How Do Car Trade-Ins Work in Canada?

How Do Car Trade Ins Work in Canada

If you want to buy a new vehicle, it’s time to think about what you want to do with your old one. Selling it privately is one option. The other option is to trade it in at a car dealership. We wrote this guide to help people learn more about how car trade-ins work in Canada.

How Does Trading In Your Car Work?

There is a very straight forward process that is followed whenever someone wants to trade in their car at any car dealership in Canada. This section will provide you with the basics that you should know.

What Is A “Trade-In” Vehicle?

A ‘trade-in’ means you are using the value of your current vehicle towards the purchase of another one at a car dealership. In other words, you are selling your car to the dealership to replace it with another one.

How to Trade-In My Car?

You can use an online tool to get an approximate valuation of your vehicle and then contact a dealer to have a closer inspection. All of our Humberview Group websites have easy-to-use trade valuation tools that you can use to estimate the value of your vehicle. Your vehicle could be worth more than the valuation depending on a number of factors, but this cannot be confirmed until a visual inspection has been performed at the dealership and they have driven your vehicle for a few kilometres to assess its mechanical condition. There is no cost or obligation for you to have this completed.

That’s it! Trading in a car is very simple. It can be a quick, no-hassle process. When you accept a dealer’s trade-in offer, you have the option of either accepting the offer in cash or applying that value towards the purchase of a new or used vehicle.

What Do Car Dealers Use to Determine Trade-In Value?

When you receive your vehicle trade-in value appraisal from a car dealership, they will have first considered a number of important factors:

  • The year, make, model and trim level
  • Extra features and options
  • The kilometres on the odometer
  • The overall condition of the vehicle (interior, exterior, engine, powertrain, tires, brakes etc)
  • Current used car marketplace conditions: day’s supply of your vehicle in the local area, what the same vehicle is currently selling for in the local area.

The dealer will take all of this information into consideration and assess how desirable that vehicle would be if they were to try to re-sell it. They also need to take into account how much money (reconditioning cost) they will need to put into the vehicle in order for it to compete with existing marketplace pricing. Many consumers misunderstand this part of the process. They think if they go on sites like AutoTrader or Kijiji and they see their car is being listed for sale, for say $15,000, the dealer should give them $15,000 for the vehicle. The dealer needs to put the required reconditioning expense into the vehicle and then still make an acceptable profit before offering the vehicle for sale at $15,000.

What Happens to Trade-In Cars?

After you trade in your car or truck to the dealer, one of two things will happen. The dealer determines if they can make sufficient profit from the trade-in to warrant putting it up for sale to the general public. Or the dealer determines the reconditioning cost is excessive and doesn’t allow for reasonable profit and therefore, doesn’t offer the vehicle for sale to the general public and sells it to a wholesaler or takes the vehicle to wholesale auctions to dispose of.

Can You Trade-In Your Car for a Used Car?

Yes, when you trade in your old car to a dealer, you do not have to buy a new car from them in exchange.

How to Get the Most Money for a Trade-In Car?

The next question people often ask about trading in their used car or truck has to do with getting the most value they can from it. While there isn’t a lot that people can do to dramatically increase the trade in value, there are some small but smart things that you can do to help. Here are some basic tips:

  • Always perform the recommended manufacturer maintenance when required and have the receipts to prove it
  • Regularly wash the exterior and keep the interior of the vehicle clean
  • Repair vehicle damage
Useful Tip!
When it comes time to sell or trade in your vehicle, having a record (receipts) of all the services, repairs and maintenance work done on the vehicle can increase its resale value. Having a good maintenance record can prove that you have been taking good care of the car, and potential buyers will be more likely to pay the asking price having the extra peace of mind. It can also help you get more for the vehicle if you decide to use it as a trade-in at a dealership. Keeping an envelope or folder in your glove compartment for all your maintenance receipts is a quick and easy way to start organizing.

How To Find the Trade-In Value of a Car?

You can determine your used car or truck approximate trade-in value by looking at large used vehicle websites or by using our online trade valuation tools or by arranging an appointment to come into a dealer for a no-cost professional trade-in appraisal. Note, as was mentioned earlier in the article, if you decide to visit used auto classified websites, you can find a rough estimate of your vehicle’s value if you were to sell the vehicle privately and not have it traded in at a dealer.

When Is the Best Time to Trade-In a Car?

The longer you own your vehicle, the more your vehicle depreciates. As another model year passes by and your kilometres increase, the value of your used vehicle decreases as well. If you are currently making payments on your car, this could be a factor due to the fact that at a given point in time what you may still owe on the car exceeds what the car is worth in the marketplace.

Should I Detail My Car Before I Trade It In?

One of the easiest ways to improve the trade in value of your car is to make sure it is in optimal condition. If you get it professionally detailed so everything is deep cleaned, you can get added value from the trade in — especially if your interior was very messy to begin with. You can get basic levels of detailing for less than $100 (exact prices vary on the size of your vehicle), but the extra value you get from the trade-in offer will often be worth more.

The same thing applies to fixing up the exterior of your car. Things like removing rust, touching up scratches and chips in the paint, polishing and waxing everything, and washing the tires to make it look like it’s in better condition will only help you get a better offer from a dealer.

Should I Trade-In My Car or Sell It?

If you’re wondering whether it’s better to sell your car privately than to trade it into a dealer, the truth is it really depends on what you want. If you put a lot of time and money into fixing up your car and selling it yourself, you will usually get more money than trading it in. One of the reasons why trade-in offers are usually lower is because the dealer takes on all of that work for you — they recondition the car with required mechanical and cosmetic repairs and incur advertising expense to create awareness in online marketplaces.

The other benefit for trading in your vehicle for another vehicle is the tax savings. For example, you want to trade in your car for $8,000 in order to purchase a $30,000 vehicle from the dealer. In this situation, you only wind up paying tax on the reduced price after the trade in value is removed — meaning you only pay tax on $22,000 instead of on the full $30,000. Many consumers recognize the tax savings as more advantageous than the hassle of selling the vehicle privately. Also, if you are financing the new vehicle, the lower price means you’re also lowering your monthly payments. It can make a big difference over the term of your contract!

Can I Trade-In a Vehicle I am Currently Making Payments On?

If you have a car that still has money left to pay on a loan, or that you’re still leasing, you might wonder if you can still trade it in. Or maybe there are other unique circumstances with the vehicle, and you don’t know how that would affect your ability to trade it in. This section gives you quick answers to those questions!

Can You Trade In a Leased Car for Another Lease?

Yes and no. Depending on where you are at in your lease term, it may not be financially advantageous for you to do so. Working with your dealership, they can act as your liaison with the lease company to calculate what your contract obligations are to see if it makes sense to payout your obligations or roll it into your new lease. The leasing company may not be willing to take on excessive debt and deny the new lease.

The new lease will include all of the fees and penalties from your original lease and add them onto your new lease, so it usually more expensive. So any costs you incur because of excess damage or annual kilometre penalties get added to the new lease, but that also means the cost is spread out over the lease rather than all up front. If you can take that extra financial hit, there are plenty of times when it can make sense.

You can read more about this situation in our guide to getting out of a lease early.

How Does Trading In a Financed Car Work?

When you trade-in a car that still has an outstanding loan to pay off, there are two scenarios that can play out.

First, if the trade-in value for the car is more than the amount remaining on the loan, the process is easy. The trade-in value pays off the rest of the loan, and you put the remainder towards purchasing the new vehicle as was described above.

However, if the trade-in value is not enough to cover the rest of your loan, you have what is called “negative equity” or an “upside down” car loan. This situation is more complicated and deserves its own question and answer.

How to Trade-In a Car with Negative Equity?

You can trade-in your vehicle even if the trade-in value does not cover the remaining loan amount. However, when you have negative equity or an upside-down loan the dealer adds this loan amount into your new loan. Negative equity doesn’t disappear and it isn`t paid by the dealer when the trade-in is sold. It gets added to your debt and you are responsible for paying it off.

Here’s an example. Say you have a car you want to trade in where you still have $10,000 on the loan to pay. You go to a dealer and they will only offer $7,500 for it as a trade-in on a new car you want to finance that’s $30,000. The dealer will take the $2,500 remaining on the loan and add it to the $30,000 price of the new car. So when they calculate your new loan payments, they base it on $32,500, not $30,000.

It is generally not advised to trade-in a car that has excessive negative equity. Also, depending on the financial institution, they may only be willing to finance so much negative equity.

Can I Trade-In My Car with Bad Credit?

The short answer again is maybe. Depending on your credit history and/or what’s still owing on your vehicle you might find it difficult to do so. With poor credit history, it can be much more difficult for you to finance or lease a car at interest rates you see advertised. Depending on your credit history you may not get approved by the lending institution and we may have to look for alternative lending sources to get you approved.

However, if you are trading in your used car for another at a dealer and you can pay the remaining value in cash then you will lessen the likelihood of not being approved. You may still be limited on what vehicles you can choose from as the lending institution may limit the amount they are willing to finance you for.

How Does Trading In a Car with a Lien Work?

You can trade in a car that has a lien on it, but to do so you have to get the lien removed before you can legally pass ownership to the dealer. Usually, people will have a lien on the car as security for a debt they owe to someone else, like a bank, where you offer your car as collateral. To get the lien removed, you will have to pay off your debt to satisfy the lien-holder.

Can You Trade-In a Car with a Salvage Title?

A salvage title refers to when a vehicle has been damaged so extensively that it marked as a “total loss” and is uninsurable in its current condition. Despite the excessive damage, it can still be repaired and sold. However, the salvage title will always appear in its history report, which means it will get sold for much less than the same car without one.

You might also be interested in these guides:

Car Buying Guide
Guide to Leasing vs Financing a Car in Ontario
How Car Lease Payments Are Calculated?
How to Test Drive a Car?
How to Get Out of a Car Lease Early?