When it’s time for an upgrade, most vehicle owners will automatically include trading in a car as standard procedure, without giving little thought to any other options or how it may affect their new vehicle finance. The alternative to a trade-in is to sell the vehicle. Should you sell or should you trade-in? Does the type of vehicle make a difference? What should you expect when trading in a car?
Jade Finance provides an explanation of trading in a car, compares with selling privately and outlines possible impacts on the new and current car loan. Ensuring buyers are fully aware of their options and can proceed to secure the most advantageous and affordable new vehicle purchase with finance.
Trading in a Car Compared with Private Sale
Vehicle owners face two options with their current vehicle when buying new. They can use the current vehicle as a trade-in on the new, or they can sell the current vehicle. The procedure to trade an existing on a new vehicle is fairly straightforward. Present the vehicle to the dealer when telling them what vehicle you are looking to buy from them. You should tell the dealer if the vehicle is under finance and if so, how much is still owing. This can be significant as the dealer will be aware that most buyers will want any return on their current vehicle to cover any outstanding loan balance.
The dealer will assess the vehicle, this usually only takes a few minutes and is carried out while the buyer inspects the new vehicle being considered. The dealer prepares their offer for the new vehicle price, taking into account the trade. They may offer the option of cash for the current car or a deduction on the price of the new vehicle. Often a better deal can be secured with the price deduction.
The dealer will be working out a trade-in price on a value which is typically wholesale or less. The offer may also reflect how much room-to-move the dealer has on the new vehicle price and/or the way they intend to on-sell the vehicle. They may sell it in their own used car section or sell it to another dealer through the motor vehicle trade market.
Compared with being tasked with the selling the vehicle, many buyers consider a trade-in a much better option. The process of selling a car can be onerous – preparing online advertisements, dealing with prospective buyers and avoiding frauds. But the price received by selling privately can be higher than the trade-in value.
Dealers pay wholesale, private buyers pay retail. When selling yourself, having long rego and the vehicle in good condition can attract a better price. These aspects are less relevant to dealers. When a sale is agreed, the owner signs the registration transfer, and it is up to the new owner to affect the change.
Trading in a Car Under Finance
If the car you are trading is still under finance, you are responsible for finalising the loan. Dealers will be checking on the PPSR to see if a vehicle is under finance. A payout figure will need to be obtained as break fees can apply when a loan is finalised early.
The borrower/new car buyer can decide to make the payment in cash or it can be possible to arrange for the dealer to make the payment from the trade-in value in some instances. If finance is owed and the plan is to cover it with the trade-in, this will mean that the full trade-in amount won’t be deducted from the new car price.
Effect of Trading in a Car on New Vehicle Finance
Where there is no money owed on a trade-in, the buyer can realise a better result with the new vehicle finance. For starters, the trade-in amount reduces the price, the total finance needed and therefore the monthly payment.
Essentially the trade-in is the deposit and reduces the loan to value ratio – the amount borrowed compared with the value of the vehicle. While the borrower is taking out a loan for the full amount they need to pay, they are not borrowing the full value of the vehicle. Lenders can see this as a positive, a lower risk, and may offer a better interest rate.
To calculate the difference in repayments on different Secured Car Loans and business vehicle finance, use our Finance Calculators.
Businesses may need to consider the tax implications of using a trade-in to reduce the loan required. If using the trade as a deposit and reducing the financing, will this impact tax deductions? If taking the trade in cash, it may need to be declared in income and be subject to income tax. These issues should be discussed with an accountant to determine the best way to proceed.
What to Consider When Trading in a Car
The biggest unknown with a trade-in is what you will be offered. For many car owners, it won’t be as much as they are expecting. Perusing the second-hand market for indications can lead to misleading indications. These may be prices from used car dealers or private sellers. Prices which can differ significantly from trade-in offers. Consider if selling the vehicle online privately may be a workable option for you.
For quotes on new car finance prior to purchase, ask our brokers for repayments based on different loan amounts to assess your options. We may be able to access our motor vehicle trade connections to obtain a trade-in estimate for your planning purposes.
When trading in a car and requiring new car finance, contact Jade Finance to request a quote and professional assistance.
DISCLAIMER: NO LIABILITY IS ACCEPTED IF ERRORS OR MISREPRESENTATIONS ARE FOUND IN THIS ARTICLE. THE ARTICLE IS PREPARED AND PRESENTED FOR GENERAL INFORMATIVE PURPOSES AND IS NOT INTENDED TO BE THE SOLE SOURCE OF INFORMATION FOR MAKING FINANCIAL DECISIONS. THOSE REQUIRING GUIDANCE AND ADVICE SHOULD CONSULT A FINANCIAL ADVISOR.
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