Because dealer inventories are so depleted amid the COVID-19 crisis, the used car market is hot. With dealers desperate for vehicles to sell, now may be the ideal time to get the maximum allowance on a trade-in. But you’ll want to look at the big picture before parting with your current ride.
According to data released by Edmunds this week, used-car values increased by more than 16 percent in July. The average trade-in value for a pre-owned car is up to $14,066, compared with $12,083 in June, a jump of almost $2,000.
Jessica Caldwell, Edmunds’ executive director of insights, explains:
The used market is experiencing a dramatic recovery: Used vehicles were sitting almost untouched at the start of the pandemic, and now they’re practically flying off dealer lots. Dealers are willing to pay more to acquire inventory to meet the surge in demand for used cars, which is great news for car owners because it means they can expect to get a higher value for their vehicle if they sell or trade right now. But time is of the essence because there’s no guarantee that these unique market conditions will continue for long.
Still, there are some things you should take into account. First, what is your current loan balance? Even with a higher trade value, if you are under water on your loan - meaning the value of the car is less than the payoff - it is generally not advisable to roll over that negative equity into a new payment.
Second, is your car paid off, and has it been pretty reliable? Owning a trustworthy vehicle outright, without a monthly payment, and keeping it a while longer is still a financially smarter move than taking on another payment.
Finally, be sure to shop carefully for your replacement, as an uncompetitive deal on the next car may cancel out whatever additional price you are getting on the trade-in. Inventory is still limited for some new and used cars, creating a bit of a seller’s market for certain vehicles. Look at the math both ways on your trade-in and the deal on the car you are shopping for. Make sure the numbers work for you.
Also, don’t forget to shop your trade around just as you would when getting bids for a purchase. Different dealers could offer better bids, and alternative outfits like CarMax, Carvana and Vroom may give you more money and/or give you some leverage with the dealership.
Another useful data point if you’re looking to buy pre-owned: Used vehicles are lingering on the lot fewer days - an average of just 38 days - in what Edmunds says is the steepest month-to-month drop of “days to turn” it has ever recorded. So be prepared to move quickly once you’ve run all the numbers.