What is a car's trade-in value, and is it better to trade in a car than to sell it privately?

Even if you love your car, there will come a time when you need to part ways and move to another, preferably a newer model. If you’re in the market for a new car, you may be deciding between trading in your existing car or selling it privately to help you purchase your new vehicle. But which of the two options will give you better value for your car? Understanding how car dealers evaluate the trade-in value of your vehicle can help you make an informed choice.

Compare car loans

The trade-in value of your car is the price you can get from a dealer if you were to sell your car to them while buying another new or used vehicle. Some dealers may allow you to trade your car for cash, but this isn’t common. Most dealers will simply use your existing vehicle's trade-in value to reduce your new car's cost.

Trying to estimate the trade-in value of a car can take time and effort. Still, you can get a rough estimate by finding out its market value. You can visit Carsguide's online price tool to get an idea of your car's market price according to its make and model. You can also check Redbook to get a more personalised valuation of your car.

Once you've researched your car's market price, you may want to take it to a dealership for an estimate. However, remember that the trade-in value quoted by a dealer is likely to be less than the car's market value.

The dealer will also consider the condition of your vehicle when quoting you a price, which is something that cannot be accurately accounted for when you use an online calculator. Besides, the dealer will likely keep in mind their profit margin when they sell the car later.

Always remember that the price quoted by a dealer is just that – a quote. You can always try to negotiate and get a better price based on your research and knowledge of the car.

If you're wondering how to get the best trade-in value for your car, consider learning about the various factors used by dealers to determine the car's value. Apart from a car's make and model, some of these factors include:

Mileage

Cars with more kilometres on the clock tend to fetch lower prices, as more usage indicates a higher degree of wear and tear. While you cannot change the number of kilometres your car has driven, regular servicing and proper maintenance could help you get a better trade-in value.

Transmission

Cars with automatic transmissions are generally more popular than manual transmission cars and may fetch a better price.

Maintenance and overall condition

How a car is maintained could affect its trade-in value. A well-maintained car is likely to fetch a better price than a poorly maintained one. Regular servicing goes a long way in the upkeep of a vehicle, and a record of the servicing will affect the value positively. You may also want to clean your car thoroughly and consider getting any nicks and dents fixed before you take it in for trade-in.

Accessories and modifications

You may have spent a lot of money on modifying your car to suit your tastes, but it's not necessary. These modifications may increase your car's value, but this will depend on the modification and the other factors listed.

For instance, adding those flashy 22-inch rims isn't likely to get you more money for your vehicle, but things like power windows can help make your car attractive to potential buyers and increase the price it could fetch.

A car is a depreciating asset, but there's no easy way to predict exactly how much a car will be worth after a certain number of years. Multiple factors come into working out a car's value, including its age, the popularity of a specific model, how well-maintained the vehicle is, the number of kilometres it has clocked, and so on.

As no standard price tag can be put on a used car, it's difficult to determine the exact price your existing car could fetch you - whether you choose to trade it in or sell it privately. However, it's generally accepted that a trade-in might get you a lesser price than if you were to sell the car privately. While this is not a rule or a benchmark, it's true that car dealers would want to pay a little less than the vehicle’s market value so they can then sell it for a profit later.

But if you were to sell the car privately, you could consider demanding the full market price from potential buyers. But does that mean selling your car privately is better than trading it in? The answer could be a yes or a no, depending on your personal preferences and situation. Here are some factors you may consider when deciding between trading-in your car and selling it privately.

Convenience vs price

Trading in a car is generally more convenient and less time-consuming than advertising your car and negotiating with individual buyers to sell it. One could even say it's more of a time vs money debate.

A dealer can make the process of selling your car easier, but it might cost you more, as you may not get the full value of the vehicle. On the other hand, selling privately will cost you time, and you'll also need to spend some money on inspections and repairs before you can sell the car.

Regardless of the option you choose, there's no harm in visiting a dealership to check the trade-in value of your vehicle to make an informed choice. If you're not looking for a replacement vehicle, you could even check about selling your car to a used car dealer.

Outstanding loans

You should also consider if you have any debt owing on your car before you decide to sell or trade it in. While it's possible to sell or trade in a car with a loan on it, you may need to pay off the loan in full or require permission from the lender before you go ahead and sell or exchange your car.

Financing a new car

It's also important to consider what a car loan will cost you if you plan to finance your new car. Getting a good trade-in value for your car can reduce your financial outflow towards the new car, but you need to arrange for the rest of the funds to complete your purchase. If you can't afford to pay for the new car upfront, you may consider applying for a car loan but remember to compare interest rates, fees and other terms and conditions to pick one that works the best for you.

You can also use RateCity's car loan repayment calculator to check the size of your monthly repayments and plan your budget accordingly.

Here's a quick summary of the potential pros and cons of trading-in your car vs selling your car privately.

Pros of trading-in

• Convenience: Trading in your car may be a relatively hassle-free process, as the dealer handles paperwork and logistics.
• Potential savings: Trading in your car at a dealership can reduce the sales tax on your new vehicle. The trade-in value of your old car is usually subtracted from the total cost of the new car before taxes are calculated, potentially leading to reduced sales tax.
• Less effort: The dealer may take care of any repairs or inspections, reducing the time and effort required from you.

Cons of trading-in

• Potentially lower sale price: Trade-in values are typically lower because dealers factor in their profit margins and may offer less than the car’s market value.
• Limited negotiation: There's less flexibility in negotiating the trade-in value compared to selling privately.
• Less choice: Sometimes the car dealer may not have too many options when it comes to picking your new car, which could limit your choices.

Pros of selling privately

• Potentially higher sale price: Selling privately might allow you to achieve a higher price since you can negotiate directly with buyers and avoid dealer markups.
• Control over sale: Being in charge of the sales process means having control over setting prices and choosing negotiation partners.
• Financial freedom: Selling privately may help you fetch a relatively better price for your car, opening up a potentially wider range of vehicles to choose from, including various makes, models, and features.

Cons of selling privately

• Time-consuming: Finding a buyer, handling negotiations, and managing the paperwork can be time-intensive.
• Additional costs: You may need to spend money on advertising, repairs, and inspections to make the car attractive to potential buyers.
• Delayed purchase: The time it takes to sell privately could delay your ability to purchase a new car, especially if you're relying on the sale proceeds.