Terms to Know When Trading In Your Vehicle

Loan Value

The loan value is the amount the lender agrees to give to a buyer to purchase a vehicle. This may not be the same amount as the vehicle’s market or retail value. This is because a few factors determine the value of a vehicle. These include the age of the vehicle, credit score, and how much you put down on the vehicle. Often, the loan value is less than 100% of the market value or sale price.

Negative Equity

When you want to trade in your car, you may find out that you owe more than it’s worth. Negative equity can happen when a buyer borrows more than they should purchase a vehicle. In addition, a car loses value faster than you can pay it off. You can find yourself with negative equity when you sell your vehicle too soon after you purchase it. When you haven’t made enough payments on your vehicle, you are paying more interest than paying down the loan. Understanding the value of your car and how much you owe before you trade in your vehicle. This situation is also commonly referred to as being underwater or upside down.

Private-Party Value

This value is an estimated amount that you might receive if you sell your vehicle privately to someone. You must take it upon yourself to market that your vehicle is for sale. This value is based on mileage, condition of the car, physical location, and the age of your vehicle.

Retail Value

The retail value is the amount that you expect to get if you sell or trade your vehicle to a dealership. This value is based on your vehicle’s market value and any work the dealership may need to perform on your car. A dealership usually wants to sell your vehicle for more than they purchase it from you.

Rolling Over Loan Balance

If you trade in a vehicle that has negative equity, the dealership rolls over the balance of the loan from that car into what you are paying for a new one. Rolling over the balance of the loan into another car loan causes the amount of the loan and the monthly payments to increase.

Tax Advantage

When you trade in a car, most states let you pay the sales tax for the difference between the car you bought and the one you trade-in. Keep in mind not all states allow this, so you should verify. If you do live in a state that allows you, it could save hundreds of dollars.

Trade-In Allowance

The trade-in allowance is the amount that the dealer gives you as a promotion when you trade in a car while buying one. This amount is credited towards the purchase of a new vehicle.

Trade-In Value

The trade-in value of your vehicle is what the dealer offers you for your vehicle. The dealer uses different criteria to determine the trade-in value of your vehicle. These conditions include market conditions, mileage, age, interior and exterior condition, and the demand for your vehicle.

Vehicle Identification Number (VIN)

All vehicles that are for sale to the public have a VIN. It may be obvious, but this is the number that identifies the car. It is located on the inside of the driver-side door, where it connects to the frame of the car. It can also be found on the dashboard on the driver’s side of the car.