When
a car owner decides to buy a new auto, they usually wish to sell their current
model. They can do a private
transaction, which requires some effort, patience and risk, or they can trade
it in at a dealership. A trade-in occurs when a car owner sells their existing
model to the dealership as part of a deal to buy another car (new or used).
The
advantages of a trade-in (versus a private sale) are the efficiency and ease of
buying and selling at the same location, as well as significant tax savings. The disadvantage is getting a lower price for
the trade-in vehicle than you’d get in a private sale. Let’s look at the trade-offs in more detail.
Advantages
Since
even dealers of used cars usually want your trade-in, they tend to make the
deal as painless as possible. Trading in a car is usually a same-day affair,
with a minimum of procedures. The dealer
assesses your car’s condition, its age and other factors, and then sets its
trade-in value.
The emphasis is on
convenience. Unlike a private transaction,
you don’t have to place ads, arrange test drives or face legal repercussions if
the car breaks down soon after the new owner drives away in it. (Once a car is traded in at the dealer, it's
their responsibility to handle the resale.)
Then there are the
potential tax savings. Since the trade-in’s value is deducted from the selling price of the car
you’re acquiring, this lowers the tax that you’ll have to pay on the new car. For example, if you buy a new car worth
$40,000, and your trade-in is valued at $20,000, this effectively lowers the
new vehicle’s selling price to $20,000.
Instead of paying HST of $5,200, you would pay $2,600—a saving of
$2,600.
Disadvantage
The
downside is that most dealerships will
offer less than your car is worth. The dealer incurs costs in cleaning the
car and fixing any problems and still must be able to sell it at a profit. So
you should expect a low offer. If the
offer for your used model sounds too good to be true, it probably is: the
dealer is likely making up for it in the negotiated price of your new car.
However,
knowing the true market value of your trade-in vehicle will give you a stronger
hand when negotiating. It pays to study
the market in order to get a realistic idea of your existing car’s value.
Canadian Black Book (canadianblackbook.com) is considered the industry Bible
for providing market values for cars, trucks and SUVs at the wholesale level.
Also,
find out the current market demand for your make and model, and whether the
dealership is oversupplied with that model. How much the dealership is willing
to offer for your trade-in depends on
supply and demand.
Assemble
all your car’s service records. If you can demonstrate that you’ve looked after
your car with recommended maintenance, it will fetch a higher trade-in price
(whether at a dealership or privately).
Whichever route you go, it’s important to weigh the trade-offs when
considering how to sell your current vehicle and buy another.
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