Should you trade in your old car when buying a new one?

Buying a new car or even a used car can cost a lot of money, so it can make sense to get some money for your current steed before you say goodbye.

If you’re in the market for a car, consider the pros and cons of trading in your car at a dealership, as this can be a viable strategy for your next big purchase.

What is a car trade-in?

Car dealerships often buy used cars from people, either to resell them at a profit or for the parts. This is called a trade-in, the trade-in value is simply the price you get for selling the car to them. Many car buyers choose to sell their trusty old car when getting a new one, and doing so through a dealership can be a quick way to kill two birds with one stone.

Signs it’s time to trade your car in

There are a number of reasons you might decide to trade in your car:

• Your loan is about to end: Once you’ve fully paid off the car, you can keep 100% of the sale price, instead of having to pay off the remainder of the loan from the proceeds

• The car requires too much maintenance: if you have an older car that breaks down a lot, the time and money cost of repairs and maintenance may not be worth it, and selling it could be a better option. Yu might even be paying more for registration than the car is worth!

• You have a balloon payment: Balloon payments - a one-off lump sum you can pay at the end of a loan term in exchange for lower repayments - needs to be paid off, and these can be as much as 50% of the car’s original value. Once your car loan ends, you might need to sell the car to repay the balloon.

• Your car is too old and not safe: Older cars tend to score poorly in safety ratings and have fewer safety features on average. Being more prone to malfunction or damage (cars made before 2000 were four times more likely to lead to deaths than new ones), it might be a smart decision to sell it and get a new one.

• You just want a new car: Whether it’s for a different lifestyle (like wanting an off-road 4WD or a minivan for the family), or because you feel like rewarding yourself, getting a new car might just be something you want to do. But cars are also expensive, so a trade-in can make them more affordable.

What are the benefits of trading your car in?

Arguably the biggest benefit of selling to a car dealership is the convenience of it. They can give you cash for the car very quickly without you having to lift a finger, and if you’re buying a new model the dealer can subtract this trade-in value off the sale price. You don’t need a roadworthy certificate to sell your car to a dealer, and they’ll take on the responsibility of repairs. So if you have a bomb that no one in their right mind would buy, a dealer probably will.

As mentioned above, trading in your car can help you pay off any remaining finance or balloon payments you have, and can make financial sense to do so if the car is no longer worth the cost of keeping it. Plus, trading in the car can help make a car loan much more affordable, as we’ll highlight below.

So if you want to sell your car quickly without needing to commit to market research on prices, and if you want help with buying your next one, a trade-in can be very useful.

What are the negatives of trading your car in?

While trade-ins can be convenient, it’s very likely you won’t get a good price for it. Dealerships need to make a profit on sales, so they’ll usually undercut you by a few hundred or even a couple of thousand compared to what it’s really worth. Selling to a private seller can often result in a higher sale price for you, as not only are they probably not as knowledgeable as a dealer, but private sales give you more room to negotiate.

Trading into a dealership can also give you fewer options for your next set of wheels. While you’re not compelled to do anything, dealers can be very convincing, and buying one from a dealership could be a worse financial deal compared to buying privately. You can also get locked into buying a car of the same brand (i.e a Mazda for a Mazda), whereas a private sale gives you a much greater degree of freedom.

Simply taking cash (and more of it) from a private buyer can give you more time to research your next car purchase, and to look around for a good bargain.

How can you calculate your car’s trade-in value?

It can be very hard to figure out the exact trade-in value of your car as every car is different. Factors like the car’s age, the brand’s popularity, the size and shape of the car, how clean it is and how well maintained/damage free it is can all influence how much you get for it. You can estimate what this is based on some research, but you likely won’t get an accurate number.

You can also use OnlineAuto.com.au's trade-in calculator that lets you get an accurate estimate of what your car could be worth, and if you wish they can then come to you to conduct an in-person valuation, before paying you for the car then and there. This can be a quick way of trading in your car, or even to just find out what it’s really worth.

How a trade-in can impact your car loan repayments

Getting some money upfront for your old car can be put towards a deposit on a car loan for the next one, which isn’t necessary but goes a long way to show a lender you’d be a good borrower. It can also reduce your regular repayments. As an example, let’s compare two car loans using our car loan calculator:

• Both loans are for a $40,000 car

• Both have a five-year loan term at 4.67% p.a

• Both have monthly repayments and no balloon payment

If you were to borrow the entire $40,000 for the car, then your monthly repayments on this loan would be $736 per month. But if you got $5,000 from trading in your car, using that $5,000 as a deposit would lower those repayments to $644, almost $100 per month less.

That’s based on a low car loan interest rate, which loans.com.au definitely has. So if you want to trade in your old car and are ready to buy a new one, check out some of our competitive car loan rates and speak to one of our expert lending specialists now to get started.

Get pre-approved for a car loan