Things to Know About Trading in a Car

A common part of buying a new car is the trade-in of another vehicle. The value of the trade-in is an important part of the financial transaction. Some knowledge on how a dealership looks at cars coming in on trade will help a car buyer make a better overall financial transaction.

What the Dealer Wants

  • A new car dealer wants late-model, low-mileage used cars for her own used-car inventory. A domestic car dealer will want domestic models, and foreign brands will want foreign cars. For example, a Chevrolet dealer will want other GM brands as well as Fords and Dodges as used-car inventory. The Toyota dealer wants Toyotas, Hondas and Nissans. These are cars he can sell with financing and extended warranties for additional profit. If you are trading a car that meets these criteria, the dealer should be willing to give you a higher value for the trade.

What the Dealer Does Not Want

  • Cars that do not meet the requirements to become inventory are a different problem. High-mileage cars or those in bad condition will be sold to a wholesaler or at auction. The dealer wants to avoid a loss on these transactions and may only be willing to give a value well below the Blue Book number.

    For a brand of car that is not familiar, the dealer will call the used-car buyer of a dealership in that brand and get a buy bid on the car. If the car deal is completed and the dealer gets the trade-in, it will be immediately sold to the other dealership. The buy-bid value is the maximum amount you can expect to receive for the trade-in.

Financial Considerations

  • Before going to the dealership with a trade-in, it is important to get a value from one of the Internet car value sites. The most popular are Kelley Blue Book, Nada Guides and Edmunds. Use the trade-in value guide and be realistic about the condition of your car.

    If you have a loan on the car, find out the payoff balance. If the loan balance is greater than the trade-in value of the car, you are "upside down." The negative equity will either need to be paid in cash or rolled into the loan of the new car. If you have positive equity, the amount can be used as a down payment on the new car. Positive equity gives you a stronger negotiating position.