), which will help reduce the cost of your new car even more.

7. Most offers from the dealer are at least somewhat negotiable. Most dealers will offer a low figure at first and then expect you to negotiate it upwards.

8. If you don’t think you can accurately appraise your car, have it done by an expert before going to a dealership.

9. Don’t expect the dealership to give you enough on your trade-in to pay off what you owe on your existing loan. It’s not going to happen, particularly if you’re upside down.

Don Elfrink is the owner and operator of AutoMatStore, an auto flooring company based out Columbia, Missouri. Before AutoMatStore Elfrink was the operator of a automotive production site. AutoMatStore focuses on all-weather, logo, carpeted and molded car mats.

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