Your trade value is deducted from your new car's purchase price, not returned to you as cash. If you plan to finance, ask your dealer if you can receive actual cash instead of reducing your loan amount, but consider your loan's interest rate before doing so. If you need cash for your car, consider selling it privately.
Trade-in Discount and Incentives
Any discounts you qualify for are deducted from your new vehicle's purchase price. Rather than provide you with a check for the value of your trade, you'll finance a lesser amount. Incentives or rebates, sometimes called "cash back," are also deducted from the vehicle's purchase price. Even if you trade in a car, you'll still receive any rebates that you qualify for. If you wish to receive money back from your finance amount, talk to your dealer to find out if doing so is a possibility.
Taking actual cash from your car loan is not financially beneficial. Unless you have a zero percent interest rate, you'll pay interest on the money you take from your loan amount. This can also affect your overall approval. If you don't reduce your trade's total value from your new car's balance, it may throw off your loan-to-value ratio, or the amount you can borrow against the vehicle's bank-determined vehicle value. If you take cash instead of applying your trade value toward your loan, you may be asked to provide a down payment.
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Private Sale Benefits
If you need cash, consider selling your car privately. A dealer offers only wholesale value for trade-in vehicles, which is often thousands less than private sale value. Consider your sales tax savings, as well. If you trade a vehicle worth $5,000 and pay a 10 percent sales tax rate, your tax savings equal $500. You must sell your vehicle privately for at least $5,500 for the private sale option to prove beneficial. Then, you can use the proceeds from your sale as a down payment or keep it if you prefer.
If you trade in a vehicle that is worth more than the purchase price of your new car, then the dealer must provide you with cash. Keep in mind that you must also pay any state fees when purchasing a car, such as a dealer document fee, registration, title fee and emissions or inspections costs. Some states do not offer a tax savings for trade-ins, so consider your taxes, as well. You will not receive a sales tax refund when you trade in a vehicle worth more than the new car's purchase price; your sales tax balance will become $0 instead.