If you have an existing vehicle but are planning to buy or finance a new one any time in the near future, you need know the best way to leverage the value of your used car. That value depends on the market in which you plan to sell the vehicle.
- Private Party Value: this is how much you can expect a private buyer to pay for the vehicle.
- Trade-In Value: this is how much you can expect a dealer to give you in trade equity for the vehicle. This is always less than private party value, because the dealer wants the car effectively at wholesale — a price low enough to allow them to turn the car around for a profit.
Both of these values vary depending on location, make/model, trim level, and condition.
What This Means to The Auto Loan Applicant
If, like most Americans, you’re planning to finance your new vehicle, then you’ll want to offer a down payment of 20% ideally, and 10% at the very least. Obviously a lot of people just don’t have that kind of cash just sitting around, nor do they have the time or room in their monthly budget to save it up either. This is where trade equity comes into play.
On the one hand, you can go to a dealer and offer your existing as a trade-in, its worth being used toward a down payment. This is relatively effortless on your part, and a lot of the time your existing vehicle will be worth 15-20% of your new one. This is also how a lot of dealers substantiate their claims of offering zero down car loans, as you don’t actually have to put down any cash. If the car lender requires a minimum down payment amount, some no money down car dealers will actually give you more for your trade-in than it’s worth, thereby qualifying you for the loan. That said, they usually roll the extra money they gave you for your old car into the price of the new one.
On the other hand, if you want to wring the most money out of your vehicular asset, you can put in the time and effort to advertise and sell your existing car on the private market. This will entail putting up ads in various classifieds like Craiglist or Autotrader, spreading the word among coworkers that you have a car to sell, and even printing out flyers to put up in local establishments like bars, coffee houses, and potentially the breakroom at your place of work. Then you can use the cash from the sale toward the down payment on your new vehicle.
So why go to all the extra effort? Let’s look at an example. Say your existing car is a 2004 Audi S4 with 50,000 miles in Good condition, and you live in Buncombe County, North Carolina. If we plug this vehicle into Kelley Blue Book’s online system, here’s what we get:
- Trade-in Value: $15,000
- Private Party Value: $17,465
In this scenario, you would net nearly $2500 more from selling the vehicle on the private market (if you could get the KBB-suggested price). That’s a serious extra chunk of change to put down on your new vehicle, and definitely worth the effort of selling the car yourself. And if you have trouble selling the car on the private market, you can always opt to trade it in.
