What Is a Courtesy Trade in for a Car?

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A courtesy trade for a car exists when you arrange to sell your vehicle but trade it to a dealership for a tax deduction and arrange for the buyer to purchase from the dealer instead. This process is often frowned upon by dealers and buyers because of risks associated with the transaction.

Dealer Concerns

  • Dealerships must follow state regulations and requirements to sell a vehicle. Before selling a vehicle, a dealer usually has to complete a vehicle inspection to ensure the car is in safe, running condition to avoid liability for repairs after the purchase. The dealer will likely charge for this inspection or any repairs it needs to make, which can alter your original selling price. The dealer also charges the buyer all applicable state and motor vehicle fees. Because the dealer must apply for and receive the title before transferring it, the process may take longer than you expected. The dealer also risks owning the vehicle for too much money if your buyer backs out of the deal.

Buyer Concerns

  • Some people just don't want to do business with a dealership. Also, the dealership purchase process is different than the private sale process. If you intend to pursue a courtesy trade, let your buyer know immediately. Dealers must charge all state applicable fees and taxes, which can prove unfavorable to a buyer who did not intend to register the vehicle immediately after purchase. If your buyer is paying cash, the dealer also needs the customer's Social Security number for tax reporting reasons; your buyer may not want to supply her personal information.

Trade Considerations

  • Consider trading your vehicle to the dealer for its actual trade and tax deduction value. This is likely the easiest thing you can do, as it eliminates any need for involving other parties in the selling and purchase process. If you can find a buyer and a dealer to agree to the courtesy trade process, you'll likely have to wait until the buyer purchases the car first. Many dealers require the buyer's check to clear before a car sale is considered complete, which can take up to 10 business days. The amount you can save if you do pursue this process is likely not enough to warrant the time you'll have to wait to complete your new vehicle purchase.

Benefits of Selling the Vehicle

  • Selling your vehicle privately should offer you thousands more than wholesale value, which is the amount you'll get for your trade at a dealer. Dealers estimate costs such as repairs, warranty and advertising into a vehicle's trade value, so you won't get private sale or retail value. Ask your dealership for the car's trade value and tax deduction amount. Then, sell your vehicle for more than the dealer can offer. For example, if the dealer offers $10,000 for your trade and you can receive $800 in tax savings, sell your vehicle for $10,800 or more privately.

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