What is trade-in value?
Trade-in value is basically a car dealership’s valuation of your car when you opt for a trade-in. The amount is shown on the purchase contract, and is deducted from your new vehicle‘s price. However, there is a difference between trade-in value and what the vehicle is actually worth when sold in the market or as a cash asset to the dealer. The vehicle’s valuation from the dealership is known as the actual cash value (ACV). The dealership uses the ACV when adding the car to its inventory books.
During the purchase process, the dealerships’ used-car manager makes an evaluation of the customer’s trade-in. He uses guides like Kelley Blue Book, NADA values, auto auction reports, and Black Book to set the dollar amount.
In making the final decision, a used-car manager looks at the vehicle’s mileage, physical condition, color, optional equipment and market demand.
Trade-in value example
Trade-in values are usually lower than the retail values. The biggest reason for that is simply convenience. In most cases, you may be interested in a new car but do not have the time and patience to sell your old car before getting the new one. A trade-in saves you the hassle, but at a cost. This cost is the difference between the retail and trade-in value.
The other reason for lower trade-in value is that most used cars need to be reconditioned before being put back on the market. This means the car dealer will have to foot the costs of detailing and painting the car, and fixing worn out parts such as lights and audio systems.
In most states, local laws meant to streamline the business keep the trade-in prices low. Other states put a sales tax on the difference between the retail price of a new car and the trade-in value. This creates an incentive for consumers to trade in their old cars for new ones, thus making it easier for car dealers to persuade customers to consider a trade-in instead of selling privately.
If you have the time and patience to sell your car on your own, you stand to gain more. However, this is not always easy. Car dealerships get more money for their cars than customers who opt to sell privately because dealerships provide financing. As a result, they get more business, which allows them to price their cars a little higher.
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