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Convenience versus cash — is trading your car a better option than selling it privately?
It’s common to see drivers cycle through several vehicles over the years. According to CNBC, the average person will drive over nine cars in their lifetime, and it’s easy to see why.
From longer commutes requiring better gas mileage to a growing family in need of space, your choice of ride will need to fit your present lifestyle. Maybe there have been some changes financially within your family that require a cutback on vehicle spending. According to Experian, the average new car payment in the U.S. today is $554.
Whatever the reason may be, you’ve decided a change is needed.
The problem many face is deciding between the convenience of trading in a vehicle or the extra money that is saved by selling it privately. So what’s the best option for you?
Trading in a vehicle is different from traditional car buying. Think of it more like an exchange for store credit. The dealership will assess your vehicle’s condition and will let you know what they’re willing to give you for your trade-in. This trade-in value will essentially act as a down payment towards your new car.
Selling your own car, on the other hand, is exactly what it sounds like — you sell your vehicle to a private party. You handle the entire process, from advertising to titling. Selling a car is no easy feat, but if you have the time and patience, you can get more for your vehicle than if you were to go through the dealership. Finding potential buyers will be your most difficult task as a private party.
Chances are, you want you out of your current vehicle to get into a newer make or model. This usually means the new car you’re getting into costs more than the old car you’re trading in or selling, so the difference is either paid for up front or financed over a length of time.
Trading in a vehicle for a new one is not something to be taken lightly. It’s a contract, and many people have gotten the short end simply by not knowing their price points, budgets, or not paying attention to details.
If you’d like to take a more hands-on approach to upgrading your current car, here’s what you need to know about selling it privately.
Whether you trade in your car or sell it, the auto loan balance will still need to be paid. If the vehicle sale doesn’t payoff the loan balance, you’ll be responsible for the rest.
Selling your car yourself will get you more for it, but a dealer is much more convenient. However, depending on how much you owe on your auto loan and what your vehicle’s value is, trading it in may not make sense for you.
Determine whether you have negative or positive equity. Negative equity is when the car’s value is not enough to cover the loan balance. This is also referred to as being upside down on the loan. Positive equity is the opposite; it means your car is worth more than what you owe on it.
First, get your loan payoff amount from your current lender. Check your latest statement or log into your account to get that information.
Next, estimate your current car’s value. You can find different types of car values on sites like Kelley Blue Book, Edmunds, and NADA.
Then, use a calculator to get the loan-to-value ratio, or LTV. An LTV over 100% means you have negative equity, under 100% LTV means you have positive equity.
If you’re looking at trading in your vehicle, the dealership will determine how much your vehicle is worth. If you have positive equity, the dealership will use this as a credit towards your trade and take care of settling your current loan before financing your new vehicle. If you’re upside down, you’ll need to pay off the remaining balance or roll it over into the new loan (the latter is not recommended).
If you’re selling your car to a private party, you set the best price so you can get more for it. If you owe a lot on your current auto loan, this will help you pay off more — hopefully all — of your balance.
Alternatively, if you decide to wait on trading in or selling your car for now, you can opt to refinance your auto loan. You can use those monthly savings to pay down your principal on your car loan to pay it off early or at least gain more positive equity.
This process can seem daunting at first. The good news is you have choices. You are not bound to an unhappy vehicle relationship. Whether you are trading, selling, or refinancing, review your situation, and don’t be afraid to explore your options.
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