The Trade-In Process

Last Modified: May 28, 2019 by Jeff Ostroff

Think Twice About Trading in Your Car!

Dealer's never give you fair market value for your car. They offer wholesale value, which is $1,500- $6,000 less than market value. This is so they can sell your trade-in and make a profit. Dealers make it appear they are giving you a lot for your trade-in, but don't be fooled. They are shuffling dollars around, charging you MSRP, or higher interest, or piling on wasted extras like rust proofing, paint sealant and extended warranties. They cry on your shoulder that they'll get nothing on your trade-in. As you cry over their "loss," here's how they profit from you and the next owner of your trade-in: They put your trade-in on the lot for $1,500 over fair market value and stick a "No Haggle" tag on the windshield.

Always treat your purchase of a car and trade-in as 2 separate deals. A trade-in gives dealers 2 variables in the sales equation. By paying cash with no trade-in, everything is on the table, the dealer has no where to run, nowhere to hide. He can't play the cash flow shell games, giving you a "good deal" on your trade-in, but fleecing you on the back end of the deal. After they agree on the new car selling price, tell them you want to trade-in and how much you want. They will either accept it or not, but at least you'll know how low they will really go on the selling price of the new car.

Trade-In Value

Even with "book" prices, it's difficult to determine the value of your trade-in, because each car is different. Mileage and condition are the biggest variables. "Trade-in buyers" concentrate on the trade-in and fall asleep during the rest of the deal blind sided by the cash flow shell game the dealer plays. By selling the car yourself, you have eliminated one way the dealer can cheat you out of your money. Click here to read our article about selling your used car by yourself.

Trade-in Tax Analysis

Don't nix the idea of a trade-in without analyzing your situation because there's a tax advantage to trade-ins. In some states you pay sales tax on the difference between the new car and the trade-in. If you are buying a $25,000 car and your trade-in is worth $10,000, in Florida you'll pay 6% tax on the difference.

Total outlay is ($25,000 - $10,000) + tax on difference = $15,000 + $900 in tax = $15,900

But supposing you got $12,000 for your trade-in selling it yourself through the newspaper. Now the total cash outlay is:

$25,000 + tax = $25,000 + $1500 in tax = $26,500

When you sell your old car and receive the $12,000, your effective cash outlay will now be:

$26,500 - $12,000 = $14,500

You can see in this case that you saved $1,500 selling the old car yourself. This was only possible because you were able to sell the car for $2,000 more than the dealer was offering.

"Appraising" Your Car at the Dealership

The Oscar goes to... They put on a good show. The "appraiser" will rub his fingers over every dent and dimple like he's having foreplay with your car. They do this to panic you, setting you up for a low ball quote. They'll say "All these scratches, I don't know how much we can give you. We'll lose money on this trade-in, if we can sell it at all." Tell them it's normal wear for that age. Tell them you are not trading in and watch them try to convince you to trade-in a car "they'll lose money on." Be prepared for this game and stand firm on the trade-in value of your car.

We'll Give You Top Dollar For Your new Car!

Beware of dealer TV ads claiming they'll pay you "Top Dollar" for your trade-in. They use psychology to let your brain trick you into thinking you'll strike it rich. Your definition of top dollar is different from theirs. You'll never make money on a trade-in selling it to a dealer. They may offer more than market value and while you're celebrating in the end zone you fail to see they charged you full MSRP for the car or added wasteful extras.

Seasonal Pricing of 4 Wheel Drive Vehicles

If you are trading in a 4 wheel drive vehicle in the northeast, it can be worth more in the fall than in the spring because it can be considered a seasonal vehicle due to the 4 wheel drive. There is a big wholesale market out there for cars which are 3 years or older that will change over the seasons.

Warnings About Donating Your Car To Charity!

Charities raise millions selling vehicles donated by people looking for write offs associated with their generosity. People enjoy the hassle free environment of donating cars and supporting a good cause. If your donated car is usable, it's auctioned below market value. The issue here is the charities often have "consultants" who sell the car for them at auctions and take up to 75% commission! Wouldn't you be angry to learn that you thought 100% was going to the charity, but in reality they are only getting 25% of the money?

New IRS tax laws no longer allow charities to give you generous valuations on donated property. You can only write off the amount that they get for it at auction, so double check all this with your accountant. This is why I think the best way to maximize your giving is sell the car yourself on eBay Motors to get the maximum amount of money, then give that money to the charity.

If your car is unusable, it's sold to a junkyard for $100 or more,. The average selling price at charity lots is less than $1,000. If you donate a vehicle, get a written thank you from the charity verifying the vehicle, make, model, description and VIN#. The charity must give you an IRS Determination Letter that verifies they are a tax exempt charity under section 501 (c) (3). Some churches are not required to apply for exempt status, and may not have a letter.

You should be able to prove the value of the vehicle, so take photos, save classifieds, or an Auto Trader and store them with your tax records in case you get audited. You may need to fill out a separate IRS form for donations, so check with a tax expert and do it by the book. Don't inflate the value of your car, it will raise a red flag. Instead of hunting through boxes of receipts for a great tax deduction, look in your driveway.