How Do Used Car Trade-Ins Work?
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It Seems Deceptively Easy
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When you buy a new or used car you are likely to have an old car you need to sell. Although you should be able to get more in a private sale, trading it in to the dealer is more convenient. The financial formula is simple. Take what you are paying for the new car, subtract what the dealer is paying for your trade-in and the result is the net amount you will pay. Understanding the process better can help you get the maximum price for your old car.
Find Out What Your Car is Worth
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Sites like Edmunds, Vehix and Cars have online calculators that allow you to enter information on a car and find out its wholesale and retail values. You enter information like make, model, options, mileage and condition. Wholesale is what the dealer should be willing to pay for your car. Retail is what the dealer is likely to sell the car for to a buyer. These numbers are derived from records of thousands of transactions each week.
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Find Out The Dealer Cost of the Car You Are Buying
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The same sites mentioned above list the prices dealers pay for their new cars. When calculating the price be sure to include the value of any incentives the manufacturer is currently offering. If you are buying a used car, use the used car calculator to determine the wholesale price of the car. You can think of this as equating to what the dealer paid for the car but a shrewd used car manager can often get cars for below their wholesale value from customers who don't know the value of their cars.
Work The Numbers and Get a Great Deal
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It would be great if you could buy your new car for dealer cost and sell your car to the dealer at the retail price. It is not going to happen. Dealers are in business to make a profit. However, now that you know your prices you have a basis for negotiating. You could tell your salesperson that you'll sell him your car at wholesale if you can buy the new car at wholesale. Believe it or not, after some token haggling many dealers will accept this. Why? Even when a car is sold at "cost" the dealer will eventually be credited with a "hold back" of about 3 percent of the car's wholesale cost from the manufacturer. It is a longtime industry practice that means on a car with a wholesale cost of say $20,000 the dealer will make $600 on hold back. You can save hundreds, even thousands of dollars when you know how used car trade-ins work.
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Resources
- Photo Credit Photo courtesy of Roberto Peruzzo
