Pros and Cons of Trading Your Car
Want to dispose of your car but can't decide whether to sell privately or trade it in? First and foremost you need to have a deeper understanding of what trading in encompasses and what processes are involved as opposed to putting up your vehicle on sale.
The Difference Between Trade-In and Sale
It is a no-brainer what sale entails. It is simply selling your car for a certain amount of money. Trade-ins, meanwhile, though fairly common, can be misunderstood in certain contexts.
The option to trade-in or to sell will depend on your purpose for disposing of your vehicle. If you are looking for cash in exchange for your car without intending to buy a new one, then selling is the appropriate action for you.
If you are looking at buying a new car, however, trading in your old car for the new one is faster and easier. Of course, there are advantages and disadvantages tied to the process, and we'll walk you through with those so that you'll be able to make informed decisions later on.
Trade-In Value versus Resale Value
The trade-in value of a vehicle refers to the amount a dealer considers your car to be worth, in reference to the value of the car you are about to purchase. In a trade-in, your car becomes part of your payment for another car that you are considering buying. The trade-in value is determined by the dealership and you have no option to negotiate or haggle it.
Resale value, on the other hand, is the estimated amount that your used car is worth at the time you are selling it.
Both trade-in value and resale value will of course always be significantly lower than your car's original standard retail price (SRP) and the amount will depend on several factors that surround the condition and physical makeup of your car.
How Does Trading-In a Car Work?
Trading-in might be misinterpreted as a barter type of transaction in which you can exchange your current car with a car of your choice. That isn't how it works, otherwise almost everyone on the planet would likely engage in trade-ins as often as possible leaving car manufacturers and dealers bankrupt. In a trade-in transaction, you need to have money to purchase a new vehicle but may use your used car to offset some of the amounts in the total SRP. For example, you want to buy a vehicle valued at PHP 1,000,000 and will opt for a trade-in. The dealership will assess your used car and assign it a trade-in value. If the trade-in value is pegged at PHP 350,000, then you need to pay PHP 650,000 more to be able to go home with your new car. Your old car was part of the payment so you have to surrender it to the dealership.
The only time you can swap keys without cash out is if the value of the car you want to purchase is exactly equal to your current car's trade-in value, which is impossible with brand-new cars. Depreciation plays a key role and a car's value depreciates by as much as 30 percent to 37 percent as soon as you take its keys from the dealership. Depreciation affects the trade-in value as much as it does the resale value.
What Factors Affect the Trade-In Value?
Depreciation is the biggest culprit affecting both trade-in value and resale value, and there's no workaround for it. If the vehicle is new, ideally you should wait until at least three years to trade it in when depreciation normally slows down. For more than five years, the vehicle has already undergone a massive drop in depreciation so do not expect trade-in value to be high.
Mileage and Car Condition
Car condition, car brand and car make influence the trade-in value. Mileage and age of the car are the foremost considerations when assessing car condition. Less mileage will fetch better value for your car. Similarly the lesser the number of the car's age, the higher its value is.
Proper maintenance and vehicle history are also greatly considered. If your car hasn't been involved with any accident, if it is well maintained (you need to keep your maintenance receipts as proof, such as oil-change receipts, filter-replacement receipts and others as proof). Since you're trading in your car at a dealership, they are capable of doing maintenance checks and computerized assessments of your car's systems, and would price your car based on the results of their assessment.
Any cosmetic damage to your car, even if they are just small nicks and scratches, can lower it's trade-in value. It is thus recommended that you inspect your car thoroughly and if you have the means have any flaws fixed. You should also do a general and thorough cleaning of the interior, as car washes do not really pay much attention to the cabin, before bringing your car to a dealership. Shampoo the carpets, clean the upholstery. Purchase touch-up paints to conceal minor scratches, and have all dents repaired. A well-maintained car fetches more value than a poorly maintained one, even if both cars are of the same car brand and model.
Actual Cash Value
The car's actual cash value is the amount the car is worth. The dealership will be able to appraise your vehicle's trade-in value, although note that they will sell your car after you trade it in. And to maximize profits the trade-in value would be lower than the actual value.
Can an Encumbered or Mortgaged Car Be Traded In?
It is possible but depending on your loan balance. Your outstanding loan will be deducted from the trade-in value, which means your cash out will be higher.
Taking into consideration the example earlier wherein you are purchasing a car worth PHP 1,00,000, and your car is valued for trade-in at PHP 350 000, you will pay PHP 650,000 in cash. If you still have a loan balance of PHP 200 000, this will be subtracted from your trade-in value, leaving you with only PHP 150,000 credit. Which means, your cash out will be PHP 850,000 instead of PHP 650,000.
If your loan balance is greater than its trade value, or there's not much difference, then no, you won't be qualified for a trade-in, or you would be owing money that would be added to your cash payment.
Advantages (Pros) of Trading In a Car
Now that you have a pretty good picture of the trade-in process, and you still couldn't decide whether to go through with such a deal or simply just sell your car and use your earnings from it to purchase a new car, consider the pros and cons before deciding on what to do.
Transaction Involves Only You and the Dealer
If you are too busy to put up your own sales campaign, such as advertising online or on print media, calling up contacts to find prospective buyers, answering all possible questions from interested parties, and filtering possible prospects, maybe even doing background checks, then selling will not sit well with you. Your best bet is to trade in, as the agent or dealer will take care of everything from beginning to end. All you need to do is show up when you're needed, fill out and sign forms and wait until your new car is ready to be driven home.
Less Effort, Less Worry
Trading in your car is way convenient than selling. If your car has a good resale value, many would be interested in it. Responding to all inquiries and dealing with all kinds of customer's quirks can be stressful. With trade-in transactions, the dealer will be in charge of all the legwork and paperwork. Imagine if you will be doing all those yourself!
A trade-in can be completed in as short as two days turnaround if you meet all the requirements. In selling, finding potential buyers alone can take weeks or even months. Fortunately, there are online channels that could help advertise your car such a Priceprice.ph, but the response from prospective clients won't be as fast as that in trading in your vehicle.
It Makes Buying a New Car More Affordable
Because your used car forms part of the payment, you do not need to shell out the entire amount of your new car. Paying for a new car is made affordable and easier especially if you do not have any outstanding loans on your used car. The best part is you can also pay the cash out in installment, which means your down payment and monthly dues will not be heavy at all.
Aside from that, because part of the amount has been offset by your used car's trade-in value, you get to pay less tax – great savings especially with the hefty excise tax imposed on most vehicles in the Philippines.
Disadvantages (Cons) of Trading In a Car
Trading in a car is not for everyone. Some people would prefer selling their car privately in spite of the more complex and time-consuming process that goes with it. Here are some of the cons of trade-ins that may influence your decision.
Low Trade-In Value
Value for money is always the biggest drawback of a trade-in transaction. Some people may feel that the trade-in value is not commensurate to their own initial investment on the vehicle and really not worth it. That's why some car owners would prefer selling the vehicle privately by themselves. The earnings would be higher compared with trade-ins.
Bear in mind that dealers are sellers and aim to get the most profit from their products and their purchases or investments. The faster and quicker they can make money on a particular vehicle, the stronger financial position they will be in. Also, the profit margin is paramount, and one of the easiest ways to make a profit is to purchase used vehicles at a discounted price and resell them at a price higher than what they originally paid for.
Maintenance Cost Is Not Considered
Again, the low trade-in value will not offset your maintenance investments. Trade-in is not recommended for have just undergone maintenance prior to selling or trading in. When a used car is traded in, dealerships won't factor in the money that you spent on upkeep, such as recent tune-ups or change of aircon filters.
If you, for example, spent money replacing all the tires, had the upholstery and carpeting changed, or had all issues fixed in the hopes of fetching a good deal for your car, you will never be able to recover the cost with a trade-in transaction because of the low trade-in rate. Unlike with selling your car privately, where you can top up the resale value with your maintenance costs.
Not All Cars Can Be Traded In
Dealerships can be choosy with their car preferences when it comes to trade-ins. If you have a very old car or a less popular model, you might not get as much cash as you'd hoped for, or they would simply reject the deal.
hile it can be argued that most dealerships will take most vehicles on trade-in, since they will earn profit from it, there are certain situations or circumstances in which they will not accept a trade-in deal. One factor is market demand. A model that barely sells in the market is not a good candidate for trade-ins. Obsolete cars that are not considered vintage are also out of the picture. Sometimes, if they already have a multitude of similar vehicles on their lot, for example, four metallic purple hatchbacks of the same brand, year and model that are not being bought, they can refuse a similar vehicle.
Limited Car Choices
When you go to a certain dealership to have your used car appraised and they agree to a trade-in, you have no choice but to buy your new car from that dealership. This is fine if you've already been eyeing a particular car brand and model from their showroom, but if you haven't yet decided on a possible car, then your choices are limited to the dealer's current stock of cars. And if you have a car brand and model in mind that is not available, you cannot compel them to order or get one for you, unless they have the means to get that model. There's no provision that allows you to trade in a vehicle at one dealership but purchase one from another. The best option is for you to consider a different dealership that has your preferred car.
Suggestions and Recommendations
If you've already decided that you would definitely opt for trade in, consider these recommendations so that you'll be happy with your trade-in experience.
Shop Around Before Settling for a Dealership
Don't immediately accept a deal just because the dealership offered you one. Canvass first and compare even if you have to go to all possible dealerships available in your city or province. Shopping around gives you an idea of the best trade-in value for your used car and allows you to check available options for a new car. This may entail legwork and effort but at least there's no room for regrets later on if you settled for a low trade-in value and a new car that you do not really like. This would also give you time to think whether trade-in is the best approach for you.
Go for a More Expensive Car
Some dealerships offer better value for money if you buy a premium car instead of a cheaper one. If this is the case, don't hesitate, go for it.
Take Advantage of Holiday Season Promos
Christmastime is a year-end sale and discounts time. This is also inventory time for most dealerships and they are usually trying to sell off all their stocks for the year and will have all sorts of markdowns and promotions. If you buy a car from this stock, dealers are likely to throw in some trade-in perks too!
USED CAR BUYERS GUIDE LIST
- Before Buying a Car
- Buying a Used Car
Selling your Car
- What determines a used car value?
- What do I change the owner in the documents of the car?
- How can I sell my car for a higher price?
- Is it better to sell my current car or trade it?
Car tips & Maintenance
- What happens when you don't change the oil in cars?
- When do you replace the brake pads?
- Is there a proper way in mainting a car aircon?
- Do I need to learn both AT and MT?
- How many years does a car battery last?
- Can I pick any tire size for my car?
- Are car insurance only for new cars?
- How do I handle a car accident?
- How do I know the meaning of the alert indicator signs?
- What is the proper way to drive?
- What is the correct way of washing your car?
- How do I know how my car delivers the power to the wheels?
- Should I turn my hazards on during rain while driving?