When Is The Best Time To Trade In a Car?
Hanna Kielar5-minute read
UPDATED: December 13, 2022
Trading in your current car is the most convenient way to get yourself into a new car. If you want to get the most out of your car’s value, it’s worth taking a moment to assess when it’s a good time to trade in your car.
In this guide, we’ll cover a range of considerations that should go into your decision, including your loan status, its terms, the time of year and the mileage and condition of your vehicle.
When Should I Trade In My Car For A New Car?
It’s becoming increasingly clear that the pandemic has altered the auto industry. Used car prices in the U.S. have increased 152% since March 2020, according to the U.S. Bureau of Labor Statistics. You’ve likely felt the pull to cash in on the rising value of your used car.
If so, you can maximize that cash value by keeping the following influencing factors in mind.
Early In Year
The advice is mixed about this. Some sites like Progressive suggest waiting to trade at a dealership until the end of the year, while others suggest the earlier in the year is better.
Based on that confusing advice, it pays if you can be more strategic based on the type of car you have. AWD vehicles are likely to be in high demand in the fall before the snow starts. Convertibles significantly rise in value as the sun becomes stronger. Take the time to consider when your vehicle will be most valuable and advertise a month or two before that season starts. On the other hand, if you are looking to trade in for a convertible, you may get a better deal in the colder weather when there is less demand.
End Of The Calendar Year
If you intend to trade in to purchase a new car, the end of the calendar year is one of the best times to buy a car. As manufacturers close out the production of the current model year, dealerships are preparing to clear inventory to make room for the new model year. And with year-end purchase incentives and rebates in abundance, you’re likely to get a better deal on your new car, as well.
You Have Positive Equity
Equity is the difference between the resale value of your car and how much you owe on its auto loan. It’s possible that the effects of the pandemic have increased the value of your car to be much higher than what you owe on it.
In this case, selling your car, rather than trading it in, could be a good idea. You can use the positive equity as a down payment on the price of your next car.
Relatively Low Mileage
Americans drove an average of 14,263 miles per year in 2019, the last “normal” year of driving. It’s easy to calculate if you stand above or below average in your driving habits, which also relates to wear and tear on your car. Just multiply the total years of ownership from its model year by 14,263.
If your odometer reads above that number, you’ve put an above average amount of miles on your car, which can reduce its value. If your odometer is below that number, you have good mileage for a used car and are more likely to get an above average payout.
The best time economically to trade in your car will also depend on which warranties are still in play. Many manufacturer warranties extend to 3 years or 36,000 miles, whichever comes first. Check to see if your car is still under manufacturer’s warranty, and be sure to negotiate a better trade-in deal if this is the case.
When You Really Shouldn’t Trade In Your Car
Of course, there will be circumstances in which trading in your vehicle is not a good idea. If any of these circumstances apply to you, it’s worth calculating your loan-to-value ratio to make sure you stand to make a profit, rather than lose money, on a trade-in. Here are some factors that might work against a trade-in.
Your Car Is New
The minute you drive off the lot, your car has lost 10% of its value. New cars depreciate at significantly higher rates than used cars, losing half their value in the first 5 years alone. If you’re in the first year of ownership, expect your car to depreciate up to 20%.
You can compare your existing loan balance with the Kelley Blue Book value on your vehicle to make a more quantifiable decision, but we recommend waiting until you’ve owned your car for 2 – 3 years before considering trading it in.
You’re Upside Down On A Car Loan
Earlier we talked about positive equity. The other side of that, negative equity, happens when you owe more money than your car is worth. You can find out if you’re upside down on your loan by looking up your remaining loan balance and comparing it to the Kelley Blue Book value of your car.
If you have negative equity in your vehicle, a trade-in will mean that you’ll still have to pay off the remaining balance of a vehicle you no longer own. Better to wait until you have positive equity on the car or you’ve paid off your loan before considering a trade-in.
Your Credit Score Has Dipped
If you missed a couple of monthly payments or have taken out other significant loans since your current auto loan, it’s possible your credit score has taken a hit.
The lower your credit score, the higher you can expect your new interest rate to be. Make sure that a higher interest rate isn’t canceling out your potential savings. Take 6 months to focus on building up to the credit score needed to buy a car.
Your Loan Has Prepayment Penalties
Read the terms and conditions on your existing auto loan. Prepayment penalties are exactly what they sound like – if you pay off your loan earlier than originally agreed upon, you’ll face a penalty fee. Still, the payoff may be worth it, so long as you know and factor in all the costs associated with trading in your car.
Trading Vs. Selling To A Private Party
If you have the benefit of time on your hands, selling to a private party would offer a bigger payout on your car. That said, you need to draft up an ad, front the cost of any advertising, coordinate and meet with potential buyers to test-drive your car, and risk an unsecured financial transaction. It will surely take you much longer than a day to sell your car and buy a new one, unlike trading in a car.
Trading your car will save you time, though you often pay for the convenience with a lower trade-in value. Dealerships have to ensure that they can make a profit off your sale in order to pay their employees and cover overhead costs. That means they need to sell your car for more than they pay you to continue making trade-ins so convenient for you. But dealerships will handle all the paperwork necessary to trade in your car and can help you get into another vehicle sometimes on the same day.
The Bottom Line: Strategize Your Trade-In For Maximum Profits
Once you know how the condition and mileage of your vehicle affects its value, you can decide if it's worth waiting for a better time to sell. If you decide to sell your car to a dealer, make sure you maximize profits by trading in at the end of the calendar year or during the spring and summer months.
Now what? Your next step in your decision-making process will be to calculate how much your car is worth.
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