Terms to Know when Trading your Car

You have decided it is time to replace your vehicle. You have not decided whether you will purchase a new or used one. But you know you are ready to trade in your vehicle for another.

There are plenty of vehicles to choose from, both new and pre-owned, at Kevin Grover Buick GMC. But before you make that decision, you should know a little more about what to expect when trading in your vehicle. A trade-in helps you reduce the expense of your new or used vehicle, and it helps you sell your car, truck, or SUV.

Here are some important terms you should know before you offer your vehicle as a trade-in that will give you the confidence you need to negotiate the best deal.

Trade-in value

This is the value of your car, truck, or SUV that the dealer offers to pay you for your vehicle. The dealer determines this value based on market conditions, the age of your vehicle, the mileage, the condition of the interior and exterior, and demand for your particular vehicle.

Trade-in allowance

This is an amount that a dealer will sometimes offer as part of a promotion to credit a certain amount toward the purchase of a vehicle with the trade-in of your vehicle. This is not necessarily a trade-in value, and sometimes can be more than appraised values. For example, a dealer might offer a trade-in allowance of $1,000 over the market value of your vehicle, which would include the market value plus the allowance. This amount is credited toward the purchase of any vehicle you choose.

Private-party value

This is an amount that is estimated that you might expect to receive if you sold your vehicle in a private sale to someone else. This value assumes that you market and sell the vehicle on your own. The amount is established based on your vehicle’s age, mileage, condition, and location.

Retail value

This value is an amount that represents what the dealer might expect to sell your vehicle for after you trade it in. This value is based on your vehicle’s market value and additional work that the dealer may have to do to prepare the car, truck, or SUV for sale. Dealerships typically want to sell vehicles for more than they pay for them, so they know they will likely have to perform some work on vehicles that are traded in by customers. This can include mechanical repairs, improvements to the vehicle’s exterior, replacing tires, and performing maintenance and repair work on the vehicle.

Loan value

This value is the amount that a lender will agree to offer the buyer to purchase a vehicle. This amount does not necessarily equal the vehicle’s retail or market value. It depends on a number of different factors, including how much you will put down on the vehicle, the age of the vehicle, your financial condition, and your credit score. The loan value is typically less than 100% of the vehicle’s market value or sale price.

Negative equity

Sometimes, when you try to use your vehicle as a trade-in to buy another, you learn that you owe more on it than it is worth. This happens when buyers borrow more than they should purchase a vehicle and the value depreciates more quickly than they can pay down the debt. This is more likely to happen if you try to sell the vehicle too soon after you purchase it because you have not made enough payments on the loan. You should check the value of the vehicle before attempting to trade it in so you can determine if you owe more than it is worth. If you have negative equity, you can still trade the vehicle in to buy another, but you will have less room to negotiate financing on the new car, truck, or SUV.

Rolling over the loan balance

If you decide to use a vehicle as a trade-in that has negative equity, the dealership will have to roll over the loan balance from that vehicle into the financing for your new one. When you roll over the loan balance into your new car loan, this will increase the size of your new loan and increase your payments. You can discuss all of the aspects of your purchase and financing options with the experts at Kevin Grover Buick GMC.