One of the financial facts of buying a car is the more you put down, the less you have to pay to drive the car home. You might receive more favorable financing terms or the dealership reduces the sticker price of the vehicle. However, not all down payments come in the form of cash. You can also trade in a car as a down payment. The million dollar question is how do you do it?
Let’s assume you owe $14,000 on a car you want to trade it in for a newer version of the same make and model or a completely different class of car. How do you trade in the car that you owe 14 grand on as a down payment for the new car of your dreams?
Calculate the Value of the Car
When you trade in a vehicle, the dealership determines the value of your vehicle and then deducts the amount of money you owe on the car. In the example we used, the customer owed $14,000 on the auto loan. If both parties agree the vehicle is worth $20,000, the customer can apply a down payment of $6,000 on the purchase of a new car. The haggling is not over the amount owed on the loan, but how much the trade in is worth. Look at a car trade in value as the equity you have on the vehicle. The equity goes towards the down payment.
How to Determine What Your Car is Worth
The sales representative at the auto dealership will meet with you armed with data confirming the worth of your trade in vehicle. You must come to the meeting equally prepared, which means performing research as to the worth of your car. Online resources such as Edmunds and Kelley Blue Book offer detailed value analysis screening tools that take into account options, condition, mileage, and number of owners. Take the car into a licensed mechanic to determine the condition of the vehicle. After learning the trade in value for your car, print the results for use during negotiations. The more information you present, the less likely the sales rep will low ball your offer.
Have Financing the Car a Done Deal
The amount of trade in equity you need to put down also depends on how much the new car you want to purchase is worth. The $6,000 equity mention above should be a solid down payment of a car worth $22,000. However, you might need to plunk down some cash to cover the remaining amount of the down payment on a higher end vehicle. Some dealers waive the additional cash requirement if customers either come to the dealership with financing in place or possess excellent credit to receive a loan from the dealer finance department. The best strategy is to come to the negotiating table with car financing already in place.
Negotiate Like a Champ
How to trade in a car as a down payment involves two separate negotiations. You have to negotiate to determine what the trade in is worth, as well as haggle over the price of the new car offered by the dealership. As we mentioned, the first negotiations over trade in value should not take long, as both parties have evidence of the trade in car’s value. However, haggling over the price of the new car requires the same negotiating skills used for a straight up purchase. We recommend waiting until the end of a month when sales reps are more likely to cut deals to reach quotas and earn more commissions. You should also ask for cash back incentives, as well as rebates that reduce the sticker price of the new car.
Trading in a car has several advantages that include using the value of the trade in as a down payment on a new car. You can also benefit from a lower purchase price of the new car by offering equity in the sales transaction. Trade in transactions typically require less time to complete, as cash does not exchange hands. You no longer have to be responsible for repairs and maintenance, as the dealership is accountable for the condition of the trade in car.
How to trade in a car as a down payment is a fiscally sound idea, as long as you know how to calculate the value of the trade in and determine the cost of the new car offered by the dealer.