How to Sell Your Used Car to a Dealer (Trade In)
If convenience and saving time is your top priority - and you don't mind losing out on a thousand dollars or more - then selling to a dealer is the better alternative to selling privately.
But at least do it right!
By right, I mean shop your car to several dealers and have them compete to offer you the highest price. Don't just trade it in to the first dealer. It's basic supply and demand - make it work in your favor.
Dealers know most shoppers are clueless and don't take the time to do this. If you think you're going to get a good deal on your trade-in without shopping it around, you're crazy!
And yes, shopping it around means you have to physically take your car from dealer to dealer and have them appraise its value. Never trust an offer from a dealer who hasn't inspected your vehicle first-hand.
Furthermore, NEVER co-mingle the negotiation of your trade-in with a new car purchase. Keep everything separate or you'll fall into a common (and costly) dealer trap.
How to Figure Out What a Dealer Will Pay
It's nice to have an idea of what a dealer will pay for your car without having to go through the negotiation process first. This will allow you determine if it's even worth selling to a dealer in the first place.
Make sure the listings are from dealers and pay attention to the list price. This price typically has a 20% profit built into it (although some high-volume dealers may limit this to as low as 5 or 10%). If the dealer is listing the car for $20,000, there is usually $4,000 of wiggle room. This doesn't mean the dealer paid $16,000 for the car, however.
After a dealer buys your car, they will incur some costs to fix any damage, repair any mechanical problems and replace worn tires or other accessories. A dealer will usually spend between $250 and $1,000 preparing the vehicle for sale.
So all you need to do to get an idea of what a dealer will pay for your car is to check the listing prices of similar cars, take 80% of that price and subtract $250 to $1,000 (depending on the condition of your vehicle) to get your "rough estimate".
If the car for sale is "factory certified", subtract another $1,000 from the price - this is because dealers invest extra money to get the cars certified.
Let's go through an example. Assume similar "factory certified" cars in your area are listed for $20,000. Take 80% of that - $16,000 - then subtract $1,000 for the certification, then another $250 to $1,000 for dealer preparation fees and you get: $14,000 to $14,750. That's the ballpark figure you'll get if you were to sell your car to a dealership.
Remember, this is only a ball-park figure. To get the true value, you'll need to shop your car around to multiple dealers.
How to Shop Your Used Car to Dealers
When it comes to saving money, the most important rule you need to follow is to Negotiate Everything Seperately. I can't stress this enough! This means NEVER combine your trade-in with the purchase of another vehicle.
Dealers typically make more money on used cars than they do on new ones. They know most car shoppers are mainly focused on the new car and don't do much research on the car they're trading-in. This is a HUGE mistake!
The main tactic dealers use is to bundle the trade-in with the price of the new car. They will give you a great price on the trade-in (over the Blue Book value), and you think you're getting a great deal. What you don't realize is the dealer just jacked up the price on the new car.
By the time the deal is done, you're left confused with all the numbers and think you got a great deal, when in fact, you got ripped off. The way to prevent this is to separate your trade-in negotiation from the new car purchase.
Why It's Important to Shop to Multiple Dealers
Most car buyers lose out hundreds, if not thousands of dollars when they trade in their car while buying a new one. Why? Because they don't take the time to figure out what their car is worth beforehand. Dealers know this, and they have specific tactics to make you think you're getting a good deal when in fact you're getting ripped off.
The only way to know the true value of your used car is to shop it around to multiple dealers. This process does take some time - usually about half a day - but it's worth it. Most people are lazy and can't see that half a day's work may result in a week's pay.
If you don't find out what your car is worth before you try to trade it in, how do you know if you're getting a fair price for it? It's impossible. This is why there's so much money that could be saved during this process - most car buyers just don't want to deal with the hassle.
If someone paid you $1,000 to call and visit a few dealerships, most of you would take that offer. Why not do it when you actually have the opportunity?
Don't ever think for a second that a dealership is doing you a favor by buying your trade-in. This is a huge profit center for them, and whether you're buying a car or not, dealers are always hungry and willing to buy a good used car.
If your current car has less than 80,000 miles and is less than 5 years old, most dealers will be ecstatic to buy it, knowing they can make hundreds or even thousands when they sell it. Here's what you need to do to get dealers to compete and offer you their best price for your trade-in:
Step 1: Prepare Your CarMake sure your car is mechanically sound and cleaned inside and out before you begin this process. Ideally, you'll want to spend no more than a week preparing and shopping your used car before you actually purchase your new one. A dealer will quote you a price for your used car, but if you wait too long, the offer may not be valid anymore.
Step 2: Contact Multiple DealershipsCall several dealerships in your area that sell the same brand of car you own, ask to speak to the person in charge of buying used cars.
Use the following script:
"Hi, I own a very clean [YEAR, MAKE, MODEL] with [# of MILES]. I'm buying a new car to replace it and I'd like to know if you're interested in taking a look at it."
In most cases, the used car manager will ask you to come to the dealership so he can have a look. If not, you just saved yourself a trip to that dealer.
Step 3: Negotiate and CompareAfter you've called at least 2 or 3 dealerships, start visiting each one. When you get to the dealership, tell the used car manager that you're shopping the car to a few dealerships and you'd like to know the best price he can offer you.
Be sure to read the next section How to Negotiate Selling Price for tips on getting the best price.
Step 4: Finalize
After you negotiate price with all the dealers, you'll know the highest price you can get for your car, but you're not done yet. Most states offer a tax credit on your trade-in when you buy a new car, so it makes sense to try to sell your used car at the same dealership you buy from.
You may not get a better offer from that dealer, but you can show them the best offer you got from the other dealer and ask them to match it. In a worst case scenario, they know they can just turn around and sell it to the other dealer for the specified price so they won't be losing money.
Even if the dealer can't match the price, they will try to make it work out so you still end up with a better deal through the use of the tax credit. If for some reason they can't, just sell your car to the dealer that offered you the best price.
How to Negotiate Selling Price
If you followed my advice on how to shop your car to dealers, you should now have several dealers interested in taking a look at your vehicle.
Keep in mind most used car managers will typcially start with a lowball offer to see if you'll take it. When he offers an initial price, tell him that it seems low based on feedback you've gotten from other dealers. Wait for him to offer a better price.
He may ask you what the other dealers offered or how much you would like for the car. Tell him you think the car is worth at least 15% more than what he quoted .
If he says that's too high, ask him how high he thinks it is. If he says your figure is ridiculous, ask him if that means his first offer was the best he could do.
In many cases, he will come back with a slightly higher offer. At this time, point out all the benefits your car has, such as well-maintained records, all the new work you had done recently, and the fact that your car is a 1 owner car - if that's applicable (don't lie about this).
You may go back and forth a bit, and keep mentioning the fact that you'll be shopping the car to other dealers. Used cars are a big profit center for dealers, they're not going to want to lose out on your car. By the time you leave, you should have a pretty good idea of how much your car is worth to that particular dealer.
Not all dealers are the same however. Sometimes one dealer may not need your model as much as the next guy - this is why it's important you repeat the process with multiple dealers.
After you've gotten prices from all the dealers, make a note of your best price and call each one up starting with the worst offer to see if they can beat your best offer . Keep going through that process until you have the best price.
This process should take you about half a day (possibly a full day) to complete, but you're looking at saving some serious cash - depending on your vehicle, it could be thousands. That's certainly worth the effort in my opinion.
What Dealers do With Your Trade-In
Knowing what happens to your car after you trade it in at a dealership can help you get top dollar for it. There are certain types of cars dealers absolutely love to buy and some they hate.
You have to remember dealerships make a good bulk of their profit through the sale of used cars. They actually make more profit on each used car sale than they do on a new car. So that means they're usually eager to buy your trade-in and replenish their used car inventory.
Generally, there are 3 things that dealers can do with your trade-in.
1. Recondition and Sell It
Dealers are always looking for cars they can sell on their lot - but not every car will qualify.
If your vehicle is less than 6 years old and has less than 80,000 miles, it's a good candidate to be resold on the lot. The dealer will recondition it to make sure all the visibilly worn parts are repaired or replaced and that it passes smog tests and any other state requirements.
The vehicle will usually be listed for 15 to 20% above its trade-in value.
If the car is only 3 or 4 years old and has less than 50,000 miles, it's a good candidate to be resold as a certified used vehicle. It will go through a strict multi-point inspection and usually come with an extended warranty. The price premium will add another $1,000 to $1,500 to the retail price.
Dealers simply LOVE late model used cars, so if you have one, make sure you aggressively negotiate with multiple dealers to get the best price.
2. Wholesale It
If a dealer doesn't think the car is a good fit for their used car lot, they will usually try to wholesale it to another dealer.
This usually happens if the vehicle is older or has a lot of miles, or if the car is a different brand than what the dealer sells. For example, if you trade-in a Honda at a Mercedes dealership, they're more likely to wholesale it to a Honda dealer down the road - or sell it to an independent used car lot.
Whenever you're thinking about trading-in your vehicle, make sure you take it to the same brand of dealership. If it's a much older vehicle, consider selling it to an independent used car lot so you cut out the middle man.
A car dealer usually doesn't make much profit when wholesaling a vehicle, so they will try to low-ball you as much as possible when you trade-in your car.
3. Auction It
For the really undesirable vehicles (usually ones that are very old, have high mileage, or are in poor condition), dealers will send them through auctions. This happens if the dealer can't find anyone to wholesale it to in their local market.
Auctions usually result in the smallest profit for dealers, so if you have a car that nobody wants, don't expect to get much for it by trading it in. It's much better to try to sell it to a private party.
Dealers will almost always bid for your trade-in, even if they know they will have to auction it off. Making a couple of hundred dollars is better than nothing, but they will try to give you a very low-ball offer for your vehicle.
Tricks To Watch Out For
Dealers can make a lot of money off your trade-in, and I mean A LOT of money. In fact, selling a used car will usually earn a dealer at least double the profit they make on a new car.
It's no wonder they spend much of their time devising ways to buy your used car on the cheap and make a killing reselling it.
Most car buyers don't think much about their trade-in. They don't take the time to figure out its true wholesale value and so they end up getting screwed most of the time. There are three main tricks dealers use to rip you off on your trade-in, let's take a look at them so you won't fall for it.
Mixing the Trade-In with the Purchase
3 out of 4 new car buyers have a trade-in, and the vast majority negotiate the purchase of their car along with their trade-in. This is one of the biggest mistakes you can make.
When you allow a dealer to combine your trade-in with the purchase, they can play all kinds of shell games and know how to push your hot buttons so you're happy with the deal, even though they've screwed you.
For example, if they see that you're more interested in negotiating the price of the new car, they'll give you a good deal but will rip you off on the trade-in. You got a good price on the new car, so you figure you got a good deal - WRONG!
It works the other way too. If you're concentrating on the price they offer for your trade-in, they'll give you a good deal but rip you off on the price of the new car.
Either way, the best way to defend against this is to separate the purchase of the car from the sale of your trade-in. You should always shop your trade-in to multiple dealers and keep that transaction separate from the purchase of the car.
Another technique many dealers use is to give you a low-ball offer on your trade-in. First, they want to see if you're a true sucker and willing to accept such a low price.
But usually, what it does is cause you to be taken aback by such a low offer. It makes you question the value of your vehicle.
As they increase the price in the back and forth negotiation, it seems like a victory for you - but they started out with such a low price that even with price increases, your trade-in is still way below wholesale value.
Again, the way to defend against this is to shop your trade-in to multiple dealers. You should encounter a dealer willing to pay true wholesale value along the way.
A common method dealers use is to get you to diminish the value of your vehicle using psychological tricks.
They'll have you walk around the car with them as they point out every single scratch, ding, dent, and worn out part. They may utter some comments under their breath - just loud enough for you to hear and make you question the value of your vehicle.
When starting the vehicle, they may pretend to hear a weird noise. Their methods are all designed to prepare you for a low-ball offer.
Just realize what's going on, and stick to your guns. Use my negotiation techniques and don't worry if they try these tricks on you. As long as you shop your trade-in to multiple sources, you will minimize your chances of being ripped off.
States That Allow Trade-in Tax Credit
One major benefit to trading-in your used car is most States give you a tax credit when purchasing a new car.
For example, if your new car costs $40,000 and you have a trade-in worth $10,000, then you only have to pay sales tax only on $30,000. If your sales tax rate is 10% (state plus local municipalities tax), you're looking at savings of $1000 in this particular case.
The following states currently allow a tax credit on your trade-in as of November 2023:
* The Potential Savings is based on a trade-in worth $10,000
|State||Maximum Tax Rate||Potential Savings *|
The only states that DO NOT currently give a tax credit:
District of Columbia
If you live in one of these states, you have more incentive to sell your car to a private party.
Each week, I'll keep you up-to-date on the latest car deals and news that might affect your purchase. This includes...
- Best Rebates, Incentives, and Lease Deals
- Latest Car Buying Scams and Tricks
- The Best & Worst Time to Buy a Car
- Which Cars You Should Avoid