If you buy a car, it might be better to have onepaymentinstead of a trade-in. A trade-in offers convenience for the car buyer, as you can walk into a dealership with a used vehicle and walk out (or rather drive away) with a brand new car. But this convenience comes at a significant cost, as most buyers are likely leaving money on the table by receiving less for their trade-in than it's worth. Thattraderare particularly likely to offer a low price if the trade-in is an unpopular vehicle, in poor condition, or otherwise unwanted.
Key learning points
- When you're considering making a down payment or trading in a vehicle, it's usually best to make a down payment from a financial perspective.
- You get more bang for your buck if you offer a payout. This may mean that you sell your car privately before purchasing.
- However, the difference of a few hundred dollars may not make the private sale worthwhile.
It is preferable to sell the car privately before purchasing a replacement vehicle and use the sale proceeds as a down payment. But arranging a private sale can be a time-consuming and difficult process involving a number of steps. These include:
- Make sure the vehicle is salable
- Announcement of sale
- Making the car available for test drives
- You actually get the money when the car is sold
Even with a private sale, the timing must be almost perfect to avoid being without a car for a disproportionately long time. You also have the potential hassle of signing the title, which must be notarized in some states. Likewise, if you sell your car for more than you paid for it, the Internal Revenue Service (IRS) believes that aexchange rate gain, which is taxable.
This is true regardless of whether the old car is traded in or sold privatelysellshould have a good idea of what the vehicle is actually worth before coming up with a price for it. Exaggerated expectations of the car's value can lead to reasonable offers being rejected, while inaccurate low estimates hurt the seller's wallet. A number of online sites offer estimates for both trade-ins and private sales. Conversely, if you are open to financing your car purchase with a loan, an online loancar loan calculatorcan help illustrate how much a down payment will affect your monthly payment.
In short
When comparing a trade-in to a private sale, it comes down to how much the convenience factor is worth. Getting a few hundred dollars less for a trade-in, as opposed to a private sale, can be worth the hassle that comes with the latter for most people.
Ultimately, it may be best to arrange a down payment rather than a trade-in when buying a car. But if that's not possible and a trade-in is the only option, do your research beforehand to get an estimate of your vehicle's value. A few hours of research can save you hundreds, if not thousands, of dollars by getting a better price for your trade-in than a dealerlow balloffer.
