Unless you’re like Forrest Gump and don’t have to worry about money no more, buying a new car usually raises the question of what to do with your old car.
For those of you faced with that decision, your two main options are usually to sell the vehicle or trade it in for a rebate on your new-car purchase. Of course, you can always donate the car for a tax deduction, but here we’ll focus on the pros and cons of selling versus trading in to help you decide which option is right for you.
Advantages and Disadvantages of Trading In Your Car
The most obvious reason to trade in your car is that it’s easy. The dealership offers you a credit that you can apply to the down payment on your new car, you complete the paperwork and you’re all set to drive off the lot. This option also yields tax advantages in states that allow you to subtract your older car’s value from the price of your new car because it decreases the sales tax you pay.
The downside, however, is that the offer you get may fall short by hundreds, or even thousands, of dollars compared with what you could get if you sold it yourself. This is because the offer is based on your car’s wholesale value as opposed to its retail value. Additionally, if there is already a large quantity of similar or identical models on the lot, the dealer may be less inclined to give you a competitive offer.
Advantages and Disadvantages of Selling Your Car
If you read the paragraph directly above, then you probably already know that the biggest reason to sell your car over trading in is that you stand to make more money. And who couldn’t use more money?
The trade-off, though, is that you’ll have to spend more time and effort to sell the car yourself. Some of the required steps you’ll have to take are prepping your car, gathering any necessary documentation and records, listing the vehicle, screening buyers and negotiating a fair price for both parties.
So, Should I Sell or Trade In My Car?
If you have enough time, energy and the patience to wait on getting a new car, and the added value is significant enough, then it might make sense to sell the car yourself. Otherwise, the convenience and immediacy of a trade-in may be your best route.
Regardless of whether you sell or trade in your old car, it’s important to do everything you can ahead of time to maximize its value. Some of this prep work includes cleaning it thoroughly, repairing any minor problems or superficial blemishes, refilling fluids and taking it for an oil change. If the car needs major work, it’s probably best to hold off because the cost of repairs might be greater than the value they add. And don’t be afraid to negotiate.
Also, if you’re considering selling or trading in your car before you’ve paid off its full loan balance, take the time to first calculate whether your loan is positive or upside-down. If the balance of the loan is greater than the value of the car, it might make sense to hang onto the car longer to put a bigger dent in the loan.