Explain trading a car in, please

Mods, I’m not sure if this is more a factual question or an opinion one, so please forgive me if you think this is more GQ than IMHO.

Knowledgeable dopers, please give me advice about when to trade in my car and how that works like you would a bright twelve-year-old.

Until my current vehicle, I’ve bought used cars for cash. Last March I bought a 2007 Nissan Versa that had been living on the car lot all that time, so despite its age it was a new car sale given I’m the first owner… I found the process bewildering and I want to know more the next time around. My car is okay, I guess, but I can’t help but imagine that I could get a newer car - with a good warranty - for not much more than the $250/month I’m paying for this one, though maybe only with a 60 month loan instead of my current 48 month loan. I’m not interested in leasing, ftr.

So, in March I will be 1/2 through my loan. The car needs no repairs other than turning off the stupid TPMS warning light staying on that apparently is a problem with most Versas (Walmart will do it for $20), I should probably order some touch-up paint for a scratch on the door handle, and the other common Versa problem with the dashboard plate over the passenger side airbag not fitting snuggly does apply too. But, beyond replacing the front tires and a taillight twice it’s never needed a part yet, so other than that my “service records” consist entirely of getting oil changes. Oh, the car just this week reach a milestone as well: 20,000 miles. Low miles, in very good repair, it should be a decent trade in.

Here’s where I’ll sound stupid(er)…

What exactly happens when you buy a car with a trade in you still owe money on? Let’s say I’ve paid $7,000 and owe $7,000 still, and intend to buy a car that costs $16,000, like a 2012 Ford Fit being offered across town. I’m pretty sure that I don’t owe $23,000. But do I end up owing more than $16,000 all together? If I don’t, why not? The $7000 on the original loan has to go somewhere, which is where I get confused.

After you explain this, if you want to give me other pointers too, feel free since it should be clear by now that I have no idea what I’m doing.

Other probably pertinent information when it comes to recommending when I buy another vehicle: given recent developments at my new job, my projected income for 2012 will likely be north of 3x what my 2011 income has been (and at least 2x even if the current proposal isn’t approved), moving my income from pitiful to not too bad. The dealership I got my current car from wanted the prior year’s income info, so I thought I’d mention that.

Thanks!

At only 20,000 miles you’re at a bad point for trade in. The car lost value the minute it was driven off the lot. You’ve already taken a big hit in depreciation.

I’m pretty sure you could drive it another 20,000 miles without losing much value.

If you trade in now you’re taking the biggest hit in value loss and not getting much use of the car in return. Especially since its a 2007 that sat on the dealers lot. I’d suggest checking the blue book value before taking it to a dealer. Maybe consider keeping the car for another year if it doesn’t effect the value very much.

A Consumer Reports article that explains trade-ins.
http://www.consumerreports.org/cro/cars/car-buying-advice/guide-to-new-car-buying/trading-in/less-money-and-effort/0701_trading-in-less-effort-and-money_ov.htm

You need to find out what the dealership will give you for the trade-in and do the math from there. If you paid 14000 for car A, and you have a 7000 balance, and the dealer gives you 10000 for trade-in; that puts 7000 toward your loan and takes 3000 off the price of new car B.

If they will only give you something like 5000, that leaves 2000 remaining on your loan, which they will typically roll into your new loan.

Sometimes it is better to sell your existing car yourself, as the dealers don’t often give a lot for trade-ins. You also have to be careful about how much gets rolled into your new loan; you can end up owing considerably more than the new car is worth.

This is pretty basic, just to give you an idea of how it works. I’m sure someone will come along that knows the details better than I do.

I dont like trading in.

I’ll answer a part of this with the standard caveats (it was many years ago, ymmv, etc.)

I bought a new car in 1991 (Acura Legend). After a few months I had to admit that I absolutely *hated *it. I eventually (for my own sanity) had to trade it in on something more suitable. At the time I traded it, I had owned it only 7 months, so the majority of the loan was still unpaid. The dealer took the car in trade, and paid off the loan, while I left with a new vehicle (and a loan on that vehicle only). I’m pretty sure this is typical.

If you’re upside down on your current loan, most dealers will roll that value into the new one when you trade in. This may or may not be legal where you live.

Example – I want a new truck:

Old truck is worth 5000
I owe 7000
New truck costs 20,000

Dealer gets me a loan for 22,000 for the new truck.

He takes my trade (5000) plus the extra on the loan (2000) and pays off my 7000 loan.

In an ideal world, you’re now underwater the same amount on your new truck. (I’m intentionally ignoring profit on the new, depreciation upon leaving the lot, taxes, etc.)

Hope this makes sense.

Also, you should find out how your state treats sales tax on new vehicles. Depending on this, it may not be advantageous to sell it yourself.

In Texas, new vehicle taxes are only levied on the difference between the new cost and the trade-in value. If I buy a 20K car and my trade-in is worth 10K, I only pay taxes on the 10K difference.

I’ve sold a used car myself twice here, and never made enough (over the dealer’s offer) to cover the additional taxes that I paid on the entire value of the new car. In every case, I would have been better off monetarily just trading the old one in at purchase.

Don’t know how they do it in NH, though.

PS. I was in NH last week. Buncha really friendly folks and I had a great time. The waitresses thought I pronounced “Chowder” funny. They spent some time coaching me to say “Chowdah”. :stuck_out_tongue:

In addition to concerns about sales taxes, don’t overlook the fact that selling a car yourself can be a pain in the ass unless you have a buyer waiting for it. You have to list it and deal with tire kickers and whatnot and the risk that it might not sell in a timely fashion. A trade in is a comparatively simple transaction.

Also, set the price of your new car before you talk to the dealer about a trade-in. That keeps the unscrupulous sorts from just adding the trade-in amount to the price of your new car. (Well, that, and the fact that you should know in advance how much the new car is worth.)

Step 1 is definately finding out what your Nissan is currently worth. Don’t rely on a dealership to give you this info. They want to give you as little as possible for it.
Start with something like Edmunds.com where you can plug in info about your Nissan and it will give you an estimate on what you could sell it for on your own (higher ) vs. how much you could expect to get for it as a trade-in (lower ).
Then check out craigslist/autotrader/carsoup etc. to see what similar vehicles are selling for.
You’re much better off selling it on your own as-is through something like craigslist, take the cash from that to pay off what you have left on the loan, and if you have any money left over use it as a down payment on a new vehicle.

A trade in is easier, but the dealer is going to give you much much less than fair market value.

For example, my car:
Average Consumer Resale Value for Excellent Condition: $7,082
Dealer Trade In (Clean which is highest value): $3,525

your car is not in “excellent” condition.

There is no sales tax in NH. I can (and did) also buy a car in Maine and not pay ME sales tax on it either.