What is the trade in value of a car?
The trade in value is the amount that a dealer is willing to offer you towards the purchase of a new vehicle in exchange for your current one. It’s typically based on the market value of your vehicle (the amount it would sell for on the open market).
The trade in value can vary depending on a number of factors, such as the popularity of the make and model, how many similar cars the dealer already has on the lot, and the age and condition of your vehicle when you bring it in to trade.
Trade in or sell privately?
When it comes to upgrading to a new car, there are a few different ways to go about it, the most popular of which is usually either to sell the vehicle privately, or to trade in with a dealer. But which one is the best option for you?
Trading your car in – factors to consider
- Trading in with a dealer is generally seen as a quick and convenient option, as you would avoid the need to advertise your vehicle and meet with potential buyers.
- It may offer a more straightforward solution, particularly if your car is a common model, requires repairs or has a lot of kilometres on the clock, as you would avoid having to spend a lot of time and money preparing it for sale. Some dealers may deduct the cost of any repairs required from the price they offer for your vehicle.
- Trading in your old car, as with selling your car privately, could mean lowering the amount you need to pay for the new vehicle and subsequently lowering the amount you would need to borrow if you require finance.
- In some cases, a dealer may decline to buy your car, particularly if it is old or in low demand.
Selling your car privately – factors to consider
- Privately selling your vehicle may fetch you more money. Dealers won’t necessarily offer you the full value of your car, as they will later seek to sell it at a profit. This may be particularly true if your current vehicle is a relatively recent model, or in high demand.
- If you sell your car privately, you typically have more flexibility over how to use the money you receive from the sale, compared to trading it in. When you sell your vehicle privately you would usually receive the money either in cash or into your bank account, giving you freedom over how to use the money. With a trade in, the value of your vehicle is usually used solely to offset the cost of a new vehicle. However, it may also be possible – albeit less common – to trade your car in with a dealer for cash.
- Bear in mind there may also be costs associated with advertising your car for sale privately.
Trading in your car while you’re still paying it off
Generally, if you’re trading in a car you still owe money on, you’re sitting in one of two camps.
Trading in with positive equity
If your car is worth more than the amount you owe on your current car loan, it is known as positive equity.
Let’s say you owe $3,000 on your current car loan. You take your car in to a dealership to trade it in, and the dealer offers you $5,000 for it. What may happen in this situation is the dealer takes your car, pays off the loan and puts that extra $2,000 towards the purchase of your new vehicle, lowering the purchase price of the car and the amount of the new loan.
Trading in with negative equity
If your car is worth less than the loan amount remaining, this is called being in negative equity and you may have to pay the difference between your loan balance and the trade in value at the dealership.
For example, if you owe $5,000 on your current car loan and the dealer offers you $3,000 for your car then you have $2,000 of negative equity.
When it comes to making the trade, you may need to pay off the outstanding amount – in this example $2,000 – when making the new car purchase. Alternatively, the dealer may suggest that you roll the negative equity over into the loan for your new car.
How to get the best trade in value
- Take care of your car. Consider getting it serviced regularly and ensure each service is recorded in the car’s logbook as proof of maintenance.
- Make repairs as necessary. If something doesn’t seem right with your car don’t just ignore it, because the dealer probably won’t.
- Keep the car clean. Especially when you bring it in to the dealership, ensure that both the inside and the outside of the car are clean and well maintained. First impressions count.
- Do your research. Websites such as Redbook.com.au and Carsales.com.au can give you an idea of what your car may be worth and how much other people are asking for cars similar to yours. Knowing how much your car is likely to get on the open market will help you identify if the dealer is under-pricing your vehicle.
- Familiarise yourself with common dealer tactics. They want to make a profit from your vehicle, so the lower the trade in value they offer, the more money they could stand to make.
- Look around for the best deal. Consider visiting a few different car dealerships so you can compare what they may be willing to offer.
Considering purchasing a car with a loan? The table below displays a snapshot of fixed rate car loans available on Canstar’s database with links to providers’ websites. This table is sorted by advertised rate (lowest to highest), then by provider name (alphabetical). The options displayed are based on a loan amount of $20,000 with a 5 year term for a new car in NSW. Before committing to a car loan, check upfront with the provider and read the PDS to confirm whether it meets your needs. Read the Comparison Rate Warning.