3 Hidden Costs of Trading in a Car
When you arrive at a dealership with the purpose of trading in a car, it is important to be knowledgeable of some unexpected expenses that may arise. This guide highlights common expenses that can be incurred when trading a vehicle. By completing research on the value of your trade-in vehicle before visiting the dealership, you can help avoid some of these hidden costs. To get an idea of the value of your car before visiting the dealership, make use of a vehicle valuation tool like Kelley Blue Book, and take note that dealerships like to purchase trade-ins for as close to the fair trade-in value as possible. When you need a price quote on a new vehicle and are considering trading in your current car, make use of the resources available on CarsDirect to get competitive price quotes on new and used cars from local dealerships. Below are common hidden costs when trading a car:
- Financed Negative Equity: If a dealership states “we will pay off your trade no matter what you owe,” the dealership is running a misleading advertisement that could cost you thousands, or even tens of thousands of dollars. As there are few restrictions on car trade in rules and the disclosures necessary on these advertisements, the dealership is leading you to believe they will give you the full payoff amount for your vehicle. In reality, the dealership is assigning an actual cash value to your vehicle, just like a normal trade-in transaction. In turn, any difference between the actual cash value and the payoff amount will be rolled into your next loan. Yes, your current balance is being paid off, but only at the expense of financing the remaining balance on your new loan. This is a poor financial decision to make, and it can only be recommended if you experience frequent break downs with your current car.
- Minimum Trade Allowances: Another common trade-in advertisement that can cost you thousands involves dealerships that guarantee a minimum amount for your trade, even if it does not run. Say, for example, a dealership is offering $4,000 minimum car trade in. Most vehicles offered for trade are worth well over $4,000, so this $4,000 guarantee will apply to few customers. The allure of a minimum trade allowance will bring to the dealership some customers with cars that are practically worthless. In order to compensate for the guaranteed trade allowance, the price of all used cars could be raised. This makes it more difficult to negotiate a good deal on a used vehicle. You may also see these sales advertised as “push, pull and drag” events.
- Documentation Fees: Almost all dealerships charge a documentation fee when you purchase a vehicle, whether or not you have a trade in. Some states strictly regulate this fee, while others allow a dealership to charge whatever they see fit. A dealership may give you a great deal on the car but try to charge a $500 documentation fee. When possible, try to negotiate the documentation fee to $200 or less, or try to get rid of the fee altogether. It is easy profit for the dealership, and documentation fees do not include things like title or registration, which must be billed as a separate line item.
Related Questions and Answers
Is the Trade In Value of a Car Less than the Blue Book Value?
The trade in value of a car refers to the amount a dealer considers your car to be worth, when in the process of selling you another car. This means your car is part payment for the new car you want to buy. On the other hand, the Blue Book value is a consumer guide value meant to give you an idea of a true estimate of your car’s worth. Since the dealer is in business to make a profit, they will always offer a lower trade in value so that they can make some money by selling the car you will leave with them. This being so, you will almost always find that your trade in value will be less than the Blue Book value.