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How to Trade in a Car in 5 Easy Steps

How to Trade in a Car in 5 Easy Steps
Kelly Boyer Sagert

Kelly Boyer Sagert

Updated October 25, 2021
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Wondering how to trade in a car? This article takes you step by step through the process, from figuring out the vehicle’s value to sealing the deal. Plus, it also shares the pros and cons of trade-ins; red flags at dealerships; alternatives to trading in a car; and more. 

Deciding Whether to Trade in Your Car

This is largely a personal decision. Many factors can play in to your decision about whether this is the right time to get a new vehicle When deciding whether you can afford a new car and shopping for a car loan consider:
  • The purchase prices of cars you like
  • How much you owe on your current vehicle
  • How much value your trade-in would have
  • How much cash, if any, you can offer as a down payment
  • Additional costs: for example, taxes, title fees, and dealer fees
  • Any likely increases in car insurance premiums
If you decide to further explore how to trade your car in, here’s help!

Five Steps to Trade in a Car

How to trade in your car: here are five steps:
  1. Figure out the car’s value.
  2. Prep your vehicle for trade-in.
  3. Get quotes on its value from different dealerships.
  4. Negotiate your trade-in price. 
  5. Complete the transaction.
So, more specifically, what do you need to trade in a car? Here’s more info. 

1. Figuring Out the Value of Your Car

Fortunately, plenty of online resources exist to help you determine your car’s value. They include:

What If I’m Upside Down on My Car Loan?

With an upside down auto loan, you owe more on your vehicle than it’s currently worth. People can end up with this type of loan when buying a vehicle without making a down payment or by taking an extended term. Or, the loan may have a high interest rate, causing the person to pay more on interest than the principal. 

How Do You Trade In a Car That’s Underwater?

This can make the transaction more challenging because you may need to pay off the old loan before buying a new one or fold the two loans together. So, it’s important to find a lender that is willing to work with this situation.

2. Prepping Your Car for Trade-In

Take care of easy fixes—from handling any current recalls to seeing if there’s a simple way to address the check engine light if it’s on. The dealer will make a trade offer based on the current condition of the vehicle. While you may decide not to invest in any major repairs at trade-in time, taking care of easier ones can help. Clean the car inside and out as well so you can present it to best effect. Also have receipts handy for any work you’ve had done so that you can show the dealer how well you’ve maintained the vehicle. 

3. Getting Quotes from Different Dealerships

To ensure that you get the best price for your vehicle, take it to multiple dealerships that sell the make and model you want to buy. Taking it to a used car dealership can be a good strategy, too, because it may be in the market to buy vehicles, especially ones that are in good condition with low mileage. Do your research before going to any dealership, and ask questions, especially if the offer sounds either too low or too good to be true. Read any fine print carefully.Compare the offers you get to see what works best for your situation. 

Warning Signs of a Predatory Dealer

After you’ve estimated your vehicle’s value through online resources, you may notice that the dealership quotes are different from the figures on valuation websites. That can be a natural part of the process. But if the price is significantly different, that can be a red flag.Another red flag is pressure from the dealer for you to make a deal, right now. A salesperson may tell you that if you don’t agree to a deal right now, there’s another buyer ready to take the car. Or they may say that you need to agree right now or the deal is off the table. Or the salesperson might keep changing the offer, which can be confusing, making you unsure what you’d really be agreeing to.Additional red flags to look out for: If the salesperson doesn’t seem to want you to inspect a car too closely, that’s a bad sign. And if the deal seems too good to be true, that’s also a sign to be wary.

4. Negotiating Your Trade-In Price

Negotiate your trade-in separately with a salesperson rather than as part of the purchase of another car. That way, they can’t offer you a great price on the new vehicle but then lowball your trade-in value to make up the difference.  Bear in mind that if you can’t get the trade-in value that you think your current car deserves, another strategy you could try is to sell the vehicle to another dealer and then use the cash toward the down payment on your new car.

5. Completing the Trade-In

This process will vary, based on whether you still owe money on the trade-in vehicle and, if so, whether it’s more than the value of the vehicle. If you don’t owe any money on the car, then the process can be pretty simple. The trade-in value is subtracted from the price of the new car and you can either pay that with cash or apply for a car loan.In the unlikely event that the value of your trade-in vehicle minus any loans is more than the price of the new vehicle, the dealership will give you the difference. When you owe money on the vehicle you’re trading in, then the dealer will calculate the difference between what it’s worth and what you owe on it. If the number is greater than zero, then that amount is deducted from the price of your new vehicle. If it’s less than zero, then the trade-in car loan is underwater. In that case, to complete the trade-in, you’d need to pay the difference (the amount you’re under water). 

Pros and Cons of Trading In Your Car

Let’s dig in deeper.

Pros of Trading in Your Car

If you trade in a car, you won’t have to find a buyer and go through the stress of selling the vehicle yourself. Selling the vehicle yourself involves setting a price, marketing your vehicle to catch the attention of potential buyers, negotiating the price, and handling paperwork. A dealer does most of that work for you. You can then sell a vehicle and buy your next one all in the same place, saving you time.Plus, in many states, tax is only charged on the difference between the value of the vehicle being traded in and the price of the vehicle being purchased. This can save you money. 

Cons of Trading in Your Car

You will probably make less money if you trade your car in than if you sold it yourself because dealers want to make a profit and so will offer less. Plus, your options for your next vehicle are limited to what’s available at the dealership where you traded in your current vehicle.

Alternatives to Trading in Your Car

Perhaps you’re deferring buying a new car because the payments on it would be too high. In that case, paying off your current car loan faster could be a good idea because
  • That can remove this payment from your list of monthly bills more quickly and you can enjoy some time without a car payment.
  • You’ll have a better asset to trade in once you decide to get another vehicle. 
Refinancing your car loan can be another route to consider. That means you’ll take out a new loan to pay off what you still owe, ideally at a lower interest rate.Wondering about the cost to refinance a car? That can vary by lender. Fees to compare include early termination fees (with your current lender), transaction fees, registration fees, and title transfer fees. Find out what applies in your circumstance and continue to make payments on your current loan to avoid any late payment fees. 

The Takeaway

Trading in a vehicle to get another one typically involves evaluating your current vehicle; prepping it for the trade-in; getting quotes from dealers; negotiating the trade-in; and sealing the deal. If you decide to refinance instead, Lantern by SoFi makes it quick and easy to get quotes from our network partners. 
Photo credit: iStock/skynesher
The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.SOLC0921171

About the Author

Kelly Boyer Sagert

Kelly Boyer Sagert

Kelly Boyer Sagert is an Emmy Award-nominated writer with decades of professional writing experience. As she was getting her writing career off the ground, she spent several years working at a savings and loan institution, working in the following departments: savings, loans, IRAs, and auditing. She has published thousands of pieces online and in print.
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