Many financial experts suggest that one not use an old car as a trade in when purchasing a new car. In fact, it may ultimately cost you more on a new car, to use an old car as a trade in.
Most auto dealers have a certain amount of price flexibility. In fact bargaining is the soul of any good auto deal. Most cars are marked up in various fashions, and the greater one lessens profit margin, the less money the salesperson makes on commission. Few auto salespeople actually work for a salary that is not at least partly based on commission from sales.
If one uses an old car as trade in, and the person is offered high blue book value, the highest possible value for the car, this means the price flexibility in the car will change. The person is likely to pay more for the new car, thus rendering the trade in less valuable, even if the bluebook value price is met.
Further, getting high bluebook value for a trade in is often difficult. Auto dealers want to take your old car and profit from it. Therefore, they are likely to offer low bluebook value so they can sell the car at high bluebook value.
However, if you are selling your car independently, instead of using it as a trade in, one is likely to receive more money up front. Additionally, because you have not depended on the dealer to give you a good price on your trade in, you have better ability to negotiate on the price of a new or newer car. Essentially you have achieved greater price flexibility.
Also, a greater influx of cash for a down payment often means negotiating better financing terms if you must borrow money to pay for the new car. Smaller amounts borrowed mean smaller payments, or shorter-term loans.
In some cases it may be impossible to avoid using an old car as a trade in. If for example, one is still making payments on the car, then one may be able to trade it in and get a newer car. If money owed on the trade in exceeds what the dealer would give you, this will mean you will have a higher auto loan payment. You will essentially transfer debt owned on the old car to debt owned on the new car.
When possible, if you can sell the car at a price equal to how much you owe, you will save money when you purchase a new car. Many auto sellers now also offer attractive terms with no money down, so that it may not be necessary to have money up front to purchase a new car. As well, you won’t be paying the cost of absorbing your old debt.
Some cars, however, have a high enough resale value that one can not only pay off their debt but also have money left over for a down payment on a new car. Generally, selling the car independently to accomplish this still makes the most financial sense. Also, if you have just paid off a car loan, this will look very good to potential creditors and may get you a lower interest rate on money borrowed for a new car.
