Skip the Trade-In: Why You Should Sell Your Car Privately

by Kentin Waits on 27 November 2012 7 comments

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:

  1. By giving you less money on your trade-in.
  2. 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).

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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?

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Guest's picture

Thank you for covering this. So many people are anxious to dump the old car, and get a new one, that they don't take the time to sell it themselves. Often they don't have a second car to drive until they find a new one, or they aren't well off enough to buy a second one and sell the first one, in that case maybe renting a cheap car for a couple of weeks is the way to go.

Guest's picture
Michael

I bought my last car from my parents so I knew that trying to sell it to a dealer would give me even less money since I wasn't buying one from them. So, I did sell my car on Craigslist. It took a while and there were a few frustrating offers / cancellations along the way, but finally right as I was discouraged enough to think about removing the listing, I found someone that was interested and gave me the full asking price!

Guest's picture
Rick

What about the threat of crazy people? I traded my last car because I had a feeling it was months away from being a ticking time bomb and didn't want to sell it privately only to have someone banging down my door two months later when the transmission goes. Let's face it, you can slap "as-is" all over the car but some people are just unreasonable. I'm no mechanic or have a crystal ball, how do I know what will happen after I sell it?

Guest's picture

I think this also varies by the type of car you're selling. A few months ago, I posted a 1998 Honda Accord at 7am and sold it for full asking price by 8pm that same day. I think that's 90% the resell value of Honda's and 10% me.

Regardless, I like the idea of selling your own car. If you're uncomfortable, ask a relative you trust to sell it and give them 5-10% of the proceeds.

Guest's picture
Brianne

This would be great if everyone magically had 2nd cars or lived in areas where rentals were inexpensive! Alas, when I upgrade my car I will have to trade in.

Guest's picture

I think in situations like these people tend to forego a little bit of extra effort and patience for more money, to just quickly and easily get rid of something. If you really think the extra couple grand is worth it, holding out and putting some time and effort into selling your car privately is definitely a good idea. I think its articles like these that put the bug in peoples head's about different things they can do so thanks.

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Autmotivesalespro

So many people expect a trade in to be the same money as if they sold it themselves and some get upset. What the OP said is quite correct, dealerships are there to make money, and that car has to be resold. One customer recently got a rude shock: he wanted $5000 for his trade in, the car was valued at $1500: it wasn't a deal breaker, he bought one off me and went to sell his privately. Secured a buyer, and the law states the car must have a roadworthy certificate before it changes hands. The quote to get it to pass was repairs totalling $3500 (!)