The Benefits of Trading in Your Car - ConsumerReports.org

Many buyers prefer to trade in their current vehicle when getting another one, because it's easy. All they have to do is drive to a dealership, sign a few papers, and drive away in a different vehicle. They can apply the trade-in credit to their down payment, reducing the amount they need to finance.

There can be tax advantages, too. Most states require sales tax to be paid only on the difference between the price of your trade-in and the vehicle you're buying, not the full price of the next car. But this tax benefit doesn't apply if you sell your old vehicle yourself. Check with your state's Department of Motor Vehicles (DMV) for details.

The downside of trading in your vehicle is that you might leave behind hundreds of dollars—if not thousands—for the dealer. As mentioned before, the best you can hope for when trading in is to get the car's wholesale value, which is far less than what you would expect to get if you sold it yourself. In addition, even if you've checked all of the pricing sources and think you know what your vehicle is worth, you'll probably have to haggle with a salesperson to get the best deal.

Here's another problem you may encounter: If a dealer already has six used silver Chevrolet Impalas or Toyota Camrys on the lot, for instance, he isn't likely to pay top dollar for yours. And if your trade-in isn't one the dealer wants on the lot, it will probably be sent to auction and discounted accordingly. Just remember, no matter how tired you may be of your current vehicle, a dealership isn't doing you a favor by just taking it off your hands. If it ends up buying your car, it's because there's an inviting profit ahead.

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