The Ultimate Guide to Trading-In a Car in Canada

By Arthur Dubois | Published on 13 Jul 2023

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    Is it time to trade in your car in Canada? This process can intimidate you if you’ve done this before. But fear not! In this ultimate guide, we’ll walk you through everything you need to know about trading in your car and getting the best deal possible.

    Understanding the Basics of Car Trade-In

    Before we dive into the details, let’s start with the basics. Why would you want to trade in your car? In simple terms, this process sells your current vehicle to a dealership in exchange for credit towards a new car. This convenient option allows you to upgrade your ride without the hassle of selling their old car privately.

    But let’s explore this topic further to understand the intricacies of car trade-ins. When you decide to trade in your car, you might wonder how the process works in Canada. Well, let me break it down for you.

    When you bring your vehicle to a dealership for a trade-in, you begin with an appraisal. The dealership’s experts will assess your car’s condition, mileage, age and other factors to determine its value. Typically, they will consider any wear and tear, modifications and the overall market demand for your specific make and model.

    Once they complete the appraisal, the dealership will offer you a trade-in value for your car. This value equals the amount that to deduct from the purchase price of the new car you intend to buy. Keep in mind that the trade-in value might be lower than the amount you could get if you sold your car privately. Dealerships need to account for the costs of reconditioning and reselling the vehicle, which can affect the final offer.

    Remember, trade-in values can vary depending on numerous factors, such as the condition of the car, the demand for that particular make and model, plus current market trends. Therefore, do some research beforehand to have an idea of what your car might fetch.

    Now that you have the trade-in value, you can decide whether to proceed with the trade-in or explore other options. If you choose to go ahead, the dealership will handle the paperwork and transfer the ownership of your old car to them. 

    At this point, you might wonder how you’ll cover the remaining balance of your new car. Well, you have a couple of options. You can pay the difference in cash if you have the funds available. Alternatively, you can finance the remaining amount through the dealership or a third-party lender. Financing allows you to spread the payments over a period of time, making it more manageable for your budget.

    So, whether you upgrade to a newer model or simply change your vehicle, a car trade-in makes for a convenient option. It saves you the hassle of selling your old car privately and provides you with credit towards your new purchase. Just remember to consider all aspects of the trade-in process, including the appraisal, trade-in value and financing options first.

    Does Trading-In My Car Make Financial sense?

    When it comes to vehicle ownership decisions, Canadians should ask whether trading in their car makes financial sense. This decision depends on a variety of factors, including the current market value of your car and the amount you still owe (if it’s financed). Further, you should review the costs associated with the alternatives: selling your car privately or simply keeping it.

    Financial Implications of Trading-In Your Car

    Trading in your car can offer convenience and immediate value towards your next vehicle. Dealerships often streamline the trade-in process, directly applying the value of your old car to your new purchase. However, this convenience comes with a trade-off. After all, you may get a price less than the market value for your car. This gap covers the dealership’s overhead costs so they get a good profit margin when they resell it.

    If you bought your car with a loan, the dealership may roll the remaining balance into your new loan. While this may seem convenient, it could result in higher monthly payments or a longer-term loan, potentially increasing your debt load. Use this car loan calculator to figure out the difference.

    On the upside, trading in your car saves you money on retail and federal taxes. Since you technically pay less for your new car, the percentage in taxes calculated on that amount will be lower. However, sales tax rates vary from province to province and some combine taxes. For instance, in Alberta, there is no provincial tax, but you still must fork over five percent in federal taxes.

    Trade-in Alternatives

    On the other hand, selling your car privately might fetch a higher price than a trade-in, getting you closer to its actual market value. Though this process may require more effort and investment in advertising and negotiations, you could come out further ahead.

    Keeping your current car, particularly if it’s in good condition and fully paid off, could also make financial sense. Regular maintenance and minor repair costs may pale in comparison to the ongoing expenses of a new car purchase. After all, you may face car loan payments and potentially higher insurance premiums. 

    Wisely, weigh all these options and numbers before making a leap. Don’t give in to pressure at a dealership if the sale doesn’t feel right for you. In the end, you need to do what works best for you.

    Preparing Your Car for Trade-In

    When it comes to trading in your car, you need to take a few key steps to ensure you get the best value for your vehicle. While cleaning the car inside and out is a given, other aspects can make a significant difference in trade-in value.

    Let’s start with the exterior. First, give your car a thorough wash. Take the time to inspect the body for any dents, scratches or other imperfections. If you notice any minor damages, consider fixing them before taking your car to the dealership. While it may seem like an unnecessary expense, investing a little money in repairs can significantly increase the trade-in value.

    Now, let’s move on to the interior. Don’t just tidy up and remove personal belongings. Take a closer look at the condition of the seats, carpets and dashboard. Do you see any stains or signs of wear and tear? If so, consider getting a professional detailing service to restore the interior to its former glory. A well-maintained, fresh-looking interior can make a lasting impression on the dealership and potentially lead to a higher trade-in offer.

    Aside from the physical appearance of the car, gather all the necessary documents. Start with the vehicle’s registration. Make sure it is up to date and easily accessible. Additionally, round up any service records you have, showcasing the car’s maintenance history. A well-documented service history indicates that you’ve taken good care of the car, which can positively impact the trade-in value.

    Furthermore, if your car still has a warranty, collect all the relevant paperwork. This includes any transferable warranties or extended coverage plans. Having these documents demonstrates to the dealership that the car still has warranty protection, which can increase its value.

    Lastly, don’t forget to remove any personalization or modifications you may have made to the car. While you may have loved that custom spoiler or aftermarket stereo system, these additions may not appeal to potential buyers. Restoring the car to its original factory condition can make it more appealing and potentially boost its trade-in value.

    What is the trade-in value of my car?

    First and foremost, you must determine the value of your car before trading it in. Various factors can influence the trade-in value of your vehicle, such as its age, mileage, condition and demand in the market. The dealership will assess these factors to come up with an offer.

    To get an idea of your car’s value before visiting the dealership, utilize online tools and resources. For instance, you can turn to the Kelley Blue Book, the Canadian Black Book or CARFAX. These tools can provide you with an estimated value based on the make, model, year and mileage of your vehicle. This knowledge will give you a starting point for negotiations and help you gauge whether the dealership’s offer is fair.

    Of course, the more extras you have in your car, the higher the resale value – either at a dealership or in a private sale. For example, features like Bluetooth and Apple CarPlay appeal to tech-savvy drivers. Likewise, heated seats or steering wheels offer comforts that can up the price.

    It’s also helpful to check local listings for similar cars to see what they sell for. This can give you a better understanding of the market value and help you make an informed decision.

    Other Factors that affect a car’s trade-in value

    Age is an important factor to consider when valuing your car for trade-in. Generally, newer cars tend to have a higher trade-in value compared to older ones. Naturally, newer models often come with updated features and technology that make them more desirable to potential buyers. Additionally, newer cars likely have lower mileage and less wear and tear.

    Mileage makes a big difference. The more miles a car has, the lower its trade-in value. High mileage can indicate that the car may require more maintenance or repairs in the future. On the other hand, low mileage suggests that the car could be in better physical shape.

    As a result, the condition of your car plays a significant role in determining its trade-in value. Dealerships will inspect the exterior and interior of the vehicle for any signs of damage and wear. Scratches, dents and stains can all decrease the value of your car. Regular maintenance and keeping your car clean can help maintain its condition and potentially increase its trade-in value.

    Market demand also affects the trade-in value of your car. If your car is in high demand with limited similar models available, you could negotiate a higher payoff. Conversely, if there is an oversupply of similar cars in the market, the trade-in value may drop.

    Remember, the trade-in value offered by a dealership is not set in stone. You can negotiate to get a better offer. Armed with knowledge about your car’s value, you can present your case and potentially secure a higher trade-in value.

    Negotiating the Best Trade-In Deal

    When it comes to negotiating, walk in prepared and confident. After researching the current market value of your vehicle, have a target price in mind. This will give you an upper hand during negotiations.

    When speaking with dealerships, ask for their best offer then counter with a reasonable price. Also, seek quotes from multiple dealerships and compare them to ensure you get the best deal possible. Don’t forget online dealerships like Clutch when considering your options. They also accept your old car when you buy a used one with them. This saves you time from physically going to a dealership. However, Clutch has a caveat about buying cars that go beyond its price range or need extensive repairs.

    However, beware of common trade-in scams that some dealerships may try to pull. These can include undervaluing your car, manipulating financing terms or adding unnecessary fees. Also, don’t get drawn into the allure of zero-percent financing since it may come with hidden fees and distract you from a better deal. Stay informed and trust your instincts to avoid falling victim to these tactics.

    Closing the Deal and Transferring Ownership

    Handing over the keys marks just one step in this process. You must also change the car’s ownership, remove the insurance and transfer your licence plates to your new car. Finally, you need to remove all personal property, including the data in the electronic components of the car. These key steps wrap up your official farewell to your car:

    • Gather all the necessary documents, such as the original vehicle permit and registration, to avoid any delays. If any are missing, contact your government service centre for new copies.
    • Fill out an application for transfer form, which the dealership may do for you. Feel free to check that the information is accurate and matches your  documents. 
    • Pay any licence fees or outstanding loans. Each province has different rules but the dealership should help you navigate this process. However, it’s up to you to settle old debts, especially if you get new financing for your new ride.
    • Contact your insurance company so its staff can adjust your coverage to suit your new vehicle. You cannot drive your new car until it has collision and other mandatory types of coverage.
    • Remove your plates and put them on your new car. You must alert your provincial or territorial government to this change. Plates belong to the driver, not the car, and police use this data for traffic violations and retrieving stolen vehicles.
    • Delete your data from your electronic devices. This includes any contacts paired with your cell phone, addresses in a built-in GPS and garage door opening codes.

    Finally, you cannot drive off a dealership until you’ve transferred your car insurance.  Legally, you must carry third-party liability insurance to deal with the fallout from a collision. Therefore, you must transfer your old policy to your new vehicle to relieve you from any responsibility with your previous car.

    As you switch vehicles, it’s wise to engage your current car insurance provider and ask about potential multi-car or safe driver discounts they may offer. At the same time, considering a change in insurer could sometimes result in significant savings. Thus, it’s beneficial to actively compare car insurance quotes from various providers to ensure you’re receiving the best possible deal. 

    With these final steps, you let go of the past, including any liability associated with your old car’s future life. It also sets you on a new path in a fresh set of wheels.

    Trading-in a car in Canada: The Bottom Line

    Trading in your car in Canada doesn’t have to break you into a cold sweat. Armed with the knowledge from this ultimate guide, you can navigate the trade-in process and negotiate a fair deal. Remember to take the time to prepare your car, research its value and approach negotiations with confidence. By following these steps, you’ll drive away in your new car with a smile in no time!

    FAQs About Trading-in a Car in Canada

    How does trading in a car work in Canada? 

    Trading in a car in Canada involves bringing your vehicle to a dealership. They will assess the condition, make, model and market value of your car. After their evaluation, the dealership offers a trade-in price. If you agree, this value can be applied directly towards the purchase price of your next vehicle, reducing the amount you need to finance.

    Do you lose money when trading in a car in Canada? 

    Yes, typically, you might receive less than the car’s actual market value when trading it in at a dealership. The dealership has to factor in the costs of reconditioning, storing and reselling the vehicle. All of this reduces the trade-in price they can offer.

    How much money do you lose when trading in a car? 

    The amount of money you “lose” when trading in a car varies. It all depends on factors like the car’s age, make, model, mileage and condition. Overall, these affect how much the dealership decides to mark it down from the market value. Generally, you’ll receive less than if you sell your vehicle privately.

    Do you save on taxes when trading in a car in Canada? 

    Yes, in every Canadian province and territory, when you trade in a vehicle, you pay sales tax only on the difference between the new car’s purchase price and your trade-in’s value.This could lead to substantial savings depending on your old car’s trade-in value and level of taxation. For example, you pay seven percent sales taxes and five percent GST in Manitoba and B.C. for a combined rate of 12 percent. However, you pay 15 percent in harmonized sales tax (HST) in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. You pay the least — 5 percent — in Alberta, Yukon, Nunavut and the Northwest Territories. Further, you pay 13 percent HST in Ontario, 11 percent overall in Saskatchewan and 14.975 percent in Quebec. These amounts really add up when you consider the cost of a new car, even a slightly used model.

    Can trading in a car hurt your credit score in Canada? 

    Trading in a car itself doesn’t hurt your credit score. However, if you’re financing a new car and the dealership runs a hard credit check, this could cause a small, temporary drop in your credit score. This impact is generally minimal and recovers over time with regular, on-time payments.

    How does trading in a leased car work in Canada? 

    Trading in a leased car in Canada is similar to trading in a car you own with some extra steps. You must buy out the lease first, which means paying the residual value of the car as specified in your lease agreement plus any early termination fees. The trade-in value of the leased car can then be used towards your new vehicle purchase.

    Is trading in a car worth it? 

    Determining this involves evaluating multiple factors. These include the trade-in offer from the dealership and the potential higher return from a private sale. Of course, you should also consider the effort and time you’re willing to invest in selling privately. Overall, you get the convenience and immediate nature of a dealership trade-in but could lose out financially.

    Should you repair a car before trading it in?

    Whether or not to repair a car before trading it in depends largely on the cost and type of repairs needed. Minor, inexpensive repairs that could significantly boost the car’s appearance or mechanical function may be worthwhile. However, for costly repairs, the increased trade-in value might not offset the repair costs.

    What not to do when trading in a car? 

    When trading in a car, avoid common pitfalls. First, don’t get cocky and overestimate your car’s value. Second, factor in any outstanding loan balance before agreeing to the amount you’ll receive. You certainly don’t want to add too much more to your debt load. And finally, do your research on your car’s market value. In conclusion, remember that you can negotiate the trade-in offer; it’s not a take-it-or-leave-it situation. Don’t feel rushed into accepting the first offer without exploring other dealerships or considering a private sale.

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    Arthur Dubois is a personal finance writer at Hardbacon. Since relocating to Canada, he has successfully built his credit score from scratch and begun investing in the stock market. In addition to his work at Hardbacon, Arthur has contributed to Metro newspaper and several other publications