How does trading in a car you haven’t paid off work

Yes, you can trade in a car with a loan. But proceed with caution and make sure you — not the dealer — control the transaction.

If you’re trading in a car you still owe money on, you’re looking at one of these two situations:

  • You have positive equity. If your car is worth more than the amount you owe on your loan, you’re in good shape. This difference is called positive equity and it’s like having money that you can apply toward the purchase of a new car.

  • You have negative equity. If your car is worth less than what you still owe, you have a negative equity car also known as being “upside-down” or “underwater” on your car loan. When trading in a car with negative equity, you’ll have to pay the difference between the loan balance and the trade-in value. You can pay it with cash, another loan or — and this isn’t recommended — rolling what you owe into a new car loan.

We’ll show you how to handle each of these situations. But first, a little background.

How trading in a car works

When you trade in your car to a dealership, its value is subtracted from the price of the new car.

When you trade in a car with a loan, the dealer takes over the loan and pays it off. The dealer is also supposed to handle the paperwork, such as the transfer of the title, which establishes legal ownership of the vehicle.

To trade in a car that’s not paid off, bring the following items to the dealership:

  • Loan information, including payoff amount and account number.

  • Driver’s license.

  • Vehicle registration.

  • Your vehicle keys and any remotes.

  • Proof of insurance.

  • A printout of your trade-in value.

It’s important to keep in mind that both the price of the new car and the value of the trade-in are highly negotiable. To get an overall good deal, you’ll need to get a good interest rate on your new loan and a fair price for both the trade-in and the new car. Before you go to the dealership, use a car loan calculator to estimate these numbers and see what your new monthly car payment will be.

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Payoff amount and trade-in price

If you plan to trade in a car you still owe money on, first contact your auto loan lender and ask for your payoff amount (which could be slightly higher than your remaining balance).

Price your car. Look up the current trade-in value of your car on a pricing guide.

You can use online pricing guides like Kelley Blue Book and Edmunds.

Compare values. Subtract the payoff amount from your car’s current trade-in value.

Though the final trade-in price is negotiable, you’ll now have a sense of whether you have positive or negative equity in your current vehicle.

Trading in a car with positive equity

Say you owe $5,000 on your car, and it’s worth $7,000 as a trade-in. You now have $2,000 of equity you can apply directly to the purchase of your next car.

This equity is deducted from the negotiated price of the new car. In addition to any equity applied to the new car purchase, you can make a down payment to reduce the overall balance of the loan.

But you’ll need to provide financing — cash or an auto loan — for the remaining purchase price of the car. The value of the trade-in will be listed in the contract for your new car. Make sure you are given the full agreed-upon amount you negotiated.

The best way to ensure that you get a good price for your trade-in and on your new car is to negotiate each one separately. Refer to the prices listed in the online guides during your negotiations.

Trading in a car with negative equity

If you’re upside-down on your car loan, it’s really better to postpone your new car purchase and trade-in until you pay off the loan — or at least until you have positive equity. But if you’re struggling to make car payments, trading in your vehicle can provide relief by allowing you to downsize to a less expensive car or even an inexpensive used car. In such a case, you’ll need to give the dealer your trade-in, plus the amount of the negative equity.

Say you owe $10,000 on a car with a trade-in value of $9,000. Instead of being on the hook for the whole $10,000, the trade-in credit will cover most of the loan and you’ll pay the dealer the $1,000 difference.

Beware: the dealer will often happily suggest rolling the negative equity into the loan for your next car. Though convenient, this is unwise because it will immediately make you upside-down in the new loan. It also means that you’re creating a larger loan amount and paying more interest.

However, if you need a car but don’t have the money to pay off the negative equity and are having trouble keeping up with your current car payments, it might be worth the risk. This can be the case if your new loan — from either an independent lender or the dealer — has a lower interest rate. If you decide to downsize by purchasing a cheaper car, your payments may become more manageable even if you roll the remaining debt into the new car loan.

As you set up your new loan, avoid extending your loan term for more than 60 months for a new car or 36 months for a used one. Also, know that you would likely get a better price selling your car privately than trading it in.

Final steps

Once you’re done negotiating your car deal, along with the trade in, review the contract carefully to make sure all the terms you agreed on are in writing. Double-check the numbers with your own calculator.

Then, a few weeks after you’ve completed the deal, check that your loan is paid off. The lender should also send documentation in the mail that the loan is settled.

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Trading in your current vehicle at a car dealership  may not be the best option for everyone, but it can be an easy way to part with it, especially when you want to buy or lease a new or used car. Essentially, what you do is sell your used car to the dealer, and the amount they pay gets taken off the value of whichever vehicle you want to buy. In the following article, we’ll walk you through how to trade in your car. We’ll also explore the pros and cons of trade-ins.

Why Should You Trade Your Car In?

It can be hard to part with your vehicle, especially if you’ve had it for a long time. However, there will come a time when it needs to be replaced. One of the easier ways to do that is to trade it in to the dealership where you are purchasing your next car. Doing so has plenty of advantages.

It’s Quick and Easy

To start the process, all you have to do is go to the dealership you plan to buy or lease a new vehicle from and tell the car salesperson that you want to trade your old car in. They’ll take the wheel from there. After giving it a test drive and appraising its value, the dealership employee will make you an offer. Generally, this offer won’t put cash in your pocket. Instead, the money goes toward the new car you’re buying. If you accept their offer, simply conclude the deal by signing the car’s title over.

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You can choose to sell your car yourself. However, a private sale is a time-consuming process. Marketing the vehicle becomes your responsibility. You must also show it to potential buyers for their appraisal, negotiate the price, and do the paperwork to finalize the sale and transfer the title.

You Complete the Transaction in One Place

Part of the efficiency behind trading your car in stems from having a centralized location. All you need to do is drive your old car to the dealership and drive your new car home. While you should have a preapproved financing deal from a bank or credit union already in place, it isn’t mandatory. You can have a car loan arranged by a dealership, though unless you have a pre-approved offer in place from an outside lender, the dealer will have no incentive to find you a loan that’s a good deal. In other words, the dealer can be a one-stop shop for finding a new car, securing a car loan, and trading in your old model, but you still need to ensure you’re getting a good deal on each component of the transaction.

If you choose to sell your car to another dealer or a third party, then you’ll likely have to drive to several locations to complete that deal. You’ll also have to negotiate the price you’ll sell your car for entirely separately from the purchase price of the new car. Of course, savvy buyers know that it’s a good idea to keep the prices separate, so you know you’re getting a good deal on both the purchase of your new ride and the sale of your used car.

They’ll Pay Off Your Existing Loan

You can trade in a vehicle even if you still owe money on its loan. In fact, it’s common for dealers to take care of consumers’ old financing. They’ll pay off the remaining loan balance on your trade-in and obtain the car’s title directly from the lender. If you have any positive equity in the vehicle, it will be used as a down payment toward your new lease or purchase.

You can even trade your vehicle into a dealership if you have negative equity. Having negative equity means that the amount you owe exceeds the model’s value. That isn’t the best way to deal with an underwater car loan, but it is easy. We’ll discuss why trading your current vehicle with negative equity is not the most ideal option for many buyers later in this article.

The Dealer Takes Care of the Paperwork

Selling a car requires a ton of paperwork. If you’re selling your car in a different state than it was registered in, or if you live in a different state, things can get even more complicated. However, if you trade your used vehicle in at a dealership, they’ll take care of the paperwork for you. They know what documents need to be filed with which DMV. All you need to do is sign the papers, but you’ll pay a document fee for this convenience.

You Can Save on Sales Tax

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One key benefit to trading your car in at a dealer is saving money on the sales tax. In many states, the trade-in value can be deducted from the new car’s price.

Let’s use an example to illustrate the point. For simplicity, we’ll assume that you don’t have any negative equity or otherwise owe money on a car loan. You want to buy a brand-new vehicle, and you’ve negotiated a price of $30,000. You also have a used car that you want to trade in. The dealer offers $10,000 for your trade-in, meaning your net payment is $20,000. In many states, you would pay sales tax on that $20,000 instead of the new car’s overall $30,000 value.

It’s important to do the math to determine whether the sales tax savings you get by trading in the car are more than what you could get by selling it yourself.

Why Shouldn’t You Trade Your Car In?

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Having considered the advantages of trading your car into the dealership where you’re buying your next car, let’s also look at some shortcomings. Trading in your car to a dealership is convenient, but it may not always be the best way to get the best value from your used car. You might get more money if you sell your used car to a private party or a different dealership.

You Won’t Get Top Dollar

When you trade your car in at a dealer, you’ll likely only be offered the wholesale value of the vehicle, which can be significantly lower than the price you can get if you sell it to a private party. If you want to get the most money out of your used car, and you have the confidence in your selling ability to do so, you should sell it yourself. Take a look at our guide to selling a car for advice on how to prepare, market, and complete the sale of your old ride.

Depending on the vehicle’s age, class, condition, and mileage, the difference between its wholesale and private-party resale value can range from a few hundred to thousands of dollars. If it’s just a couple hundred bucks, it’s probably not worth the time and hassle of selling it yourself.

It Adds Confusion to the Deal

Every car deal has three key components: the price of the vehicle, the trade-in allowance, and the terms of the auto loan or lease. In most cases, salespeople will want to blend them into one package and sell you on the amount of each month’s car payment. That’s a great way to sell a vehicle, but it can be horridly confusing for buyers.

As a buyer, you want to keep those components as distinct as possible. By adding a trade-in to the same transaction as the purchase of a new car, a dealer can make the vehicle’s price look phenomenal. They do this by lowballing your trade-in value. Alternatively, they can offer consumers a great price by marking up the price of the new car or the price of financing it. With so many numbers floating around, it can be difficult to estimate the true value of a trade-in offer.

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The simplest way to keep your negotiation with a car salesperson focused on the price of the new car is to sell your used car yourself and get preapproved for financing before you start car shopping.

If You Are Severely Underwater on the Car

When you owe more on your vehicle than it is worth, you have what is called having negative equity, being upside-down on your loan, or being underwater. In this situation, trading your vehicle in at a dealer makes less financial sense. If you can’t sell your current car and use that money to pay off your existing loan, the cash to pay it off must come from somewhere else.

Here’s an example: Say you owe $15,000 on a car that the dealer is only offering you $12,000 to trade in. If you sell, that means you will immediately have to pay $3,000 to your lender. If you have the cash to cover the payoff amount of your loan, then that’s fine.

However, if your budget is tight, then your options are more limited. Many car dealers and lenders will be more than happy to “help” you out by adding the $3,000 existing balance onto your new car loan. Lenders will use the extra cash to pay off the loan on your old car. Unfortunately, that is a financially treacherous way to buy a new vehicle. With rare exception, you’ll start your new car loan with negative equity before you even leave the lot.

In essence, you’ll be paying for two cars, while you can only drive one of them. Since your new vehicle will rapidly depreciate the moment you drive it off the lot, it will force your upside-down car loan even further underwater.

Expanding on our earlier example, we’ll say that your new car cost $20,000. Add the $3,000 from your old loan, and the balance of your financing is $23,000. Next, assume that a new car depreciates 10 percent the moment that you drive it off the lot, or $2,000 in this case (it’s likely more, on average). Before you even get your new car home, you will owe $5,000 more than it is worth. In other words, you’ll have $5,000 in negative equity.

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If you total your car or it is stolen while you have negative equity, you are still responsible for paying the entire loan balance back to the lender. Even if you have gap insurance to cover the amount you’re underwater, many policies will not cover balances rolled over from previous auto loans. Having any hiccups in your life that cause you to miss a payment or go into default on an underwater auto loan will quickly appear on your credit reports and devastate your credit scores. Buying a car when you have bad credit will result in higher interest rates and stricter loan terms.

If you have an upside-down car loan but want a new car, it might be a good idea to sell the old one yourself instead of trading it in. Doing that means you can maximize the amount of money you get from the buyer and hopefully use the sale to get close to the balance of your old loan.

Another option is to put off the purchase of a new or used car until you have paid off enough of the existing loan that you’re no longer underwater. Our guide to getting out of an upside-down car loan is a great resource to help you through the details.

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Trade-Ins and Leasing

Contrary to popular belief, there are a few ways for trade-ins and leasing to work together. Not only can you apply your trade toward a lease, but you can also trade in or sell your leased vehicle for more than its residual value.

Can I Trade In My Car for a Lease?

Absolutely, and you can end up with a lease that doesn’t cost you much money. By applying the money that you receive from a trade-in as the down payment on a lease, you can reduce the size of your monthly lease payments, the amount due at signing, or both. To show you how to do that, we’ll start off with a reminder of how leasing works.

Car buyers pay the entire negotiated price of the vehicle. They usually get a car loan from a lender to finance what they owe on the purchase. However, lease customers only pay for the depreciation that occurs during the term of the contract, plus interest (called the “money factor” in leasing) and fees. That amount is broken down into a down payment and a series of equal monthly payments. When the lease ends, the vehicle is usually returned to the place where the contract originated. Some leases let you take the vehicle to another of the brand’s franchised new car dealers.

Let’s use another example to illustrate how you can use your used vehicle’s trade-in value to cover part of the lease. Say you currently have a truck with no negative equity. It has a trade-in value of $10,000, which you want to use to finance the lease of a new model. You’ve also negotiated the price of the new vehicle (called its capitalized cost in leasing) down to $40,000, with a residual of $24,000 after a three-year lease. In effect, you have to pay $16,000 over the course of the loan, plus interest and fees.

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Now apply your $10,000 trade-in to the lease deal. That brings the money you owe down to just $6,000, plus interest and fees. Even if you pay nothing more at signing, with a money factor of .0025 (equal to an interest rate of 6 percent), your monthly payments would be $183 per month, plus fees.

From this example, you can see just how affordable leasing can be if you have a high-value trade-in to put toward your lease contract. Keep in mind, however, that at the end of your lease you won’t have any equity to put toward a down payment on your next car.

Can You Trade In a Leased Vehicle?

Yes, but it’s rarely a good idea to trade in a leased vehicle. The experts who forecast the residual values of leased models usually make accurate estimates. However, there are times where such a trade can work for you. If the trade-in value of your vehicle is significantly higher than the buyout cost of your lease as you near the end of the car loan, you can trade in your leased vehicle (or sell it yourself), pay off your contract, and use the cash as a down payment toward your next car.

The best chance you have of a trade-in price being higher than a buyout cost is if you have a significantly lower mileage than the lease allows, dealers have high demand for the vehicle, and there is no damage. Even then, you can usually get more money out of a private-party car sale, so you might want to try to sell the car yourself and get its highest resale value. Be sure to check with your leasing company to ensure that there are no prohibitions on selling or trading in the vehicle.

Preparing Your Trade-In

Trading your car into a dealership means you’re selling it to them and hoping you’re getting the best possible sales price. Much of the preparation is the same as a private sale. One key upside is that you typically don’t need to have the car repaired first. The dealer will do the work to refurbish it.

Here are a few tips to get your vehicle ready for trade-in:

Gather Your Paperwork: While you don’t need to refurbish your car to trade it in, it’s worth more if you can prove that you have kept up with preventative maintenance. You’ll want to have your service records in one place, plus copies of the receipts to prove you’ve taken care of your car. It’s also a good idea to provide receipts on things like tires and brakes so you can show if you’ve replaced them recently. All of that can increase the amount you get as part of your trade-in offer.

If the vehicle was in an accident, be prepared to show the appraiser paperwork showing the repairs that were performed. They may not ask for any of the paperwork, but being prepared may land you a sweeter deal.

Car owners who have paid off their loans and don’t owe more money should bring their title when they visit the dealership. However, never leave the title in the vehicle as it’s an open invitation to theft. Many people store it in a bank safety deposit box. If that’s you, and you want to sell or trade your car on the weekend, be sure to get its title during the week, since many banks are closed on Saturday and Sunday.

Clean It Up: There’s no rule about how much cleaning is necessary. Leaving a few belongings in the car can be a good thing. An upside is that it gives you an excuse to take the car back home for cleaning while you consider a dealer’s offer. Any trade-in offer you receive will already have the cost of refurbishment factored in, even if you’ve already spruced up the car. Still, it doesn’t hurt to wash it, throw away the fast food wrappers and vacuum the interior.

You’ll want to clean up your car’s technology too. Clear out your home address and any destinations from the navigation system. Unpair your mobile phone from the vehicle’s Bluetooth connection, and wipe your calling history. Contact any data connection providers and have the data link terminated. If you’ve already paid for data or a satellite radio subscription, you may even be able get back some of the money you’re owed.

If your car has a Homelink transmitter that is set up to open your garage doors or gate, be sure to consult your owners manual for the procedure to clear the system, so it will no longer give easy access to your home. You don’t want an unscrupulous buyer to find your home address in the navigation history and have access to your garage using the Homelink transmitter.

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To Fix or Not to Fix: In preparing for private sales, it may be worth considering what damage to repair or maintenance to perform beforehand. There may or may not be a deduction for items on your car that need to be fixed, but since the dealer pays less than the retail rate for repairs, any deduction is usually lower than what you would pay out of pocket to fix yourself.

For example, a car needing new brakes might cost you $200 to fix, but the dealer will only deduct $150 because it’s an easy fix in their repair shop. Car dealerships typically work with third-party companies that visit their lots to repair small dings, chipped glass, and damaged wheels at a fraction of the cost that an individual consumer would pay.

Learn Your Car’s Value: It is critical that you know the approximate trade-in value of your car before you head for the dealership. If you don’t, you’ll have no way of knowing if you’re getting a fair deal or a lowball estimate.

Pay Those Parking Tickets: Selling or trading a car does not make unpaid parking tickets go away, and an unpaid ticket could prevent the title from being transferred. In some areas, unpaid parking tickets are turned over to collection agencies, who will come to collect payment from whomever owned the vehicle at the time of the infraction.

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What to Expect at the Dealership

Once you tell your salesperson you are trading your car in, they’ll have someone from their used car department look over your trade, test drive it, and prepare an offer. They may run a vehicle history report, and you’ll want to be ready for any questions that they have after studying it.

Most used car appraisers are experienced. They’re skilled at identifying issues that you may not notice. Still, if they suspect a problem, it may be worth asking a trusted mechanic for a second opinion. You don’t want the dealership to low-ball you because of that issue that may not even exist. You can also do a quick internet search to see if the problem is common to your model.

Playing tricks to try to hide flaws from an appraiser is likely to backfire. Hosing your interior down with air freshener to mask the smell of cigarettes will just make it smell like you were smoking in a garden. Taking it in on a rainy night to hide scratches or dents won’t help you a lot either, as they can just pull it into the well-lit service lane to take a closer look. If an experienced appraiser thinks you’re trying to hide something, they’ll either refuse your trade or give you a low-ball offer.  

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There are several things that the dealership’s used-car appraisers will be looking at:

Vehicle Age: The worth of a vehicle generally declines with its age. This is especially true if a new generation model has come out since you last purchased yours.

Mileage: A vehicle’s trade-in value also tends to decline the more it’s driven. Value estimates are typically based on 10 to 12 thousand miles per year. If you’re way over that, your value will take a hit. The upside is that you can potentially get a higher payoff if you’re way under the average mileage.

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Ownership: Models with only one owner are usually more valuable than those with multiple owners. The vehicle history report will show the dealer how many owners there have been.

Vehicle Condition: If a vehicle looks like it has been properly cared for, it will be worth more as a resale on the dealer’s lot. If serious reconditioning needs to be performed, the dealer will have to pay for it, and their offer will be lower to account for that added cost.

Matching Tires: Do all of the tires match, and do they have good tread life left on them? Answer yes, and it’s a positive for your car’s value. Answer no, and the appraiser may factor the price of replacing the tires into the vehicle’s value.

Options and Add-Ons: If your vehicle is loaded with factory options, it will be more valuable than a base model of the same car. Appraisers will also look at any equipment that you have added and may increase or decrease their offer based on what they find. For example, equipment that you added to increase performance, such as massive wheels and low-profile tires, are likely to be seen by used car buyers as luxuries at best or an indication that the car has been abused at worst. In short, boring is good when it comes to having your car appraised.

Mechanical Condition: The appraiser will look and listen carefully to get an idea of how the vehicle is running. If they suspect a problem, they’ll likely just knock a chunk of value off the car rather than taking it into the shop to be further diagnosed. They’ll also look for a recently passed vehicle inspection or smog check to assure themselves that costly repairs are not in store.

Seasonal Demand: Different vehicles are in higher demand at different points of the year. For example, if you trade a convertible in December, you probably won’t get a good deal. All the dealer will see is a car they need to sit on until spring or sell for a discount. On the flip-side, if you trade a four-wheel-drive SUV in early winter, you may get them to pay more than they would during the summer.

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Paint Color: While that fuchsia paint job may have been all the rage when you purchased the car, it limits the number of buyers who will be interested. Classic, neutral colors sell best as used cars.

To determine your vehicle’s value, appraisers will look solely at the car. Whether you have negative equity or an upside-down loan, what your credit scores look like, and what new or pre-owned car you are considering should have no bearing on the payoff provided for your trade.

Red Flags

How you are treated during this phase of the process will tell you a lot about the dealership. While most will strive to come up with a fair offer that’s generous enough to get you to buy a new car, others will play games with your trade-in.

While these tactics are fortunately becoming less common, thanks to car buyers having more information about trade-in values and more ways to sell their vehicles, here are a few to watch out for.

Making You Doubt Your Car’s Value: Imagine you’re on the dealer lot, and the salesperson is looking at your old car. They’ll walk around the vehicle, but they usually won’t say anything. Instead, they’ll gently touch every ding, scratch, or other flaw to give you the impression that they know there’s something wrong. Some will even ask you whether the vehicle has options that they know aren’t even available, just to sow more doubt in your mind about the car’s value.

Fortunately, because you’ve done your research about the vehicle’s value – and have the printouts to prove it – you’ll be prepared and confident when the time comes to negotiate.

The Ancient “We Can’t Find Your Keys” Game: Although this tactic doesn’t happen very often anymore, you’ll want to be prepared for it. Here’s how it works: You give your keys to the salesperson or used car manager so that your car can be test driven and appraised. You’ll be negotiating with the salesperson or their manager while your car is gone, but for some reason you decide it’s time to leave. Perhaps it’s because you don’t like the deal you’re being offered, but it can really be any reason. Unfortunately, they can’t find your car keys, so you can’t leave. They’ll continue to try to work a deal while you’re stuck there, and some buyers will give in just so they can go home.

There’s an easy way to defeat this tactic. Just carry your second set of keys with you, which you’re likely to do anyway since you’re thinking of trading the car in. Get up and walk away, telling the salesperson to call you when they find your keys or you’ll expect a replacement for the key that they lost. Often, your key will magically reappear, but it’s still a good time to walk away from the negotiation for a while.

Negotiating the Best Trade-In Price

It can be difficult but you should try to keep the trade-in, financing, and purchase price of a new vehicle separate. The salesperson will usually try to keep you focused on the monthly car payment, but you’ll want to focus on the new or used car’s purchase price, the trade-in offer, and the financing deal. Keep them separated. When they are all mixed together, it’s easy to move something from one box to another and make it appear that you’re getting a good deal.

Your best bet is to take a notepad with you to track each of those components. By researching a fair purchase price and the value of your trade before you start shopping at dealers, you can be confident in advocating for the deal you should get. By having a pre-approved financing offer from a bank, credit union, or another lender, the dealer will have a benchmark to beat if they want to make your new loan.

If the salesperson throws out a value for your trade, it’s assumed that they can’t go any lower. They’ll ask you what you want to get for the car, trying to get you to put forth a number. That way, you can’t go any higher. There’s liable to be some back and forth. Each time you present a new number, back it up with concrete reasons why you want that price. When they give you a reason they can’t go any higher, give them a reason you won’t go any lower.

You want to get a fair price. The dealer wants a certain level of profit. Remember that this is a business transaction. Be polite. It’s not a good idea to try and bully the salesperson or guilt them into thinking they owe you a good deal. If you give them a reason to dislike you, it makes it that much easier for them to justify sticking it to you with a horrible deal. That said, if they aren’t negotiating in good faith, be prepared to walk away. That is your greatest power in negotiating, both for the value of your trade-in and the price of the new car.

Just as you should talk to more than one dealer to get offers on the price of your next car, you should speak to multiple outlets to get the best offer for your used car. If a dealer has plenty of the same model you’re trading in on their lot, they’re only going to offer you a low price for your trade, as they’ll be turning around and selling it to another dealer at the next auto auction.

Finalizing the Paperwork

Once you reach an agreement, it’s a good time to take a break before signing the final paperwork. You can use the time to finish cleaning out your car, think about whether the deal you just made is really the deal you want, and even call a friend to ask them. Even if you signed or initialed an offer sheet, you don’t owe anything yet. It’s only binding once you approve the final paperwork, hand over payment, or sign new loan documents.

When cleaning out the car, be sure to double-check that you’ve removed your personal information from its electronic systems. Check the eyeglass compartments, the seat pockets, and any in-cabin storage areas. Remove all garage door openers. Take anything with personal information out of the glovebox, though you may need to leave the registration. When you buy a new car, the salesperson or service department will usually write your information in your owner’s manual packet. Be sure to tear out any pages with your name or home address on them.

The paperwork signing usually happens in the dealership’s finance office. Though you might be worn down by a day of car shopping and negotiation, you’ll still want to take the time to read every document that’s put in front of you to sign. Check to ensure that all the numbers match the deal you agreed to and that there are no errors or blank spaces on the documents. If you find any errors or omissions, ask that they are corrected or completed before you sign, even if the finance officer promises to fix them later. It’s much easier to correct a document before you sign it than it is to revise a contract with your signature on it.  

Be on the lookout for expensive add-ons and fees that you don’t understand. Some dealers will have the cost of the add-on packages pre-printed on the sales documents to make them look like they’re a part of every deal. If you see them listed, you should cross them out and ensure that they are removed from the price. While some fees are fixed, others are negotiable, and you should negotiate to try and get them reduced.

After You Leave the Dealership

There are a few more things you’ll want to take care of in the days after you trade your car in. The most important is calling your auto insurance company to cancel your old car policy and ensure that insurance is in place for your new vehicle. Don’t automatically assume that the same coverage and limits you had on your old car are appropriate for the new one.

Our guide to auto insurance will help you find the appropriate policies and coverage for the right price.

Though the dealership will promise to pay off your existing car loan, you should check with your lender to ensure that it happens promptly. Until your lender receives payment, interest will continue accumulating, and you legally owe that loan balance. On the upside, the dealer has a great incentive to get the loan paid off quickly. They’ll need the car’s title so that they can get the vehicle onto the lot and resell it.

Alternatives to Trading In Your Car

Trading in your car for a new vehicle is a no-fuss way to dispose of your old car, but it’s not the only way to unload it. If you want more cash than the trade-in value the dealership offers you, consider one of these other ways to get rid of your car.

Other Car Dealers

If one dealer can’t give you the trade-in value you want, perhaps another can. If your vehicle is in good shape, has a collision-free history, and doesn’t have many miles on its odometer, then selling it to a franchised dealer from its own brand might get you a better estimate. For example, try to sell your three-year-old Hyundai to a Hyundai dealer, because they can resell it as a certified pre-owned (CPO) car, while a different brand’s dealer cannot.  

It’s a good idea to look at dealerships where the car you’re buying isn’t as popular as it is in other areas. Likewise, you should try to sell your used car to a dealer where the model is popular. Instead of trading your Ford F-150 to a dealer in the city who will just resell it at the next auction, for example, take it to a rural area where the dealer can get good money for an F-150 on their lot.

Before you start driving to different dealers, call their used car manager to gauge interest in your vehicle and make an appointment to have your car appraised. Showing up without notice on a busy weekend isn’t a good idea, as the staff will be focused on selling cars.

Used Car Superstores

Another car trade-in option is the used car superstore. They’re relatively new, but they have  streamlined processes for buying used cars. Your trade may not get you as much money as selling it yourself, but the upside to superstores is that they’re quick and easy. You can also eliminate the used car trade-in negotiation from the process of bartering the price of your new car. You can keep the dealer focused on the cost of your new vehicle.

Selling It Yourself

Selling a used car yourself will usually get you the highest price. However, because you’re responsible for everything, private sales usually require more time and effort than the other methods. You’ll have to list the car, show it to prospective buyers, and decipher all of the paperwork that a dealer would take care of.

If you are underwater on your current car loan, selling your car in a private sale is the best way to go, as you’ll have a much better chance of getting a price that’s closer to positive-equity territory. Talk to your lender before doing this so you know all the steps you’ll need to complete the sale properly and pay your loan off.

Before you decide to sell your car yourself, read our guide to selling your car to learn more about the process.  

Instant Cash Offer

A new alternative to trading in that’s not selling on your own is getting an instant cash offer. These easy-to-use online services let you fill out information about your car, such as make and model along with mileage and accident history. You’ll usually get an offer from an interested dealership in just a few minutes.

Donating Your Car to a Charity

If you are just looking to get rid of a clunker that’s taking up space in your driveway, and you’re not expecting to get much cash out of it when you sell it, you might consider donating it to a charity. You can potentially get a small tax deduction, and you’ll know that the vehicle (or its scrap value) went to helping others.

There are specific IRS rules for how to donate a car and the amount of money you can deduct. Check out IRS publication 4303 to learn more about the process. Be wary of charities that only seem to exist to take in car donations, and inquire with local charities to learn their procedures for motor vehicle giving.

Written by Jane