Can I Trade in My New Car for a Cheaper One?

If you are unhappy with your new car, or if you just don’t like the idea of your high car payment, you can trade your new car for a cheaper one. Trading your new car could lead to a number of fees and taxes that negate your savings, but you may have some options to make the transaction much more pleasant.

Trade-In Process

Trading a new car, even if it is only a few weeks old, works just like trading a car you have had for years. When you trade your car at the dealership, the dealer will assess the car’s condition and determine a trade-in value for the vehicle. In determining the trade-in value for your car, the dealer will consider factors like the car’s make and model, number of miles you have driven, how long you have had the car, condition and any damage the car might have received.

Tip

  • Even if your car is new, the dealer will use a standard publication, typically Kelly Blue Book or a guide published by the National Association of Auto Dealers, to determine the trade-in value of your car.

Equity and Negative Equity

If you financed your new car and did not make a significant down payment, you will likely owe more on the car than it is worth. All new cars depreciate immediately once purchased, and some can depreciate 10 percent or more within the first few minutes of ownership. If the payoff balance of your loan exceeds the trade-in value of your car, the difference is known as negative equity. The dealer will add this amount to the price of the cheaper car you purchase. If the trade-in value of your car is greater than the amount you owe, the dealer will deduct the equity from the price of the cheaper car. If you did not finance your new car, the dealer can put the entire value of your car toward the cheaper one you buy.

Dealers Pay the Difference

If you financed your new car and have equity, the dealer will pay off your loan and deduct the equity value from the price of the cheaper car. If the equity in your car exceeds the value of the cheaper car you are buying, the dealer will write you a check for the difference. Similarly, if you do not have an outstanding balance on your trade and the car you buy is cheaper, the dealer will deduct the price of the car you buy from your trade equity and you will receive a check for the difference.

Dealer Return Options

Some large dealerships offer a short return period when you buy a new car. If your dealer offers this service and you return your new car within the return period, the dealer will cancel your new car loan or refund your payment. You can then buy a cheaper car as if you had never bought the more expensive vehicle.

Tip

  • Check with your dealer for return period information. Some states require dealers to accept returns for a few days after the purchase.

Other Financial Impacts

When you buy a new car, most states require that you pay tax, registration and title fees on the vehicle. When you trade your new car for a cheaper one, you must pay these fees again. Because these fees can sometimes amount to thousands of dollars, they can significantly affect how much you save by trading for a cheaper vehicle.

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