New car time is an exciting time for any vehicle owner and looking for a new vehicle can be a lot of fun. If you're already on the road, you'll also need to decide what is the best thing to do with your old vehicle. Here, we discuss the benefits of trading your car in.
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What Is A Car Trade-In?
A car trade-in occurs when a vehicle that you already own is offered to a dealership in exchange for credit toward the price of the automobile that you would like to purchase from them. A trade-in can occur with any vehicle that has value.
However, you should bear in mind that the amount for the trade-in can vary significantly. Several factors contribute to this variation, including the standard, quality, make and condition of the car, its market popularity, and your negotiation.
It is important to remember when considering a trade-in that the very moment a new car leaves the dealership it begins to depreciate. This loss in value is commonly known as depreciation and is ongoing until the car has no ‘resale' value left.
Generally defined, the resale value is the highest amount that you’re likely to get using your car in trading in. One of the key issues people see with owning a vehicle is depreciation. It can be hard to fathom that an asset loses so much value almost immediately.
How Does Trading a Car In Work?
If you've already decided that you want to trade-in your current car, one of the common questions asked is just how does it work?
First and foremost, it is important to remember that your current vehicle doesn’t lose its value, regardless of whether you've chosen to upgrade or purchase another from a car dealership. That is to say, your current vehicle will usually maintain a ‘trade-in' value.
The trade-in value is determined by several factors, but primary amongst them is the market value of the automobile. If the car is in good condition and has a good market value, this can be a huge advantage and greatly lower the price of your new vehicle.
A trade-in work by calculating the amount that a car dealer is willing to offer you toward the purchase price of a new or used car that they are selling – in exchange for your old car. If, as above, your current car is of good trade-in value, the savings can be significant.
This will be calculated and outlined to you by the dealership that you're dealing with conducting your trade-in and an overall price, deducting the trade-in value of your current car will be set out.
Thus, the lower overall price of the new vehicle when taking out the trade-in price of your current one, also means you will pay a lower car payment if you’re financing the purchase.
The Biggest Benefits of Trading a Car In
Hassle-Free Convenience
Compared to selling your car by yourself, which can be a long and stressful process, trading your current vehicle in is a walk in the park. the process simply involves you driving the car to the dealership, have it examined and receive an offer, and sign a few papers.
As a pose to the myriad of issues you need to handle when selling it when the customer trades his old vehicle in, all of the DMV tasks are handled by the dealership.
This includes the transfer of ownership, assignment of title, the lien payoff, the replacing of plates, and other administrative tasks. This is a huge weight off your shoulders and one of the main benefits of a trade-in.
Another factor in terms of convenience is that you are dealing with a trustworthy and professional dealership when conducting a trade-in as a pose to strangers when you are looking to sell your vehicle privately.
You may need to meet strangers or come across some people who are trying to cheat you out of money or your vehicle – whereas trade-ins occur with reliable, safe dealerships.
Down Payment Help Towards New Vehicle
If your current car is already paid off or if you have equity in it, you can apply the trade-in value calculated by the dealership to your down payment on the new purchase.
This reduces the amount you need to finance, which will not only lower your monthly payment, but also the overall interest charges you'll pay, making for another big reason why you would want to opt for a trade-in.
This benefits you in many ways. You can apply that extra value towards a more high-end model or add some additional extras to your new car that you wouldn't have been able to afford without the financial help of the trade-in value.
You Could Get a Sales Tax Break
Another big reason people choose to trade-in their current vehicle is the effect this can have on sales tax. How sales tax on your new purchase is calculated is greatly impacted by your decision on whether to trade-in your current vehicle or not.
In almost all of the United States [42 out of 50 states], if you decide to trade-in a car when purchasing a new one, you will receive some kind of sales tax credit that is calculated on the value of your trade. This can be somewhat confusing so allow us to explain.
In the states that allow for the sales tax credit, the tax you will have to pay on the final purchase is only based on the cost after the value of the trade is subtracted from the cost of the new vehicle.
This means you will only pay sales tax on the difference between the price of the new car you're buying and the trade-in value of your current car as offered by the dealership.
As a basic example, if you are buying a new car for a price of $25,000 and the car dealership offers you $5,000 for your trade-in current vehicle, you will be liable for sales tax only on the difference in the value of these two amounts. In this case – $20,000.
Fast Trade-In Transaction
Another major benefit of trading your car comes with the immediacy of the transaction in comparison with conducting a private sale. When trading in your vehicle, you receive the value of your vehicle immediately as part of the deal.
Demand for cars in the automobile market is very high and if there's a car you like, you'll need to snap it up fast before someone else does. Trading-in your current vehicle can help speed up this process no end.
Typically, by comparison, it can take up to four to six weeks to sell through a private party sale. That means more time hanging around and less time snapping up your new car, which may well be gone from the lot by the time you've sold your current one.
Maximizing Trade-In Value
Having looked at the benefits, if you've decided that trading in your current car is the way to go for you, you will naturally want to maximize the trade-in value of your current vehicle to offset costs on your new vehicle. There are several ways to do this.
First and foremost, the most basic way to maximize the trade-in value of your current vehicle is to ensure that it looks its best when you take it to the dealership. A well-cleaned and detailed car is generally worth more at trade-in than a poorly maintained one.
You don't want your car to look old and worn. Before taking it to the dealership, ensure that any minor repairs are fixed as best you can.
Small issues such as fixing any problems with the windows or minor engine issues can greatly increase its trade-in value offer.
You should bear in mind that the trade-in value that you receive for your old vehicle can have a great impact on the type of new car that you can afford, so maximizing the trade-in value of your current vehicle is very important for your new purchase.
Take your current vehicle for an in-expensive valet before arriving at the dealership for a trade-in inspection. Minor details can be very important in the overall perception of the condition of your current car. Also, be sure to try and negotiate as best as possible.
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