We've all seen them - among the daily pile of junk in your mailbox, you find a postcard from your dealership that catches your attention. It claims that your current vehicle is so popular that the dealer is willing to buy it and offer you an amazing deal on a brand new car in return. Should you mull it over or toss this marketing piece directly into the trash and continue on your merry way in your current vehicle? If your first thought is that buyback offers are the dealership's way to get you in the door to spend more money, you're correct, but in some cases, trading in can work to your advantage.
What is a Dealer Buyback Offer?
It may come in the form of the aforementioned mailer, an email, or a phone call. The dealership where you bought your car contacts you letting you know that your used car (make, model, and year) is highly desirable and they are willing to give you the deal of a lifetime on a new vehicle in exchange for your gently used car. Before you grab the keys to your 'immensely popular' vehicle and race to the dealership, it's important to understand the strategy behind these marketing tactics.
First, you should remember that you're not the only one who is receiving the buyback offer. This is a very common strategy that dealerships use with customers, sending out thousands of similar brochures or emails at once. Usually, the buyback offers are sent to customers two or three years after the purchase of the car, and before it's fully paid off, but the timing can vary.
The type of deal that is offered can also vary between special financing, rebates, and discounts. If it seems too good to be true, it likely is. MotorBiscuit uses an example of a dealership offering a discount of $5,000 and special financing rates when you trade in your used car for new. Usually, the fine print will specify that you'll need to choose between the low interest financing and the immediate cost savings on the vehicle. You won't get both.
Benefits and Risks
Although it can seem like a marketing ploy to sell more vehicles, a dealer buyback program shouldn't automatically be written off as a lie or a way for the dealership to take advantage of its customers. Depending on your situation, there are both benefits and risks that can come from trading in your vehicle in exchange for a new car deal.
If you were already thinking about trading in your car when you received the buyback offer, this may be your chance to get a better interest rate or save on a new car purchase. Trading your car in at the dealership will also save you the time and hassle of selling the vehicle privately. The convenience factor alone motivates some drivers to head to the dealership and sell the car. In some cases, the payments for the new vehicle may not be much higher than for the one you traded in with a lower interest rate. According to Car and Driver, the shortage of dealer inventory on both new and used cars means it's currently a seller's market, and if you're thinking about selling your vehicle, now is the time to do it.
On the flip side, drivers who are still paying off their used vehicles and have no intention to sell prior to receiving the offer need to beware of the risks involved. If the vehicle isn't paid off and the amount you're offered on it doesn't cover the remainder of the loan, the dealer may suggest rolling the remained of the auto loan into the new vehicle's financing. This is dangerous territory since you'll start the new loan with negative equity and take on even more debt. In this scenario, it will be wise to hold onto your current car until it's paid off and only then consider trading in.
How to Sell Your Car to the Dealer
If you decide that selling or trading in your vehicle at the dealership is the best route, it's still not advisable to rush into the process. Even if the buyback offer sounds like an excellent deal, you should first do some research on the value of your vehicle.
To determine a fair value for your car, check websites like Kelley Blue Book to find comparable used vehicles. You'll be able to enter your make and model, year, condition, and mileage to get an estimated value. Compare various used car sites to see what similar vehicles are going for and make note of the market values. This will give you more power to negotiate (or the insight to pass on the buyback offer altogether). If the dealership can't match or come close to the fair value, it won't be in your best interest to trade-in.