I’m considering trading in my 2021 SUV – I recently retired and want something that’s smaller and better on gas. The dealer is offering me $25,000 for it, but similar vehicles are listed online for considerably more – some are well over $30,000. I’m worried I’m being taken advantage of. Does it make better financial sense to try to sell it on my own for more money – and then buy the new vehicle from the dealer? – Lorraine, Mississauga
If you sell your car yourself instead of trading it in, you might get more than the dealer is offering – but make sure it’s worth the hassle.
“Typically, selling your vehicle privately will get you a little bit more money if you’ve done your homework,” said Jeff Donnelly, chief consumer protection officer at the Ontario Motor Vehicle Industry Council (OMVIC), which regulates Ontario car dealers. “[But] if you’re trading that vehicle in with a dealer, you get a [sales] tax benefit.”
Dealers usually give you less for a trade-in than they think they can sell it for because they want to make a profit, said Shari Prymak, a senior consultant with Car Help Canada, a Toronto-based not-for-profit that helps drivers find cars and negotiate purchase and lease agreements.
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Typically, they’ll offer you the wholesale price for a trade-in – roughly what they’d get selling it at auction – and not the retail price you’d see on their lot.
“Wholesale values tend to be anywhere between $2,500 and $5,000 below retail value for a vehicle that’s in the $30,000 range,” Donnelly said.
That trade-in price depends on the make and model, how much demand there is for it and its condition and mileage, he said.
Do it yourself?
Plus, the prices in those ads are what dealers are asking, but they’re usually negotiable – so “deduct $500 to $1,000,” George Iny, president of the Automobile Protection Association, said in an email.
If your car is in “good cosmetic condition,” you might get $3,000 to $4,000 more than the trade-in offer if you sell it privately – but it could take two to four weeks, Iny said.
But trading in has another advantage: you pay less in sales tax on your new vehicle, he said. When you trade in your old car, you generally only pay sales tax on the difference between the new car’s price and what the dealer gives you for your old one.
Let’s say the dealer gives you $25,000 for your trade-in on a $40,000 vehicle. You’d only pay sales tax on the $15,000 difference – not the full amount.
With Ontario’s 13 per cent HST, that means you would pay $1,950 in sales tax instead of $5,200 – so you’d save $3,250.
The tax savings alone might be as much as – or more than – the extra money you’d make selling it yourself.
In Quebec, you can sell your car to a private buyer and still get the tax break, as long as the sale goes through the dealer you’re buying your new car from.
Is the price right?
If you decide to trade in your car, how do you know that the dealer’s giving you a fair offer?
“For the most part, dealers are fair and reasonable with their trade-in offers,” Donnelly said. “Because they know in today’s world, consumers are much more educated than they were, say, 10 years ago.”
In Ontario, there are no rules about how much a dealer can offer you for your trade-in, but if the dealer takes “egregious” advantage of you, they could be breaking the Consumer Protection Act, he said.
“We really don’t see that happening,” Donnelly said.
We checked other provinces and didn’t see any that specifically regulate trade-in prices.
That said, before you go into the dealership, get a sense of what other dealers might give you for your car, he said.
For example, AutoTrader lets you enter your vehicle’s details so dealers can contact you with offers. Online retailers such as Clutch will tell you right away what they’d pay you for it.
“Within five minutes, you can have a few offers and have searched the internet to figure out what the reasonable [price] range is for your trade-in vehicle,” Donnelly said.
That gives you room to negotiate a better offer, he said.
For example, the dealer might give you a better trade-in offer if they really want to move the vehicle you want to buy off their lot.
But even if you negotiate a better offer, some dealers may inflate the price of the new vehicle above the advertised price to cover the difference – even though they’re not supposed to, Donnelly said.
In Ontario, dealers aren’t allowed to charge you more than the price in their ads, before HST and licensing.
“If you’re not armed with the ad price, you’re not going to know any better,” Donnelly said.
So if you’re not happy with the deal they’re offering, don’t sign it, he said.
“Just walk away,” Donnelly said. “Go down the street to the [next] dealer.”
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