How to trade in a car in 6 easy steps

When you buy a new car, you may want to get rid of your old one — which means trading in your car may be the ideal solution.

Usually, when you trade in your car, a dealer buys your old car from you and you buy a new car from them.

If you’re trading in your vehicle, there are steps you can take to help make sure you get the best offer for you. Every dollar counts, especially if you plan to finance your new car — more money for your trade-in can mean you’ll need to borrow less. It’s also important to consider the potential benefits and drawbacks of a trade-in versus selling your car privately.

You could just take your used car to any dealer, see if they want to buy it and then sell it to them if they do. But taking the time to do your homework could pay off.

Read on for steps on how to trade in a car.

• How does trading in a car work?
• Key considerations for trading in a car
• How to trade in a car
  • 1. Research the value of your trade-in vehicle
  • 2. Determine whether you still owe money on your current car
  • 3. Get an estimate from several dealers
  • 4. Freshen up your car
  • 5. Negotiate your trade-in price
  • 6. Close the deal
• Pros and cons of trading in your vehicle
• FAQs about trading in a car

How does trading in a car work?

Trading in a car involves selling your current vehicle to a dealership as part of the process of buying a new one. The dealer will appraise your car and offer you a trade-in price. If you accept the offer, that amount is then deducted from the price of the new car you’re purchasing. The process can be a convenient way to get rid of your old car and reduce the amount you need to finance.

Key considerations for trading in a car

Before you move forward with a trade-in, take the time to do some research and assess your car’s condition. Here are a few things you can do to help ensure you experience a smooth trade-in process and get the best possible deal for your vehicle.

1. Consider repairing major damage

If your car has significant damage, it might be worth getting it repaired before trading it in. Dealers may deduct the cost of any necessary repairs from their trade-in offer, so fixing major issues could potentially increase the value of your trade-in. 

But before you sign off on any repairs, consider that you may not be able to recoup the full cost of that work in your trade-in offer. Dealerships can typically make a repair for less money than it’ll cost you at an auto repair shop, so it may make sense to skip the repairs and accept a lower trade-in offer.

You may also want to skip repairs if they’ll cost more than your car is currently worth. Paying $2,500 for repairs when you’ll likely get no more than $1,000 for your trade-in probably doesn’t make sense. 

2. Research the current market

Your car’s condition, age and make and model are just a few of the considerations that could affect how much a car dealer offers for your car. External factors such as demand for the make and model, gas prices, supply chain issues, the dealer’s inventory and local market conditions can also have an impact on your car’s trade-in value.

3. Collect paperwork about your vehicle

Make sure you have all relevant paperwork before heading to the dealership. Gather the vehicle’s title if you have it, along with its registration, insurance documents and financing information (if you’re still paying off an auto loan). If you’ve kept service records, collect those, too. Proof that you’ve kept up with car maintenance may help you get a better trade-in offer.

How to trade in a car

If you’ve decided to proceed with your vehicle trade-in, here are six steps you can take.

1. Research the value of your trade-in vehicle

Knowing how much your car is worth can help you get a sense of what a dealer may offer for your trade-in as well as confidently negotiate your trade-in price. Resources like Kelley Blue Book, NADA guides and Edmunds allow you to input information about your car, such as make, model, mileage and condition, and receive an estimate of its fair market value. You can also check out online classified ads for similar cars being sold by private sellers in your area.

2. Determine whether you have negative equity on your car loan

If you still owe money on your car loan, figure out if you’re upside down, or have negative equity, on that loan. When you’re upside down, you owe more than the car is worth. You may still be able to trade in your car with negative equity, but the outstanding balance would likely be rolled into your new car loan. Keep in mind this can increase your monthly payment and potentially make you upside down on your new car loan.

3. Get an estimate from several dealers

Getting multiple estimates can help you make sure you get the best price. You can get estimates from the dealer where you’re considering buying your vehicle, as well as from other dealerships that sell your car’s make and model. For example, if you have a Toyota, your local Toyota dealer may be willing to buy your vehicle back from you. Consumer Reports also suggests taking the vehicle to a used-car dealer, because they’re often looking to buy well-kept vehicles with low mileage.

Pay close attention to any special offers the dealer provides and read the fine print carefully. Some may guarantee a certain value for your trade-in, even if it’s in poor condition. Others may claim they’ll pay off your loan, no matter how much you owe on it, when you trade in your car. But if you’re upside down, they may just roll over your negative equity into your new car loan. Do your research and ask the right questions when an offer seems too good to be true.

4. Freshen up your car

A clean, well-presented car can potentially increase your trade-in offer. Before you take your car to the dealer, give it a good cleaning. Wash the exterior, vacuum and clean the interior, and remove any personal items. Consider adding some shine with wax or reviving dull paint with a polish.

5. Negotiate your trade-in price

Don’t be afraid to negotiate the trade-in price. Dealers often start with a low offer, and you can counter with a higher price based on your car’s estimated current value.

If you plan to buy a new car from the same dealership that’s buying your old car, make sure the dealer doesn’t mark up the price of the new vehicle to make up for the trade-in amount they gave you. Negotiate the sale price of the car you want to purchase and your trade-in offer separately to help prevent a scenario like this.

6. Close the deal

Once you’ve agreed on a price for your trade-in, it’s time to close the deal. If you’re buying a new vehicle from the dealer and getting a credit for the trade-in value, make sure this is clearly listed in your contract and that the right amount has been deducted from the price of your new vehicle.

If you’ve sold your car to a dealer but aren’t buying a new one right away, you’ll likely get a check for the value of your trade-in, which you can opt to use as a car down payment there or anywhere else.

While this process can take time, it can help you get the most money you can when trading in your car — after all, it may be worth thousands of dollars.

Pros and cons of trading in your vehicle

Trading in your vehicle comes with some benefits and drawbacks. Depending on your financial situation, you may decide that selling your car on your own may make more sense.

Pros

Trading in your car can simplify the car-buying process, as you can sell your old car and buy a new one at the same time, in the same place. You may even be able to apply your trade-in credit to the down payment for your new car. You don’t have to deal with the hassle of advertising your car, trying to find a private buyer for your vehicle, scheduling test drives or inspections or dealing with a title transfer.

Also, if you live in a state that charges sales tax on the purchase of a new vehicle, you may only pay sales tax on the difference between your trade-in value and the price of the car you’re buying. You can’t get this same tax benefit if you sell your car yourself.

Cons

While trading in your car can be convenient, you may get more money — hundreds or possibly even thousands more — by selling your car privately. Dealers won’t likely pay the sticker price for your car because they need to be able to sell it at a profit. Instead, they may offer you the wholesale value, the cost a dealer would pay to buy it from a car manufacturer — or from a dealer auction.

Also, your car dealership options may be more limited when you’re trading in a vehicle — some dealers may not be interested in your particular make and model.

Next steps

If you’re ready for a new set of wheels, it’s time to buckle down and do some homework.

First: Compare your trade-in offers to what you could likely get for selling your car on your own. Consider the difference, along with the pros and cons of trading in your car, to decide whether a trade-in is right for you.

If you do opt for a trade-in, here’s what to do next.

• If you’re upside down on your current car loan and thinking about rolling the loan balance into a new car loan, make a plan so that you’re in a good place before taking on a new car.
• Take a close look at your finances and your budget to help determine how much car you can afford.
• Do your research and compare offers to help make sure you get the most money possible to use toward your new car.

FAQs about trading in a car