Should I sell my own car, sell it to a dealer or trade it in?  The answer can be to trade it in – Su

So, the time has come to get a new car. What should you do with the old one? Most people would say that it always makes sense to sell the car yourself as a dealer will always offer you yes. But let’s look at that decision. That might not be the best decision anymore.

Let’s look at the options. There are three main ways to sell your old car.

1. Private Sale – Sell the car yourself

2. Sell it to a dealer for Cash and Buy a New One at a different dealer.

3. Trade it in when buying a New Car.

While the first two options require no additional explanation it should be noted that a trade is almost the same as selling your car to the dealer. But there are two differences between trading it in and selling your car outright without another purchase. The first is that the dealer might be inclined to give you a slightly better price because you are also buying a new car. The second is that there are potential tax advantages to completing the sale and purchase transactions at the same dealer. More to come on that.

From a financial perspective, the decision is quite clear. Selling the car yourself in a private sale will always return the most money if you do your homework and do a good job of selling the vehicle. Our next post will provide some tips on how to maximize your return.

Various sites have published the difference price you’ll receive through the various methods with the difference between a private sale and selling to a dealer (directly or through a trade in) varyies depending on the value of a vehicle (of course) but the difference is usually more than $1,000. Car Gurus puts the average difference between a private sale and a trade in at $1,200.

So, in the choice of selling the car to a dealer and buying the car at a different dealer (Option #2) and a private sale (Option #1), the choice is clear – selling the car yourself will given you the highest return.

So why don’t more people sell their car themselves? It’s simply the hassle factor. You have to prepare the car, field calls from potential buyers, show up for test drives and haggle. Many people just don’t want to do that and would rather pay the $1,000 to someone else (the dealer) for doing that work for them. That’s all fine as long as you realize that avoiding that hassle is a $1,000 dollar (or more) decision. For newer or expensive cars, the difference might be substantial.

Let’s take a 2016 Lexus LS 460. Using the comparison tool at autotrader.ca, you can get price estimates for private party sales and for trade ins (or sale to a dealer).

You can see that the estimated difference between a private party sale and a trade in is $8,000! Certainly that’s enough to take on a little hassle in your life.

But did you notice on the right side of the picture the trade in option the note about taxes. In many provinces including Ontario, you are only required to pay taxes on the difference between the price of the new car and the trade in value of the old car. So, if you are trading in that Lexus for a new $100,000 Lexus, you’ll only pay 13% tax on the difference between $100,000 and the trade-in value of $62,430. That’s like saving $62,430 X 13% = $8,116 in tax. Add that amount to the trade in value and the total ($70,546) is actually more than the private party price estimate ($70,494). So, if you do your homework and negotiate with the dealer for a good price for your trade-in the tax effect makes trading in your vehicle a better choice than trying to sell it yourself (considering all the work you have to do to sell it yourself).

In conclusion, if you are in the market for a new car and want to dispose of your old one, trading it in makes the most sense. If you want to sell that car and aren’t buying another one, selling it yourself is the best bet assuming you are willing to put in the effort. For expensive cars the effort is well worth the reward.

#personalfinance #TaxSaving