After a few years of low stock and high ticket prices, purchasing a new or used car is looking better in 2025. If you’re looking to upgrade to a newer, more advanced vehicle, you have two options for getting rid of your old one. You can sell it privately or trade it to a dealership in return for credit on your next car purchase. While each method has pros and cons – you’ll likely get more from selling your car, vehicle trade-ins are much more manageable and come with tax benefits. So, where to begin? This article examines how vehicle trade-ins work and the benefits and drawbacks of trading up. By familiarizing yourself with the trade-in process, you can ensure you get the best value for your old and new car. Whether you’re trading in a vehicle that’s fully paid off or one that’s still under financing, here’s everything you need to know before visiting the dealership.
Car Availability in 2025
Car availability has improved over recent months, with new and used car inventories increasing compared to a year ago. However, some used car models are still hard to find.
New Car Inventory
- In January, new vehicle inventory increased 28% compared to the same period in 2023.
- In the second quarter of 2024, new vehicle stock increased 70% year-over-year.
Used Car Inventory
- In the second quarter of 2024, used vehicle stock increased 28% year-over-year.
- Some used car models, like those below $15,000, are still hard to find.
Car Prices Are Dropping
- Used car prices have dropped, with the average used car price dropping 8% year-over-year in the second quarter of 2024.
- New car prices are expected to fall more this year.
Overall, the automotive industry has largely returned to a more normal state after being disrupted by supply chain issues.
As of February 2025, car inventories in Ontario have shown notable improvements compared to previous months. The total number of vehicles for sale in Ontario has increased to approximately 134,000, encompassing both new and used cars.
How does a vehicle trade-in work?
A vehicle trade-in involves giving your car to a dealership in exchange for credit toward a new or used vehicle. Trade-ins are convenient and can save you time and money. Initially, a dealer will assess the value of your current car and apply that value as a credit toward the purchase of a new one. Most dealerships accept trade-ins, but it’s always a good idea to confirm this with the dealer in advance. Before any deal can be made, the dealer will need key details, such as the year, make, model, mileage, and Vehicle Identification Number (commonly known as a VIN).
What Factors Play a Role in Determining Vehicle Trade In Value?
Several factors go into determining the value of your vehicle. It begins with assessing the year, make and model of a car. In addition, dealerships will need the service records, accidents history, body work or paint work done, as well as the number of owners attached to the vehicle. In addition to the condition and type of car that’s brought in, dealers will base their valuations on available inventory and market demand. When inventory is low, the dealership may offer a bit more. If inventory is high, you might not see great returns on your trade-in.
Make a good impression at trade-in time: Clean the car, vacuum it out, remove your personal items and run it through a car wash. A full detailing of the exterior, interior and engine bay might be an even better idea. It conveys a well-cared for car and can easily pay for itself in trade-in value.
Many dealerships use digital tools to assess trade-in values, such as TradeXpress or Trade360. They are trade appraisal tools optimized for customers and dealers alike. A simplified initial form encourages a high volume of trade inquiries; then a prompted set if follow-up questions provide dealers with the vehicle details they need. According to Dave Aelick, Director of Member Services for Used Car Dealers Association of Ontario (UCDA), “This allows them [dealers] to enter key information, like the VIN of the vehicle and the mileage, and the tool will provide an estimate for wholesale and retail pricing for the geographic area.” That’s why shopping around is recommended – exploring several dealerships can help you get the most out of your trade-in.
Factors that impact your car trade-in value
According to Capitalone.com, here are a few factors that go into determining used car trade-in value:
1. The age of your trade-in
Vehicles can drop by 20-30% in the first year and 60% or more of the original price after five years.
2. The mileage on your trade-in
Low mileage can tip the balance in favour of an older trade-in.
3. The overall condition of your trade-in
Dealers look at what it will cost them to repair or replace the things necessary for the car to sell at a strong price. Additionally, they’ll deduct that from what otherwise could be a decent offer for your trade-in.
4. The history of your car’s maintenance
You can improve your chances for the highest car trade-in value if you have maintained it according to the manufacturer’s schedule in your owners’ manual.
Bonuses at trade-in time are an automatic transmission, upgraded factory audio systems, automatic climate control, power seats, upgraded upholstery, and sunroofs. In colder climates, all-wheel drive, heated seats, and steering wheels can also up the value.
Vehicle Trade-ins: What Happens When the Car is Not Paid Off?
Can you upgrade your car if it is not paid off? In this situation, a vehicle trade-in is still possible. You can:
- Determine the pay-off amount: Ask the lender for the remaining balance on your load.
- Determine vehicle trade-in value: Use a pricing guide to find out what your car is worth.
- Calculate equity: Subtract the payoff amount form the trade-in value to see if you have a positive or negative equity.
You have positive equity if your car is worth more than the amount you owe on your loan. This means you’re in good shape. If your car is worth less than what you still owe, you have a negative equity car, also known as being “upside-down” or “underwater” on your car loan. When trading in a car with negative equity, you’ll have to pay the difference between the loan balance and the trade-in value.
- Negotiate: Bring offers from other dealerships to negotiate a better price.
- Finalize the deal: Agree on a trade-in value and the price of the new car.
- Pay off the remaining balance: The dealership will pay off your loan and apply any equity to your new loan.
Tax Savings Benefits of Vehicle Trade-Ins
One of the biggest benefits to trading in your car versus selling it privately is the tax savings you enjoy. When you trade in your vehicle, the value automatically reduces the price you pay on your new car or truck. And you only pay taxes on the reduced price of your new ride.
TIPS:
- Provide all receipts, proof of purchases and work that’s been carried out on your vehicle.
- Trade-in values can be negotiated and may vary between dealerships.
Regularly checking vehicle trade-in values is a wise habit to get into—especially if you want to optimize the value of the vehicle before it depreciates too much. Having that trade-in value in mind while you shop around will help you assess what you can afford. If you’re looking to obtain car insurance for your new vehicle, contact one of our isure brokers today!
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