Using an old car as a trade-in when buying a new car may ultimately cost more. Selling the old car independently can result in more money upfront and better negotiation for a newer car. It may be impossible to avoid using a trade-in, but selling the car for a price equal to the amount owed can save money. High resale value cars can pay off debt and provide a down payment for a new car. Selling the car independently is the best financial option.
Many financial experts suggest that one not use an old car as a trade-in when buying a new car. In fact, it may ultimately cost you more on a new car, using an older car as a trade-in.
Most car dealerships have some pricing flexibility. In fact, negotiation is the lifeblood of any good car deal. Most cars are marked up in a variety of ways, and the higher the markup, the less money the seller earns on commission. Few car salesmen actually work for a salary that is not based, at least in part, on sales commission.
If one uses an old car as a trade-in, and the person is offered a high blue book value, the highest possible value for the car, this means that the pricing flexibility on the car will change. The person is likely to pay more for the new car, making the trade-in less valuable, even if the blue book value price is reached.
Also, getting a high blue book value for a trade is often difficult. Car dealers want to take your old car and make a profit out of it. So they are likely to offer a low bluebook value so they can sell the car at a high bluebook value.
However, if you’re selling your car independently, rather than using it as a trade-in, you’ll likely get more money up front. Also, because you haven’t relied on the dealer to get a good price on your trade-in, you have a better ability to negotiate the price of a newer or newer car. Essentially, it has achieved greater price flexibility.
Plus, a bigger influx of cash for a down payment often means negotiating better financing terms if you must borrow money to pay for the new car. Smaller amounts borrowed mean smaller payments or shorter-term loans.
In some cases, it may be impossible to avoid using an old car as a trade-in. If, for example, one is still making payments on the car, then they may be able to trade it in and get a newer car. If the money owed for the trade-in exceeds what the dealer would give you, this will mean you will have a higher auto loan payment. Basically, you will transfer the old car debt to the new car debt.
When possible, if you can sell the car for a price equal to the amount you owe, you’ll save money when you buy a new car. Many car dealers now also offer attractive terms with no money down, so it may not be necessary to have money up front to buy a new car. Plus, you won’t pay the cost of absorbing your old debt.
However, some cars have a high enough resale value to not only pay off your debt, but also have money left over for a down payment on a new car. In general, selling the car independently to achieve this still makes the most financial sense. Also, if you just paid off a car loan, this will look great to potential creditors and you may get a lower interest rate on the money you borrow for a new car.
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