The Loans Canada team sits down with Gary Schwartz of the Canadian Lenders Association to talk about open banking.
Should I Trade-In My Used Vehicle Or Not?
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As beneficial as it can be to have access to your own mode of transportation, many second-hand vehicles become problematic throughout the years, especially when driven regularly. On the other hand, you might just be sick of looking at your current car and are now in the market for a more desirable make or model.
Whatever the reason may be, a standard vehicle trade-in may be a better choice than waiting around to find a private buyer. Not sure if trading in your vehicle is the right option for you? We have all the information you need to make the right choice.
What Is A Vehicle Trade-In?
Essentially, this kind of trade-in is when you bring your current car, truck, van, or SUV directly to your local dealership and exchange it for a reduced price on your next vehicle. In fact, if the auto dealer sees enough residual value in your second-hand car, they even offer you a better price than you would find online or on the street.
How Does This Process Work?
Before an auto dealer can take in your used vehicle, they will first need to have it inspected to determine its value. The newer and less broken down your car is overall, the more money they’ll knock off the price of your next vehicle.
However, one important thing to be aware of is that no dealership will offer you top dollar for your existing vehicle because they’re trying to turn a profit by reselling it. Not to mention that an older with more kilometres will likely require repairs and maintenance, which can be pretty expensive. This is commonly known as the cost of “reconditioning”.
They’ll also have to go through the rigamarole of marketing the vehicle and letting it sit in their storage lot or on their showroom floor for what could be months, even years at a time. This can cost them extra money with every passing moment.
All this said trade-ins are how many dealerships make a large portion of their profits. So, before you give away your car for pennies on the dollar, be sure that your chosen dealer isn’t trying to pull a fast one on you.
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Understanding Your Car’s Retail Value
Prior to trading your car in, it’s a smart idea to determine its estimated value on the used vehicle market. After all, even some older cars can command decent retail prices, particularly if the model is rare, fuel-efficient, or cost-effective, has little mileage, or is in extremely good shape.
Make sure to check several online sites to see what similar makes and models are going for these days, then get a few quotes from third-party mechanics or other vehicle experts. While no dealership will give you exactly what your car is worth, a reputable one should still be able to treat you fairly and set you up with a reliable vehicle.
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How Do Dealerships Determine Your Vehicle’s Trade-In Value?
Unfortunately, most vehicles, even brand new ones, lose a significant portion of their retail value as soon as they hit the street. Dealerships are well aware of this fact and will base their decisions on this risk. Ultimately, they could stand to lose a lot of money if they end up with a car that no one wants to buy.
Because of that, they’ll need to consider a few different things before the trade-in can go through, such as your vehicle’s:
- Total mileage
- Make, model, and trim level
- Value in a particular area
- Overall condition (tires, brakes, ending, interior, body, etc.)
- Accident reports (if any)
- Previous and necessary repairs
All in all, if it turns out that they would have to invest too much money in the vehicle for too little of a return, they may decide that you’re not eligible for a trade-in. However, the opposite can occur if you’ve managed to keep your vehicle in decent condition since you took possession of it.
How To Maintain Your Vehicle’s Trade-In Value
That brings us to our next subject, how to maintain or otherwise boost the trade-in value of the vehicle that you’re looking to get rid of. As mentioned, your auto dealer will inspect almost every part of your vehicle prior to buying it, so the safest thing you can do is keep your car in the best shape possible, which should start from the get-go.
When trying to uphold your vehicle’s trade-in value, consider the following factors:
- How much and where you’ve driven the car
- What repairs and maintenance it may need
- When its most recent service check was
- What kind of receipts and other paperwork your dealer may request
- Whether all its levels are full (gas, oil, transmission fluid, etc.)
- How clean the interior and exterior are
- What it will cost you to make all these improvements
- How good you are at negotiating a better price
- What debts may be left on your car, such as loan payments
As you can now imagine, every dollar that your dealer would have to put toward your vehicle is a dollar that they will add to the final cost of the car that you’re trying to trade it for.
In addition, you may encounter problems if you’re trying to trade-in a car that’s still in the process of being financed or leased. While it’s possible with many dealerships, you might not get as good of a value for the vehicle, especially if you have negative equity (when the car is costing you more than it’s worth). Instead, the dealer will give you less money for the car and add your remaining payments to your next vehicle’s final balance.
In the end, the trade-in process will be much more simple and cheap if you own your current vehicle’s title outright.
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Where Can You Trade-In Your Vehicle?
The good news is that there are hundreds upon thousands of different dealerships in every province and territory that offer trade-ins. That said, they are particularly common with dealers that specialize in previously owned vehicles.
Even if your car doesn’t hold a lot of resale value, many dealerships will take it so they can fix it up and possibly sell it at an open auction. Despite this, it’s still important to research your potential dealership to make sure they are a legitimate business that’s willing to offer you a proper trade-in value for your used car.
Should You Trade-In Your Vehicle Or Sell It Yourself?
When push comes to shove, a vehicle trade-in may not actually be the best choice for your situation, being that many private buyers are more open to negotiation than most auto dealers. However, your final decision should depend mainly on your current financial position and whether or not you’re willing to put forth the work.
Pros Of A Vehicle Trade-In
- This may be the quickest and most convenient way to get rid of an old car
- You won’t have to go through the trouble of advertising and selling your car
- You may get a reduced price and better financing options for your next vehicle
- Many dealerships will throw in warranties, additional features, and other perks if your vehicle is valuable enough
Cons Of A Vehicle Trade-In
- You may not get as much money out of the transaction as you were hoping
- Many costs and documents may be required during the dealership process
Pros Of A Private Sale
- You can often get more money for your car than with a trade-in
- The process is usually cheaper and involves much less paperwork
- You probably won’t have to put as much maintenance into your vehicle
Cons Of A Private Sale
- It can take much more time and effort to find the right buyer
- You’ll need to advertise the car online or through other outlets
- Some private buyers aren’t as trustworthy as some auto dealers
Looking For Vehicle Financing?
If you’re in the market for a new car, van, truck, or SUV, then trading in your second-hand vehicle might be the way to go. If not, there are plenty of other vehicle financing solutions that Loans Canada can connect you with.
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