Save Time and Money by Trading in Your Car (Updated)
Editor’s note: This post was originally published on 9/7/16 and has been updated for accuracy and comprehension.
How do you get the best deal for your old car when it’s time for a vehicle upgrade?
Most people will tell you the best deal is to sell your old car on your own instead of trading it in at the dealership.
We disagree. We believe most people can save time and money by trading their car in – if they’re able to get a fair price.
Tax benefits of trading in your car
Did you know there are tax benefits to trading in your old car?
In most states, when you purchase another vehicle and trade your car in, you’re only required to pay sales tax on the difference between the trade-in value and the price of the new car.
Let’s look at an example that explains why we believe it can be a smarter move to trade in your car:
Without a trade-in:
- New car purchase price: $30,000
- Taxes paid (7% of $30,000): $2,100
- Used car sold by owner: $16,000
- Total cost of new car: $32,100 – $16,000 = $16,100
With a trade-in: (Remember, in this example, the price of the trade-in is deducted from the price of the new car for tax purposes).
- New car purchase price – $30,000
- Trade-in Value: $15,000
- Taxes Paid (7% of $15,000): $1,050
- Total cost of new car: $31,050 – 15,000 = $16,050
You’ll find that even with lower numbers, the final result is very close.
For example, when you buy a $25,000 car and have the option of selling your car yourself for $11,000, or trading it in for $10,000, selling the car on your own results in an extra $300 after tax benefits are considered.
That $300 represents real money in your pocket, but we still think trading your car in can be a better deal.
Let’s take a look at the why.
Trading in your car can save you time and money
When you make a trade, the deal happens that day. You don’t have to place advertisements, locate a buyer, arrange test drives, wait for the buyer to line up financing, or deal with any other issues, including future liability.
At the dealership, you sign a few papers and the car is no longer your responsibility.
When you sell the car yourself, there are no guarantees
You’re responsible for listing the car for sale (which can cost money), finding a buyer, arranging a test drive, dealing with the buyer’s financing, determining a safe and secure method of payment, and handling other paperwork.
Did we mention that it may take you several weeks to do everything?
In addition to the hassle of listing the car and finding a buyer, in some states, the seller can be held liable for problems that occur shortly after the sale. Trading your car in negates those legal liabilities.
Is trading in your car always better?
The short answer is no.
The dealership may not give you a fair offer, and sometimes you can sell your car quickly and easily to a family member, friend, or coworker and not have to worry about the issues listed above.
The tax benefits are also less substantial in states with low sales tax.
But, trading in your car is all about convenience. In the second example above, the net difference was only $300 savings for selling the car yourself. When you add up the time and costs involved, that extra $300 may not be worth the hassle.
Weigh your options carefully
Next time you’re in the market for a new vehicle, consider the benefits and convenience of trading your old one in.
You may find that trading your old car in is actually the best deal.
When you’re ready to start shopping for a new car, make a stop at Serra Acura and talk with one of our People Pleasin’ sales staff.
They’ll be able to answer your trade-in questions and help you make the best choice for you.