SHOPSMART AUTOS – CUSTOMER INFORMATION – MARCH 19, 2021- PART 2
How Does Trading In a Car Work?
If you choose to sell your car to another dealer or a third party, then you’ll likely have to drive to several locations to complete that deal. You’ll also have to negotiate the price you’ll sell your car for entirely separately from the purchase price of the new car. Of course, savvy buyers know that it’s a good idea to keep the prices separate, so you know you’re getting a good deal on both the purchase of your new ride and the sale of your used car.
They’ll Pay Off Your Existing Loan
You can trade in a vehicle even if you still owe money on its loan. In fact, it’s common for dealers to take care of consumers’ old financing. They’ll pay off the remaining loan balance on your trade-in and obtain the car’s title directly from the lender. If you have any positive equity in the vehicle, it will be used as a down payment toward your new lease or purchase. You can even trade your vehicle into a dealership if you have negative equity. Having negative equity means that the amount you owe exceeds the model’s value. That isn’t the best way to deal with an underwater car loan, but it is easy. We’ll discuss why trading your current vehicle with negative equity is not the most ideal option for many buyers later in this article.
The Dealer Takes Care of the Paperwork
Selling a car requires a ton of paperwork. If you’re selling your car in a different state than it was registered in, or if you live in a different state, things can get even more complicated. However, if you trade your used vehicle in at a dealership, they’ll take care of the paperwork for you. They know what documents need to be filed with which DMV. All you need to do is sign the papers, but you’ll pay a document fee for this convenience.
You Can Save on Sales Tax
One key benefit to trading your car in at a dealer is saving money on the sales tax. In many states, the trade-in value can be deducted from the new car’s price. Let’s use an example to illustrate the point. For simplicity, we’ll assume that you don’t have any negative equity or otherwise owe money on a car loan. You want to buy a brand-new vehicle, and you’ve negotiated a price of $30,000. You also have a used car that you want to trade in. The dealer offers $10,000 for your trade-in, meaning your net payment is $20,000. In many states, you would pay sales tax on that $20,000 instead of the new car’s overall $30,000 value. It’s important to do the math to determine whether the sales tax savings you get by trading in the car are more than what you could get by selling it yourself.
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