When is the best time to trade your car in?

When is the best time to trade your car in?

motomatch / 3 January 2022

If you’ve had your car for a number of years, are bored of it, or perhaps finding the upkeep too expensive, you may be considering trading it in. This is a good idea for a few reasons. For one thing, you can be sure of a safe, relatively quick transaction (as long as you go through a reputable dealer). It’s also a lot less admin because the dealership handles all the paperwork from start to finish.

However, there are some cons to trading your second-hand car in. You are, of course limited to buying from the dealership that you’ve selected to do the trade-in with, so you may have limited options in choosing the vehicle that you want. Make sure that you choose a dealership that has a wide variety of quality cars that offer long-term value for money, and which have a great resale value.

So when should I trade my car in?

Based on the following factors, you should trade your car in…

  • Before the mileage hits 100,000kms. Anything more and the car becomes unattractive for resale
  • Before it’s older than 10 years. Vehicles that are older than 10 years sell for approximately 50% less than their book value. This is mostly because they are not eligible for financing
  • If it is currently still under service plan and/or warranty

How does trading in a vehicle work?

You may or may not already have your eye on a particular car at a dealership, but usually if the dealer agrees to buy your old car from you, you will receive the amount in credit towards the purchase of a new vehicle from said dealer.

First, the dealership assesses your vehicle based on its age, the mileage, its service history, and the overall condition of the car. They will also look at all the machinery, its accident record, and any cosmetic issues (such as dents, scratches, etc.) that could impact the cost.

You will then be offered a price based on this assessment, as well as the resale opportunity of the car and its current book or market value.

So, the equation is condition + market opportunity + book value = price

What are some of the things I need to know before I do this?

There are a few things to keep in mind when you’re planning to trade in your car:

  • The price you will get for your car will be related to its book (or market) value, not its retail value. The book value is the price for which you would be able to sell the car to dealers and is influenced by all the particulars of the vehicle as well as what other similar vehicles are sold for currently. The retail value is what the dealer plans to sell the car for, and this number is usually much higher than the book value. Naturally, it would be sensible for you to do the research and understand what your car’s book value is. Get valuations from some reputable dealerships (even ones you don’t plan to actually deal with) so that you know what to expect and have more knowledge to negotiate with if need be
  • It’s best to negotiate the price of your old car separate to the new car you’re looking at, so that the dealer doesn’t allow this to influence what they offer you or what they charge you for the new car
  • Get your paperwork in order. You’ll need proof of ownership, any receipts or books related to service history and maintenance, as well as any financial documents that may be relevant if the car was bought via a loan
  • Some cars have better resale value than others. This is based on make and model, as well as what people in the area like to buy. Read our helpful article on cars that have the best resale value in SA

What happens if I still owe money on the car?

You’ll need to know exactly how much you still owe the bank (the settlement amount). This amount will be subtracted from the credit amount the dealer offers you. The dealer will then pay off your remaining loan amount and give you a credit for the value of the car you’re trading in.

So, if the value of your car is more than the amount of your loan payoff, this amount will be subtracted, as mentioned, from the credit offered towards your new car. For example, if your trade-in vehicle is worth R250 000 and you still owe R200 000, you will only get a R50 000 credit.

If the value of the car is less than the amount of the payoff, the difference (known as negative equity) will be added to the cost of your new car. For example, if your old car is worth R80 000 but you still owe the bank R100 000, the difference will be added to the price of the new vehicle you purchase.

We hope you found this article helpful!