When should you trade in your car?

Man holding car keys on a vehicle trade-in


Most buyers will, at some point down the track, come to the question of when they should trade in for another vehicle. To a large degree, what makes most sense is determined by a vehicle’s reliability and its depreciation in value. Let’s take depreciation first.


Understand your car’s depreciating value

New cars lose 20 percent of their value after just one year, increasing to 50 percent after three. On that basis, you may not want to trade in your car during its early years, just after you’ve suffered the biggest part of the depreciation loss. Rather, you might want to wait until the rate of depreciation slows and you have a chance to get more value out of the vehicle.

Working out the current value of your car will help you decide whether you want to trade it now and, if so, enable you to negotiate a fair price at the dealership. The decline in a vehicle’s value is affected by age, but also by model type, condition and mileage, and you’ll need to take all these factors into account to get its trade-in value. Use online sources such as NADA Guides and Kelley Blue Book to enter the details, along with your ZIP code where applicable. Be honest about your vehicle’s condition to get the most accurate estimate.


Know the equity

If you have financed your current car, there are more things to consider at this stage. You’ll want to check whether you have positive or negative equity in your asset. You already have half the information needed; the market value of the car. Next, get the pay-off amount on your auto loan – the sum you still owe – by logging into your account or calling the lender.

When the value of your car is greater than the outstanding debt, you have positive equity. That means if you decide to trade in, your equity will cover the payoff and also provide funds for a down payment on your next vehicle, should you wish to use it. If you owe more than your vehicle is worth then you have negative equity, which puts you in a weaker financial position for trading in.

In this case, one option is to wait until you have paid down more of your loan and are no longer “underwater” before finding a new car. Some people may need or still want to trade in with negative equity, however. If so, be aware of the different ways this can be handled, such as rolling the debt into the new loan and the risk of snowballing your equity problem.


Balance your vehicle’s value with reliability

Holding onto your vehicle could enable you to build equity, ride out the worst of its depreciation and enjoy years of motoring without an auto payment. While this path has clear merits, you may have to contend with the higher maintenance costs associated with older cars. If the costs get heavy, it could be time to move onto a newer, more reliable and cost-effective car.


Trade in late in the year, if you can

A further point to consider – the time of year. Black Friday through New Year is a period of holiday sales events when automakers and dealerships run special offers and deep discounts. Trading in at this time may enable you to save big on your next vehicle. Think about visiting the dealership at the end of the month, too, when staff are often trying to meet sales goals, and have an added incentive to strike an attractive deal.


Check out auto loan options for a new purchase

When the time is right to trade in your car and buy a new vehicle, run the numbers on a potential purchase with RoadLoans’ auto loan calculators, and apply for a preapproved loan. We accept applications from consumers with a broad range of credit profiles and provide instant decisions.

Apply for a car loan online.


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