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Trade-ins is the process of using an item, mostly your former car as part payment for a new one. This is a common and acceptable practice in the purchase of new automobiles.

An old car can be exchanged for a new car by adding a lesser amount of money to the value of the old car. Both individuals and business entity can use this form of trade, by giving up the value of the old car which is removed from the cost of the new car.

The guiding principle of this kind of operations is selling your old car to a dealer and adding extra cash to the amount you get from selling the car to purchase a new one. Trade-ins might not be the best option at times but at the same time, they can save you cost. It has both advantages and disadvantages.

Advantages of Trade-in

  • Saves Tax: Money on sales tax is reduced by trading in a vehicle for another. This means that the value of the tax paid on the sales is calculated only after removing the value of the old car. If the total cost of the new car is $40,000 and the value of the old car is $10,000, the sales tax is only calculated on the outstanding $30,000.
  • Smoother process: Trade-in with the car dealer you are getting a new car from makes the process smoother. The process requires you to identify a car dealer that has the choice of car you want and accepts to buy your old car.

The old car is being evaluated mostly by test driving to determine its worth, after determining this, the deal is finalized by you signing over the car’s title.

  • Convenient Transaction: Selling your car to another dealer that is different from where you want to buy a new car makes the process of getting a new car from a different dealer, but trading and buying in the same place facilitates the process without waste of time.

Trade-in allows you to have the sale of the old car and the purchase of the new one in one single place. All it involves is having to drive the old car to the dealer’s shop and driving away from the new one after all requirements have been met.

Disadvantages of Trade-in

Trading in a car also comes with its disadvantages. Some of the common causes why trading in a car is not always recommended are:

  • Lesser price rate: A car dealer is likely to offer low payment for your car. The car can be under-priced or undervalued by the dealer compared to the price you will get from a private sale.

Car dealers offer to buy cars at the wholesale value which is going to be lower than the price you will get if you sell to a private individual. If you can get to sell your car yourself at a higher price than what is being offered by the car dealer it saves you the extra cost of buying a new car at a higher rate.

  • It can be confusing: If you are trading in a vehicle as well as obtaining a new loan from the car dealer for a new vehicle, it can be confusing. The three key components of car deals which are, the price of the new car, the trade-in allowance and the terms of the new loan can add confusion to the deal and bring about a chance for extortion.