Pros and Cons of Trading In a Vehicle
Here are some advantages of trading in a vehicle:
- Quick turnover — you get rid of (and get credit for) your vehicle quickly, allowing you to get a replacement vehicle that you need fast.
- Fewer responsibilities — you incur fewer legal obligations by trading a vehicle than by selling one on your own, although you may still have some responsibilities depending on the laws in your state.
- No ill will — there is little chance of harming your company's reputation if you trade to a dealer. Selling an unreliable vehicle to someone could destroy your reputation as a credible business person.
- Lower transaction costs — it usually take less time to trade in a vehicle than to sell one, although you may have to try a few places to get the best offer for your trade. You're also much less likely to encounter problems like being paid with a worthless check. And strange people won't be calling on you at strange hours asking for a test drive.
- Possible lower sales/use tax on purchase — in some states, when you trade in your vehicle to a dealer and purchase another car as part of a single transaction, the tax on the new vehicle is computed as the price of the new vehicle minus the trade-in value of your old vehicle.
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In a state with a 7 percent sales tax applicable to retail sales of vehicles, you trade your old car, valued at $5,000, on a new $15,000 car. The sales tax due will be $700 [($15,000 - $5,000) x .07)], rather than $1,050 [$15,000 x .07], which would be due on the purchase (without trade-in) of the same car.
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Disadvantages of trading include:
- Price — you probably won't get as high a price for the vehicle as you would by selling it yourself.
- No cash — trading is limited to cases where you're getting a replacement vehicle. Also keep in mind that your selection of a replacement vehicle will probably be limited to the inventory of models offered where you trade your vehicle.
- Negotiation — you'll probably be negotiating against someone who understands cars, and the car business, better than you do.
- Availability — trading may not be a viable option if your vehicle is too old, has too much mileage, or is a unique vehicle.
If you've decided that trading in your vehicle is the way to go, see our discussion of getting the best price for your vehicle.
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