Couple trades their car in at the dealership.

How to Trade In a Car: A Complete Guide

Hanna Kielar4-minute read
March 04, 2022

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Whether you’ve found yourself needing a better commuter car or are ready to take the electrifying plunge into affordable EVs, trading in a used car for another used car that better fits your needs is more streamlined than ever.

The key benefit of trade-ins is the convenience of a one-stop shop. Dealerships will complete all the paperwork for you, work with your lender, and effectively allow you to walk in and out with a new, or new-to-you, vehicle.

Let’s take a look at how to trade in a car and get the most money possible.

When Can I Trade In My Car?

Technically, you can trade in a car any time as long as the dealership is willing to accept it. That said, dealerships typically won't accept junk cars that they can't sell wholesale or clean up and sell on their lots.

That being said, only you know what you need. It may not be financially beneficial to trade in a car early in a loan or lease agreement. You’ll be on the hook for the difference between the trade in value and what you owe on your loan.

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How Trade-Ins Work Step-By-Step

The process of trading in a car is actually quite simple. The best way to trade in a car is to start with some online research, especially if you have a car with a loan.

Step 1: Estimate Your Trade-In Car's Value

Researching the value of your trade-in vehicle before you arrive at the dealership is critical. It provides a baseline so you can more effectively negotiate the trade – and know when to walk. The trade-in value of a car depends on several factors:

  • Mileage: Americans drove an average of 14,263 miles per year in 2019. Divide the number on your odometer by the number of years on the life of the car. The value of your car will partly depend on if your car has relatively low or high mileage.
  • Vehicle age: Cars lose 20% of their value in the first year alone, with a net total of 60% of value lost within the first 5 years.
  • Condition of the vehicle: The better the condition of your car, regardless of age or mileage, the greater its value may be. These days it's easy for potential buyers to discover if your car has been damaged in the past, so it's always better to be upfront.

It’s easy to use online tools to get a quick glimpse into how much your car is worth. Sites like Kelly Blue Book or Edmunds.com can provide you with a fair market value for your vehicle.

Step 2: Collect Your Documents

When you trade in a car, be prepared to provide the following key documents to both assess value and process a sale:

  • Vehicle title: Be sure to have the original title to your vehicle in hand as proof of ownership.
  • Vehicle registration: People usually keep DMV registration in their glove box for easy access. Make sure you have it ready to hand over.
  • Driver’s license: Arguably, the easiest document to find, you'll need your license to test drive or purchase another car.
  • Auto loan information: If you’re making loan payments, make sure you write down your loan account number and outstanding balance. The dealership can use your trade-in value to pay off the balance and apply any leftover positive equity as a down payment on your next vehicle.
  • Maintenance care: While you can see the maintenance history on your vehicle history report, it’s still helpful to bring a record of your maintenance, especially if there’s more detailed information on any major system replacements.
  • All vehicle keys: You'll need to hand them over when you trade the car in. Got a second key? Even better.

If you’re planning to get an auto loan for your “new” vehicle, be prepared with proof of income, residence and down payment, among other things.

Step 3: Schedule Dealership Appraisals

Start online to get offer quotes from dealerships by emailing, calling or scheduling a physical inspection of your car at the dealership.

Remember that values listed in resources like Kelley Blue Book are fair market values, which is what another driver will pay for the car. The dealership will pay trade-in values, which are typically lower, because they have to make a profit, too. Consider the difference in profit as the cost to pay for convenience.

Step 4: Choose An Offer

From here, you can begin to compare offers. Be sure to negotiate the trade-in value of your current vehicle and the purchase price of your new car separately to make sure you’re getting the best deal. While you can trade in a financed car, you’re also going to need to factor in your outstanding loan balance when selecting an offer.

When you have positive equity in your current car, that means you owe less on your loan than the car is worth. You can put that equity toward a down payment on your next vehicle.

You may have negative equity in your vehicle, meaning that the amount of money you owe on your car loan is greater than the car's value. For example, if your car is worth $6,000 and you owe $7,000 on the loan, you have negative equity of $1,000.

If you have negative equity, be prepared to pay the difference out of pocket or consider waiting until you've paid off more of the loan before trading the vehicle in. Avoid rolling that $1,000 into a new car loan, as you’ll just be paying double the interest and likely immediately have another upside-down loan.

Can You Trade In Your Car For A Lease?

You can absolutely trade in your current car for a leased vehicle. That said, while a trade-in will hopefully have positive equity, a leased vehicle comes with lease-end costs, especially if you exceed the mileage limits. Be prepared to pay out of pocket for those lease fees.

The Bottom Line: Get The Best Offer On Your Trade-In

Do your research. It's easier than ever to find out the value of a trade-in. Make sure you talk with several car dealerships and choose the best offer. If you have negative equity on your car, it may make more financial sense to wait to pay off the loan. Remember, you can always walk away from any offer. As the buyer, you have the final say.

If you’d rather have a line of separation between each deal, consider selling your car outright with an instant cash offer.

What's your car worth?

Find out the value of your vehicle, instantly.

What's your car worth?

Get a great offer on your car, instantly.

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Hanna Kielar

Hanna Kielar is a Section Editor for Rocket Auto℠, RocketHQ℠, and Rocket Loans® with a focus on personal finance, automotive, and personal loans. She has a B.A. in Professional Writing from Michigan State University.