Many financial experts suggest that one not use an old car as a trade in when purchasing a new car. In fact, trading in your old car may ultimately cost you more or hurt your chances to get approved for an auto loan.

Most auto dealers have a certain amount of price flexibility.  The more one lessens profit margin, the less money the salesperson makes on commission. Few auto salespeople actually work for a salary that is not at least partly based on commission from sales.

If one uses an old car as a trade in, and insists on high blue book value (the highest possible value for the car) this means the price flexibility in the new car will change. The person is likely to pay more for the new car, thus rendering the trade in less valuable, even if the blue book value price is met.

Banks limit the amount financed on a vehicle based on the buyers’ credit.  The price flexibility that would be used up giving you a high price for your trade is often needed when the bank makes the dealer discount the price and pay high acquisition fees.  Paying a high price for your trade in can limit or even negate your available loan options.

Getting high blue book value for a trade in is often not realistic. Auto dealers want to take your old car in and profit from it. Therefore, they are likely to offer low blue book (fair or poor condition, trade-in value) value so they can sell the car at high blue book value.

If you sell your car on your own, instead of using it as a trade in, you are likely to receive more money up front.  Because you have not depended on the dealer to give you a high price on your trade in, you will have a better chance of being approved for a new or newer car. Essentially you have maintained greater price flexibility.

Also, a greater cash down payment often means better financing terms for your new car. Larger down payments can mean smaller payments, shorter-term loans, better interest rates, and a greater likelihood of getting approved.

When possible, if you can sell the car at a price equal to how much you owe, you will save money when you purchase a new car, you won’t need to roll over any negative equity absorbing your old debt.

Some cars have a high enough resale value that one can get enough for a trade in value to pay off the current loan and have money left over to act as down payment on a new car. Generally, this makes sense. This can help you get down payment from your trade without taking the time to sell it on your own.