Should You Trade in Your Old Car?

Here's how to decide whether to trade or sell your junker

Automobile For Sale
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You're ready to buy a new car. Should you trade in your old car or sell it yourself? Most people know that trading in is easier while selling privately gets you more money -- but rather than make a decision beforehand, it's best to take your old car to the dealership and see what they have to offer. Here are some guidelines that will prepare you for what will happen and help you make the best decision.

Know What Your Car Is Worth

Consult a used-car pricing site such as Kelley Blue Book to get a ballpark value for your car. KBB shows three values: Trade-in, private party, and retail. Check the trade-in (lowest) and private-party values for a good estimate. (KBB will walk you through determining your car's condition - be honest!) Next, peruse the local online classifieds to see how close asking prices for cars like yours are to actual book values. (Read more: How to fairly value your used car)

Have Reasonable Expectations

Most dealerships will offer you less than your car is worth. This isn't dishonesty, it's just good business: The dealer must spend money on cleaning your car and fixing any problems and still be able to sell it at a profit. You should expect a low offer -- in fact, if the offer for your trade-in sounds too good to be true, be wary; you can be sure the dealer is making up the difference in the negotiated price of your new car. Think of the difference between what the dealer is willing to pay and what the car is really worth as a "convenience fee" to avoid the hassle and cost of selling the car yourself.

If you are trading in an older high-mileage vehicle, expect the dealer's offer to be very low. New-car dealerships prefer to deal with late-model cars, and older cars are often "packaged" or "wholesaled" -- grouped together and sold to a third party who will re-sell the cars individually to other dealers (at a profit) who will then, in turn, refurbish them and sell them to private buyers (at a profit).

Offer the Trade-In Last

A less-than-scrupulous dealer will manipulate the price of the trade-in to boost profit, to make the price of the new car seem lower, or to make you think you're getting more for your trade than you really are. If the dealer asks early on if you're going to trade your car, tell her "I haven't decided. Let's sort out the deal on the new car and then we'll talk about it."

You may be counting on your trade-in as your down payment. That's OK, but the dealer doesn't need to know that right away. Use the approximate value of your trade-in as a guideline, but negotiate as if your down payment were in cash. Once the new car price is settled, you can talk about the trade. If you can get more for your trade than you need for your down payment, by all means, do so -- just be sure that when the dealer re-calculates the payments, the entire value of your trade-in is accounted for.

Let the Dealer Offer First

If the dealer asks "What were you hoping to get for your trade?" your answer should be "I don't know -- what's it worth?" If you open with an asking price that is less than they are willing to pay, that's a windfall for the dealer. Let him make the first move.

Don't Let a Low Offer Change Your Perceptions

Your old car is worth whatever it's worth, and that isn't going to change -- but if the dealer can make you think the car is worth a lot less than it really is, he can end up giving you much less than its true value and still come out looking like a hero. Stick to your guns -- if the dealer's offer is significantly less than what you know the car is worth, and if you can either come up with your down payment in cash or put it on a credit card, it may be worth the effort to sell the car yourself.

Alternatives to Trading In

  • Sell the car privately. More hassle, but you'll almost definitely get more money for your car.
  • Donate the car to charity. You'll be able to write the fair market value off your taxes. This will net you only a fraction of the car's worth, but you'll know that the car (or the profits from the sale of the car) are going to a cause in which you believe.
  • Give the car to a friend or relative. No money for you, but you'll know the car has been put to good use.