Selling a Used Car Versus Trading It In - Which is Best?

You've decided to buy a new car. The natural question is what to do with your current car. You've got a couple options, so you need to understand the relative value of selling a used car versus trading it in when you buy.
The good news is that understanding the trade-in math can help put a nice chunk of change in your pocket. The bad news is that the math is not quite as straightforward as you might think.


Let's say you have a car that you can sell for privately for $5,000. And let's say you're in the market for a $25,000 new car. Should you sell your car yourself, or should you trade it in when you buy the new one?
You might put more cash in your pocket by selling it yourself, but your net gain on the sale might be lower than if you traded it in. That might sound strange, but it's really not. The missing piece of the puzzle is the impact of sales tax.
When you buy a new car, you have to pay sales tax only on the difference between the purchase price of the car and the trade-in amount.
So if you can find a dealer who will give you $10,000 for your trade-in (and he very well might in order to move a car off of his lot), you'll owe tax on $15,000. If the tax rate is six percent, that's $900. Consider that savings when you're deciding whether to sell your used car on your own.
If you sold your car on your own, you'd have to sell it for $10,000 plus $900 (your tax savings) to equal what your dealer was going to give you. That's a pretty high hurdle.but that's really only one consideration.
The other big thing to consider is the hassle of selling on your own, or to look at the other side of the coin, the convenience of letting your dealer handle the entire transaction.
If you sell on your own, you have to advertise the vehicle and try to market it in your area. Do you know the right price to charge? What sells where you are, and what does not? You'll also have to show it to interested parties, wait while people let their mechanic look at it, and so on. You'll have to handle all of the paperwork yourself, transfer the title appropriately and meet any requirements your state has for people who sell vehicles.
If you trade in your car, you're pretty much selling your car to the dealer. He does all the paperwork, and he's very likely to offer you more for the car than you'd get from a private buyer. You could have the entire transaction done the day you buy your new car, and never have to deal with another headache.
Selling your own used car and trading it in are both good strategies, and you can make out pretty well with either. But before jump into the seller pool, consider very carefully whether it's worth the bother, or whether trading will net you more money.