Unexpected Expenses You Need to Shoulder when Trading-in Your Car
Here are the usually hidden costs you must know when trading-in an old car prior to buying a new one.
It would be wise of you to let go of your old ride upon the purchase of a new one. You can definitely save on the costs of keeping and maintaining two vehicles at the same time. Plus, the proceeds from a trade-in can be used to lower your payment for a new car.
Trading in a used vehicle to generate a good amount of cash is no rocket science. There are a lot of factors that will affect the transaction. You might end up getting above or below your expected value for the used car you are disposing of but in order to know for sure, you must first know the costs associated with a trade-in.
“Trading in a used vehicle to generate a good amount of cash is no rocket science.”
Depreciation is an important consideration as it may vary from one brand to another or from one car model to the next. Determine the breakeven point for your trade in—that period when the trade-in transaction doesn’t incur any negative amount when deducted from the remaining balance of a current car loan. This breakeven point is usually around the half term of an auto loan.
There are several unexpected costs that may arise from the trade-in. To spare you from any unlikely or drastic surprise, you should get to know these possible expenses that can be incurred when selling your vehicle especially at the dealership (which is more convenient, secure, and advisable rather than selling directly to an individual buyer through a rigorous process that can expose you to more risks).
Negative equity payoff
No buyer will assume an existing car loan upon trade-in of a used car. Don’t believe a trade-in buyer who claims to pay off the trade. The dealership will assign a cash value for your vehicle regardless of any financing scheme. Your remaining loan payoff amount would then be deducted from the trade-in cash value.
“No buyer will assume an existing car loan upon trade-in of a used car.”
If the used car’s valuation is more than the remaining balance of the loan, you may be in luck. The positive value means you can take home cash or use that amount to help pay for your new vehicle purchase. On the other hand, you are ‘upside down’ on the auto loan if you realize negative equity. This means that after the trade-in, there is still a significant amount left unpaid on the loan. If you prefer not to repay that remaining balance in full, it would be carried over to your new car purchase—as an add-on to the new car tag price or to the amount of your new car loan.
Trade-in documentation fees
All dealerships will charge you an amount as a documentation fee. There are several states that impose regulations on this charge. However, many states give dealerships free reign to assign any amount to cover documentation for a trade-in and even for a new car purchase.
“Many states give dealerships free reign to assign any amount to cover documentation for a trade-in.”
This is another advantage of trading in your used car with the same dealership where you are buying your new vehicle. It can be possible to waive any documentation fee for your trade-in as you will take it on in your new car purchase. Take note that any fee for documentation is different and usually separate from the cost of registration or title. You can and should try to negotiate in order to pay less or if you get lucky, you may avoid the charge altogether.