The COVID-19 pandemic affected nearly every part of the U.S. economy in 2020, and car sales were no exception. While there was initially a downturn in the used car market, things turned around by the end of the year, presenting car owners a unique opportunity to trade in their vehicles at higher prices.
Here’s what’s happening with the current used car market, the best times to trade in a vehicle, and factors to consider before you trade in your car.
- Used car values dipped early in the pandemic, but reached a five-year high by November 2020, likely due to more people skipping public transportation and choosing to purchase a private vehicle amid the health crisis.
- With interest rates remaining low, car owners looking to finance their next vehicle may also be able to save money by trading in their car now.
- Consider your car’s model and mileage, the time of year, your loan balance, vehicle age, financial situation, and more before trading in your car.
Used Car Values Rose Throughout COVID-19
Car values first started to shift in mid-April 2020, when wholesale vehicle prices plummeted as dealerships weren’t buying in large numbers, according to data from the industry insights team at Cox Automotive, the parent company of Kelley Blue Book.
But little of the savings were passed onto buyers, and the trend didn’t last. While the supply at dealerships decreased, demand for used cars didn’t. In fact, during a time of low interest rates and financial uncertainty, more people wanted to buy used than new. Additionally, people were buying cars as a way to avoid public transportation during the health crisis.
Massachusetts-based automotive shopping site CarGurus tracks the price of used car listings across all brands to set an index price. According to the company’s data, prices on used cars saw a slight dip in April, May, and the beginning of June, but a few weeks later, prices began to increase. Between June and November, CarGurus index price of used cars increased by about $2,500, reaching values not seen since 2015. By February 2021, the index price was up 8.07% from the same time the year before, even though used car rates were down several percentage points from their peak in November, according to CarGurus data.
Price hikes largely came down to a reduced supply, according to Mark Beneke, owner of used car dealership Westland Auto Sales in Fresno, California.
“The trade-in market depends on the basic economic principle of supply and demand,” Beneke said. “The pandemic definitely forced the values of vehicles up. For a while, it was nearly impossible to get new inventory at auction unless you were ready to pay double what you would normally pay for the same types of vehicles. This is not the case anymore and values have somewhat normalized; however, they still remain higher than they were as of a year ago.”
When used car prices increase, it’s good news for those looking to trade in their current vehicle since they’ll likely make more money on the deal.
The Best Time to Trade In Your Car
While most industries have faced significant challenges amid the pandemic, the car sales industry actually saw a boost, making 2020 a better year than most to trade in a vehicle. Regardless of the state of the economy during COVID-19 though, there are some general guidelines to follow when deciding whether or not to trade in your car.
You’ll have an easier time trading in a vehicle that people want to buy. According to Car and Driver, the best-selling vehicles in the U.S. include the Ford F-Series, Chevrolet Silverado, Ram Pickup, Toyota RAV4, Honda CR-V, and Toyota Camry.
While the value of your car drops roughly every 10,000 miles, there is no exact number where you should be concerned that your vehicle won’t sell, according to car shopping website Edmunds. As your car gets closer to 100,000 miles though, it may become less likely to be included in dealers’ certified pre-owned category. For a high-mileage vehicle, if its mechanics are in order and it is an in-demand model, mileage shouldn’t be too much of a concern for trading.
Check the value of your car and what you could get for it via an online tool like the one on Kelley Blue Book. This could help you decide whether or not to trade it in.
Time of Year
People tend to purchase cars more in the first and second quarters of the year, as well as around key holidays like the Fourth of July or Christmas, when discounts may be higher. To meet that demand, dealers may be willing to pay more for trade-ins, which could mean increasing the trade-in value.
According to Beneke, the time you get the most amount of money for trading in your vehicle is when people are buying cars the most. Vehicle demand tends to increase in the spring when many people receive tax refunds. Dealers may have a more difficult time finding affordable inventory, meaning they may offer more for trade-in deals.
“Tax season,” Beneke said. “It’s hard to buy cheap inventory during tax time, so trades become a saving grace.”
It will come as no surprise that the newer a car, the greater the trade-in value. Cars lose their value after a certain number of years, and a new car can be worth as little as 40% of its original purchase price after five years of use, according to vehicle history report website Carfax. Once you pass the five-year mark, a car’s value declines more slowly for the next several years.
It’s best to avoid trading in your vehicle if you’re underwater on your car loan, meaning you owe the bank more than the car is worth. In this scenario, you may end up having to give all of the money you make trading in the car, and potentially even more, to the bank. If you can’t afford to cover the difference, you could end up having to take out a new loan to cover it.
Be sure to consider what state of life you’re in before trading in a car, too. Your financial situation, career, and life responsibilities will likely be factors in your decision.
Trading vs. Selling Your Car
Before you head to the dealership to trade in your car, you may also consider whether selling it yourself is a better option.
“Trading in will get you a fraction of what you can get from selling it on your own,” Beneke said.
Kelley Blue Book’s car value tool allows you to see what your car may be worth as a trade-in to a dealership versus what you could sell it for privately. Depending on several factors, the difference could be thousands of dollars.
When dealers buy a car or offer trade-in value, they are taking reconditioning and advertising costs into consideration, meaning they often pay less to guarantee their profit margin. At the same time, they may buy just about any car in any condition if they think they can make a profit.
While selling the car yourself can help you see a greater profit, there may be some downsides. Selling a car requires a lot of time and effort on your part to increase its visual appeal, advertise it, and show it to prospective buyers. You might ultimately decide that your time is worth more than the money you could make, and that trading in a vehicle at a dealership is often less of a hassle.
Also consider whether you’re planning to finance your next vehicle. If you’re planning to use your trade-in value to purchase a new car, then you have more factors to consider. First, you’ll have to weigh the best time to sell a car versus the best time to buy one. Chances are that they aren’t the same, meaning you’ll have to put a little more thought into the timing. And if you’re planning to finance your new vehicle, you’ll also want to consider your finances, like your credit score, so that you can get the best interest rate.
Interest rates reached new lows during the pandemic, and many dealers began offering rates as low as 0% on vehicles. Paired with high trade-in values, this could make now a particularly attractive time to trade in your car and finance a newer one.
Is Now a Good Time to Trade In My Car?
The pandemic has had a significant impact on the used car market. After a slight dip in the first half of 2020, used car prices have increased dramatically. While the best time to trade in has passed, with the peak falling in November 2020, values are still higher than they were one year ago, which means you may be able to get more money for your used car now.
Before trading in, consider your car’s characteristics, whether trade-in or private sale is better for you, and if you plan to buy or finance a new vehicle once you sell your old one.