Understanding the Economics of Trading In or Selling Your Vehicle

Almost everyone faces the decision to purchase a new means of transportation at one time or another. Suppose you already own a vehicle and have decided that you need an upgrade. Be it something with more seating or storage, better fuel economy, or just something that better appeals to your preferences and style, trading in or selling your vehicle to offset the costs of a new car might be something you’re considering.

Whether you’re looking to “trade in to trade up,” or you’ve finally told yourself that “It’s time to sell my car,” there’s quite a bit of information that relates to the economics of this matter. Today, we’ll be going over the different aspects of this situation, such as resale value, depreciation, and equity. We hope to help you decide what works best for you by providing a detailed overview of the economics of selling a vehicle.

Depreciation & Resale Value

Before we dive into such topics as equity, we must establish the two main factors that will determine the current value of your vehicle. How much your car is currently worth is known as its resale value, which will vary depending on your car’s age and its history; these two factors create what’s known as depreciation.

What Is Depreciation?

Depreciation is when the original value of your car lowers each year. While every car experiences depreciation, this process is non-linear and depends on the make and model. Some depreciate faster, while others can retain a certain amount of their value for a considerable length of time.

The depreciation process begins as soon as you purchase the car and drive it home. The rate at which your car depreciates will differ, but on average, it will retain close to 75% of its resale value after two to three years. Most vehicles don’t drop below the threshold of 50% of their original value until they’ve been on the road for close to six to eight years.

As you can see, there are two ways to look at this process. A vehicle that has depreciated by a considerable amount can make for an excellent bargain if you want to obtain an affordable used car. However, it also means you will get less money back when you go to sell or trade-in your current vehicle.

Obtaining information regarding its current market value can make a substantial difference if you’re looking to sell your car. Publications such as Kelley Blue Book list the market value of most makes and models on the road, giving you a ballpark figure of what your vehicle is worth before you go to sell. Other determining factors that affect your vehicle’s current value include its history, major repairs, and accidents, which we will take into account when we value your car.

Understanding How Positive and Negative Equity Work

Suppose you’ve seen an advertisement offering you the opportunity to trade in your vehicle as a form of equity to offset the cost of a new car. In that case, it may seem like a tempting prospect. You get to unload what you’re currently driving and have the opportunity to get behind the wheel of something new. What’s not to enjoy from this potential process?

Well, the truth is that equity comes in two different forms: positive and negative. Before you consider trading in your car, you must know its current value and determine whether or not it represents positive or negative equity. Let’s examine both to make things somewhat more transparent.

What Is Positive Equity?

Whether or not you have positive equity in your car can depend on a few factors. If you own your vehicle outright, that is, if you don’t owe any money on an outstanding loan that you used to obtain the car, your positive equity is 100%. This is the best situation to be in. If your current vehicle is in good shape, has been appropriately maintained, and has a clean history, you can expect to get the full market value when you trade it in.

If you obtained your car through financing, such as a loan from your bank, you might still have positive equity even if the loan hasn’t been paid off in full. Let’s say, for instance, the vehicle you’re driving has a current market value of $14,000, but you still have $6,000 left on the loan you obtained to purchase it. Your positive equity is $8,000 since the remainder of the $14,000 is needed to pay off the loan.

What Is Negative Equity?

Now that we’ve established positive equity and how it pertains to your vehicle, we’ll explore negative equity. As we did for positive equity, a hypothetical situation is warranted to explain the process thoroughly. For instance, if the value of the vehicle is still $14,000, but you have $16,000 left on your outstanding loan, this is what constitutes negative equity. You will need to pay the $2,000 difference when you sell the vehicle.

Having a vehicle with negative equity isn’t necessarily a bad thing, and depending on the situation that you find yourself in, trading in might still be in your best interest. If your current method of transportation is unreliable and in continuous need of upkeep and repairs or offers less than suitable fuel economy for your daily commute, trading it in can mean saving money in the long term.

If you have a vehicle with negative equity, you can still trade your vehicle at our dealership. We can even roll over the negative equity into a new car loan, depending on the situation. You should be aware, however, that if this option isn’t available, you will have to make a lump sum or continued payments so the original lender will get their money back.

Trading Your Vehicle In vs Private Sales

With the varying factors that establish equity thoroughly explained, you might think that rather than trade in your current method of transportation, it may seem more ideal to try to sell your vehicle in a private sale. While this is undoubtedly an option, it can often be much more trouble than it’s worth.

Engaging in a private sale usually means spending several weeks finding a prospective buyer and dealing with people who are trying to underbid you or even scam you. The process of getting a vehicle ready for a private sale also takes a significant amount of time and money. Detailing, having a CARFAX report prepared for prospective buyers, and having the car inspected beforehand can make the costs add up rather quickly. Bringing your vehicle to our dealership means getting an instant offer and working with a financing department that can advise you on your best options.

Trading in at Edwards Chevrolet 280

Trading in a car is undoubtedly more complex than you might have realized initially. This is why at Edwards Chevrolet 280, we’ll go over the process with you. Whether you’re looking for a simple cash offer or are interested in trading in for something new, our financing department will work closely with you and examine the circumstances of your situation to ensure that you get the best offer that works for you. At our dealership, you’ll find an unparalleled selection of new and used vehicles that are held to the highest standards of quality and will allow you to get the most out of each mile you drive.

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