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Trade-in or sell your car?

If you're looking to replace your car, you may be wondering whether you should trade it in or sell it.

The short answer is, whatever's best for you. With several factors to consider, like the complexity of tasks or time obligations required for each, it's not just a question of money.

The pros and cons of trading in your car

When you're at the dealership and ready to buy, trading in your car can have its benefits, so knowing them ahead of time can help you make an informed decision.

The upsides: Convenience and potential tax reduction

Trading in your vehicle is usually an easier process. Start by receiving estimates from the dealer(s) you're considering purchasing from. (Find a dealership near you with  Ally's dealer locator tool. ) Once you've secured an estimate you're happy with, you can close the deal by completing the required paperwork.

As an added bonus, dealerships usually handle transferring the title and registering the car, and may even pay off your existing financing. Just make sure to get the details before signing anything.

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Additionally, if your state charges sales tax, you may end up paying less taxes if you trade in. Many states only require you to pay the taxes on the difference between your trade-in value and the cost of your new ride.

You should consult with a tax professional to find out more about what tax implications may look like for trade-ins in your area. 

Trading in your vehicle is usually an easier process.

The downside: Lower valuation

Car dealerships are in the business of making a profit, so they may give you less for your vehicle than what you'd get selling on your own. Dealer offers are typically less than a car's wholesale price or what's listed in various well-known car value resources.

The pros and cons of selling your car

Selling your car yourself can potentially mean a larger profit, but you'll have to put in some extra effort for that extra cash.

The upside: Higher sale price

After factoring in costs like detailing and maintenance to get your car into listing-friendly shape, you may still get back more of the car's value by selling independently.

For example, Kelley Blue Book (at the time this was written) gives an estimated private-party value of $16,890 to $18,601 for a mid-range 2019 Volkswagen Jetta in the Chicago area. But the trade-in-value doesn't quite measure up at $15,214 to $16,713. Even if the ranges vary, the differences between these two estimates are reliably constant.

Do some research calculating the difference between your car's trade-in value versus private-party value on data-based websites like Edmunds and Kelley Blue Book.

After the sale, you might consider keeping your profit in an interest-bearing savings account, like an Ally Bank  Savings Account , until you're ready to purchase.

The downside: More effort

Be prepared for some legwork if you choose a private party sale. You may need to account for:

  • Vehicle documents, including title and maintenance record

  • An attractive, fair selling price

  • Cleaning

  • Repairs

  • A tune-up before you list it

  • Submitting descriptions and photos online and/or to local newspaper

  • Reviewing potential buyers

  • Test drives

After you've checked off this list and found a buyer, you'll need to visit your local DMV to register the car in the buyer's name. Remember it can take a while to find a suitable buyer depending on the type of vehicle and your local  used-car market. All the while, you'll likely need to keep your car registered and continue paying for insurance. So, factor these costs in your calculations. In the end, if you need money sooner than later to buy a new car or pay down the financing for your new vehicle, selling your car on your own might not make sense.

The two questions you need to answer

Ultimately, when it comes to deciding between selling or trading in, you need to answer two questions:

  • How important is getting the maximum sale price for your car?

  • How much effort are you willing to put into selling?

Geared up with this information, you can make the decision that best fits your situation and move forward confidently with your new car.

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