If you're looking to replace your vehicle with a new or quality used vehicle, an essential step in the process is getting rid of your current vehicle. Sure, you can put your car on the open market and deal with the stresses of selling it yourself, or you can streamline the car buying process by trading it in. 

Before deciding to trade in your vehicle, you'll want to know its trade-in value so you can make sure you'll get a fair offer on it. 

To help you determine if trading in your vehicle is right for you, we'll help clarify your trade-in value, how trading a vehicle works, what you can expect during the trade-in process, and more. 

Tax Benefits of Trading a Vehicle

Trading in a vehicle is an easy way to get cash for your old car without the stress of no-show buyers and tire kickers. The downside is the trade-in value is generally lower than the private party value because the dealership still has to make a profit. However, the tax savings you get for trading a vehicle could help narrow or close the gap between the trade-in value and the private party value. 

In Canada, you must pay provincial and federal taxes on a vehicle. Combined, these are called the harmonized sales tax (HST), and you only pay HST on the price of the vehicle minus your trade-in. If you sell your old car privately and buy a new or used car, you’ll pay the full HST.

For example, if you sold your car and purchased a 2018 Honda CR-V for $20,000 in Ontario, which has a 13% HST, you'd pay $2,400 in taxes, bringing the total price to $22,400. If you traded in a vehicle and got a $10,000 credit for your trade, you'd pay 13% on only $10,000, bringing the HST down to $1,300, saving you $1,100. 

Essentially, you're actually getting $11,300 for your trade-in once you consider the tax savings. Compare that number to the private party value to decide if it's worth your time to sell your car yourself or if you’d rather trade it in. 

How Dealers Determine Trade-In Value

Many variables go into a trade-in valuation, ranging from what condition the car's in to what tires are included in the trade-in package and what the current market value is for the car. Here are the variables dealerships consider when evaluating your trade-in and how each variable impacts your car's value. 

Market Value

Market value will be one of the first things the dealership looks at when pricing your trade-in. This is the car's resale value at the time of the trade-in, based on its model year, desirability, optional equipment, and other factors.

In Canada, the time of year can make a big impact on your market value. For example, that pristine three-year-old convertible will likely sell faster and for more money in the summer than during a blustery Canadian winter. This will ultimately impact the amount the dealer offers on your trade. 

On the flip side, if you come with an all-wheel-drive (AWD) crossover in the dead of winter, the market conditions may be in your favor, as the demand for all-wheel-drive vehicles may be high at that time. 

The number of kilometres on your vehicle also comes into play in market value. The more kilometres on the odometer, the more wear and tear it's been through, and the lower its market value will be. 

Upgrades can impact the market value too. For example, if you're trading in a 10-year-old sedan, there's a good chance it'll lack the features used car buyers seek — even if it’s in great shape. However, suppose you upgraded the vehicle with the latest aftermarket infotainment system that features Apple CarPlay, Android Auto, GPS, and a rearview camera. In that case, this could increase its market value and increase your car's valuation.

Vehicle Condition

Car dealers will also consider your car's condition when trading it in. The dealer will start by pulling a vehicle history report on your car and checking for any accidents or other potential red flags. If your vehicle was in a serious accident or has other issues in its history — like potential flood damage — it could significantly lower the trade-in value.

The dealer will also perform a full visual inspection of the body and interior, looking for dents, dings, rust, scratches, rips, and other damage they would need to address when reconditioning the car for sale. 

The mechanical condition of the vehicle also matters during a car valuation. The dealership will usually test drive the vehicle and check for obvious mechanical issues with the fluids, filters, tires, brakes, and other easy-to-check items. The dealer then adds up the mechanical reconditioning the vehicle would need before they could sell it. 

The dealership will deduct its estimated body, interior, and mechanical reconditioning costs from its trade-in offer. If the dealership determines the reconditioning costs are too great and will wholesale the vehicle or send it to auction, this can result in a far lower offer for your trade.

Included Accessories

Included accessories can impact your trade-in value because they can make the vehicle more marketable for the dealership. 

Things like a roof rack and cargo box on your large SUV, or all-weather floor mats in your sedan are all items you want to let the dealership know you're including in the trade. 

In Canada, winter tires are required in some provinces and recommended in most others. This makes them an important part of a vehicle valuation.

If you're offering your trade-in with a set of summer and winter tires, let the dealer know, as it'll make the vehicle more marketable and potentially increase your offer. If those winter tires are already mounted on wheels and ready for installation, that's even better. 

If the dealership doesn't consider any included accessories in its trade-in valuation, you can remove these items and use them on your new car if they fit, or you can sell them for extra cash.

Dealership Demographic Fit

Dealerships must also consider how your trade-in vehicle fits their target demographic. For example, a traded-in two-year-old Ford F-150 will likely get limited interest from buyers at a BMW dealership. 

That BMW dealership knows it may be forced to wholesale the F-150 to a more mainstream dealer or take it to auction, resulting in a lower sales price for the dealer, which will lower your trade-in value.  

What Dealerships Do With Your Trade-In Vehicle

After you agree to trade in your vehicle and complete the paperwork, the dealership will put your vehicle in its service department for a presale inspection. This allows the dealership's technicians to look over the vehicle and determine any deeper mechanical, body, or electrical repairs it needs.

The technician brings this report to the service manager or whoever handles quoting presale repairs to the sales managers. The service manager works up a repair quote for the sales managers, who then decide if there is still enough profit to warrant reconditioning the vehicle or not. 

If there isn't enough profit, the dealership will either sell the vehicle wholesale to another dealership or send it to auction. If there is enough profit, the dealership will recondition the vehicle and place it on the lot for sale.  

How Dealerships Use Incentives to Enhance Trade-In Offers

Dealerships have various avenues to earn more profit, including selling GAP insurance or extended warranties, and manufacturer or financing incentives. The incentives allow the dealership to move money around and make your trade-in offer look virtually unbeatable. 

It works like this: The dealership gives you a decent offer of $10,000 for your trade-in, but you really wanted to get at least $11,000. The dealership sees this as your hot button in getting the deal done, so it can use financing reserves to make the profit it needs to pad your trade-in value. 

When a dealership arranges financing for you, it'll receive a "buy" rate from the banks. This is the lowest interest rate the lender will offer you. The dealership can then add to that interest rate — typically by one to two percentage points. That additional interest is the finance reserve and is pure profit for the dealership. 

So, if you are financing a $25,000 new car, and the bank offers a 4% "buy" rate, the dealership could bump that to 6% and earn a 2% finance commission on the loan. On a 60-month car loan, that's $1,374 in profit the dealership can use to cover the extra $1,000 you wanted for your trade-in. 

You would likely never know the "buy" rate was actually 4%, and you would feel satisfied enough to accept the deal with the $11,000 you got on your trade.

Dealerships can also do this with manufacturing incentives. Many automakers offer new-car dealerships unadvertised incentives that they can use to pad profit or reduce a car's MSRP to close a deal. If the new vehicle you're shopping for has a $1,000 unadvertised incentive, the dealership can use that incentive to balance out the extra $1,000 added to your trade-in value.

How to Get Your Estimated Trade-In Value

Heading to a car dealership can be intimidating, and heading there just to figure out what your car is worth may not be your idea of fun. Fortunately, online sources, such as Canadian Black Book (CBB), can help you determine the approximate trade-in value for your car.

CBB uses sales data and careful evaluation of market conditions to determine a current vehicle's value, including its trade-in value. Navigate to CBB's website and click "Value Your Car" at the top of the page. Enter your make and model in the text boxes below, then click "Search." Follow all the prompts to get an estimated trade-in value for your vehicle. 

Keep in mind, CBB looks at the market as a whole. There are still some variables, like seasonal fluctuations and demand at each dealership, that can affect the trade-in valuations you receive. 

Want a firm trade-in offer? Clutch's trade-in estimator can help. Simply enter your vehicle's information to receive a trade estimate based on a unique algorithm that reflects current market conditions. You then have the option to receive a firm offer — no negotiation necessary — by submitting additional information and a few images of the vehicle.

Get Rid of Your Old Car the Easy Way at Clutch

Selling a used car can be a hassle. You've got to advertise it, field questions from potential buyers, meet people for test drives, lose precious time to people who never show up, and more. And once it finally does sell, you get hit with the paperwork. Why go through all that headache when Clutch can take your vehicle on trade and put you in a quality pre-owned vehicle? Or even if you are just looking to sell your vehicle quickly and hassle free without purchasing another one, we are still happy to take your vehicle today!

You can find out your vehicle's trade-in value without setting foot in a dealership with our trade-in estimator. Simply enter a little information about your vehicle, and our algorithm will look at the current market conditions and analyze your vehicle's details to create an estimate. 

Then, you can get a firm trade-in valuation by submitting a few images of your vehicle and entering a bit more information online. If our offer meets your needs, you can shop our range of quality pre-owned vehicles, choose the one you like, and complete the purchase process online. We'll deliver your new car and pick up your trade-in at the same time. Plus, we’ll handle all the paperwork for you. 

As for your new car, all Clutch vehicles purchased online include a 90-day or 6,000-km limited warranty and a 10-day risk-free test period. If you don't love your Clutch pre-owned vehicle in the first 10 days, you can return it for a full refund or exchange it for another vehicle.