How to get a good vehicle trade-in deal

A vehicle trade-in means selling your car to a vehicle dealer to help finance the purchase of another car, either new or second-hand.

While this is a quick and easy way to upgrade your wheels, you may be caught out with an unfair deal. We explain what to look out for.

Tip: Saving for new wheels? Make sure your debt is manageable – learn more about debt consolidation today.

Why is loss inevitable when you trade in your car?

The loss you incur when trading in a car is due to the difference between what you originally paid for the vehicle, and the value assigned to it at when you trade it in, says Jamie Surkont, CEO of getWorth. This excludes finance and maintenance costs.

“When you buy a car, you can expect to incur a loss, but that loss should be acceptable to you because you gain ownership benefits – for example, being able to get to work, or travel somewhere on holiday,” says Surkont.

There are ways to minimise the loss, however. These include:

• Making sure the new car price is fair.
• Making sure the trade-in price is fair.
• Only accepting financial terms that are realistic.
• Choosing the right car for your needs. For example, don't buy an expensive luxury car if you plan to drive 50,000km a year, or a luxury SUV to transport building materials. 

Factors that determine price

Determining a “fair price” can be difficult because there are so many variables involved.

The recommended trade price is not necessarily the price you can expect for your trade-in, since the value depends on market demand, stock availability, and the perceived worth of the vehicle at a particular point in time.

Stephen De Blanche, chief revenue officer for TransUnion, says there are numerous factors that determine your vehicle’s value in the market. “These include make, model, mileage, condition, accident history, service history, and even the colour of the vehicle,” he says.

De Blanche recommends asking a dealer how many vehicles of the same make and model as yours have been sold over the past six months, and at what retail price.

“Find out if the vehicle is freely available in the marketplace as a used car, and if your accessories will attract any additional value at the trade-in point,” he recommends.

Negotiating finance terms

When trading in your vehicle, you’ll typically think about the premium you can afford each month – but this is only one part of the equation, says Surkont.

“You may be paying low premiums, but the finance house has extended the payment term over 72 months with a residual or balloon payment at the end of the term,” he says. “Consider the actual residual value of your car in three years at an estimated mileage range, as this will determine a significant proportion of the loss you suffer.”

De Blanche says a balloon payment needs to be settled with your bank before you can enter the buying market again.

“Ideally, a trade-in should be able to at least settle the outstanding balance on an existing financing agreement,” he points out. “If the amount owing on the vehicle is greater than the trade-in value, the dealer will have to offer a greater discount to offset the amount still owing to the bank.”

Alternatively, says Surkont, the shortfall can be added to your new vehicle debt – but this may expose you financially.

Tips when trading in your vehicle

Preparation will help you secure the best possible price when trading in your vehicle.

“Have your car valeted, inside and out, and ensure your vehicle’s service book is up to date,” says De Blanche.

“If you’ve had any accidents, you’re obliged to disclose this on the trade-in declaration and have the appropriate repair invoices to hand, along with a copy of your bank settlement letter and NATIS documents. Ensure all tools, manuals, and spare wheels are available, too.”

Before you start viewing replacement wheels, check your credit report to understand what you can realistically afford to pay for a car. “This will guard you against emotional buying and agreeing to unfavourable finance terms,” says Surkont.

Tip: Check your credit score and find out whether you qualify for vehicle financing.