Skip the Trade-In: Why You Should Sell Your Car Privately
When it’s time to get a different car or upgrade to a later model, people get excited. Blame it on the fumes from that new car smell, but it’s at these moments when we lose a little of our money mojo and tend to gravitate toward the quickest and most convenient ways to dispense with our old wheels. Entire chain-store auto dealerships have evolved from car buyers who want to be anything but a car seller. (See also: Guide to Buying a Used Car Without Going Crazy)
The markup those dealerships enjoy once they’ve taken down your fuzzy dice and done a bit of spit-shining and maintenance averages between 25-45% depending on the dealership and model, according to industry sources like Edmunds.com. If you’re up for some broader reading on the topic of how auto dealerships really work, check out Phillip Reed’s classic series of articles from 2001 (and updated in 2009), Confessions of a Car Salesman. Reed is Senior Consumer Advice Editor for Edmunds.com and went undercover as a car salesman to get the scoop on how dealerships maximize profits. It’s interesting and educational reading — hovering somewhere between an expose and an indictment.
So why do we do it? Why do consumers rush to trade-in what they’ve worked so hard to afford? Why do normally financially savvy folks go cross-eyed at the prospect of cleaning, advertising, and selling their own used car privately? I think it’s a combination of intimidation (about the work involved and about smart selling strategies) and fear (about meeting with buyers and negotiating the best price). But there are some very real advantages that come from selling a car privately that shouldn’t be taken lightly or dismissed with a wave of the hand and an “it all evens out in the end” rationale.
1. You Remove the Middle Man
Removing the middle man from the transaction preserves an entire layer of profit. Now, I don’t have a beef with used car dealerships, but they are in business to make money and they can only do that in two ways:
- By giving you less money on your trade-in.
- Getting you to pay them more for a new car.
The most successful dealerships do both at the same time and even sweeten their pots a little by handling the financing themselves (I call this the trifecta of bad consumer deals).
2. You Can Make Up for Not Getting the Trade-In Tax Break
Granted, in most states there are tax advantages to trading in your car at the dealership (in these states, you pay sales tax only on the difference between the value of your trade in and the price of the new car, rather than the total price of the new car). But if your car is in reasonable condition, reliable, and cleans up well, the tax advantage can be more than compensated for with the higher private sale price.
3. More Money Now Means Less Financing Later
Selling privately puts cash in your hands now, and that cash can be used to reduce the amount financing needed for a new car. Sure the sales tax benefit is nice if it applies, but that sales tax is probably going to just be financed anyway, so why not sell privately, apply a larger down payment, and finance the bare minimum?
4. Selling Your Own Car Builds Confidence
Sure, it sounds a little hippy-dippy, but it’s worth mentioning anyway. How many times in our lives do we really have an opportunity to make a deal with another person one-on-one — no broker, no banker, no candlestick maker? I think there’s some value in good old-fashioned face-to-face deal-making. It helps teach salesmanship, the value of research, marketing, communication, and negotiation. Especially for younger folks, those lessons can be applied in countless ways to many other larger transactions in life.
When we trade-in our cars or sell directly to auto emporiums, we’re really outsourcing a job that’s not that difficult to do ourselves, and the only reward we get in return is convenience. Sure, there are some situations when trading in a car makes sense, but in most cases, sellers come out ahead when we handle the sale ourselves and can reap the benefits of a higher sale price. If you’d like to learn more about selling your car privately check out this step-by-step guide. All it takes is a little confidence, some basic marketing skills, and really good wash and wax job.
Have you sold a car privately or been taken for a ride on a trade-in? What advice would you give to first-time car sellers?