Used-car prices are up 18% year-over-year, meaning that a used car sitting in someone's garage right now is currently worth on average nearly one-fifth more than it was last year. Given the high-ticket prices of vehicles, that percentage can translate into quite a bit more cash lining a seller's pockets. To view it another way, vehicles that were retaining 55% of their value a few months ago are fetching 60% to 65% of it now.
If you're in a position to sell, it's a great time to command top dollar for your old car.
Tweet thisThe biggest factor contributing to the current market conditions is limited supply of used cars. According to data from vAuto, there are approximately 2.34 million used cars available in America today. That's more than 530,000 fewer than just one year ago in 2020, and about 430,000 less than during the same period in a more normal 2019. These circumstances point to a huge opportunity for people thinking about selling or trading in their current vehicle.
"There has never been a much better time to sell or trade in your car than right now during this strong seller's market," said Matt DeLorenzo, senior managing editor for Kelley Blue Book. "Dealerships are seeking more used-car inventory, and prices are reaching sky high. If you're in a position to sell, it's a great time to command top dollar for your old car. And if you're trading in your vehicle to purchase a new one, the increased value of your used car will help take some of the sting out of the higher price you're likely to pay when purchasing a car in these market conditions."
Consumers who want to buy a car right now are facing some tough times. Prices are high, supply is low, and the forces that could change these conditions are caught up in a perfect storm of complex factors. A worldwide microchip shortage has severely limited new-car production, and the COVID-19 pandemic has triggered many people to look for an inexpensive car rather than use public transit for their daily commute. Dealerships have fewer used vehicles to offer right now, but people are still buying cars and the demand is growing. Increased vaccinations are leading to the world slowly reopening, and when combined with boosted disposable income from government stimulus programs designed to kick-start the economy, people are shopping for cars again in droves.
"America may be slowly returning to some semblance of normal, but the car market isn't," said DeLorenzo. "This means that people's prior car-shopping experiences will not be able to tell them exactly how to handle this market. If consumers are even able to find the vehicle they want right now, they need to be prepared and understand they're likely going to pay more for it than they probably thought they would. With demand high and supply low, manufacturers aren't offering as many discounts as people are accustomed to seeing; without available incentives, dealerships aren't able to negotiate as much. And we don't expect this to change much anytime soon – it's going to be a lean market for quite some time."
Understanding what your car is worth when selling or trading in, and what you should expect to pay when you're buying a new or used car, can ensure you get the most for your money in either situation. Before selling or trading in a used car, consumers should research the trusted Blue Book Value® of their vehicle. Prior to purchasing any new or used vehicle, experts recommend that car shoppers check out the Fair Purchase Price range for that specific model on KBB.com. Based on thousands of data points and updated weekly to factor in changing market conditions, Kelley Blue Book's Fair Purchase Price helps people understand what they should realistically expect to pay for that particular vehicle in their local area.
For more information about the timing of buying, selling and trading in cars given the current related market conditions, visit //www.kbb.com/car-advice/is-now-the-time-to-buy-sell-or-trade-in-a-used-car/.
Some people keep one eye on their odometer at all times, trying not to put too many miles on their car so they won't hurt its value when the time comes to trade it in. But your car's mileage may not matter as much as you think.
Sure, the value of your car drops slightly with every 10,000 miles you add. But according to Edmunds data, there is no major drop-off at any certain milestone. Even the 100,000-mile mark is not a value-killer as long as the car is in good shape. The truth is, there is no magic number. And dealers are already flush with low-mileage used cars that have come off leases, so they're not in a rush to add more to their lots.
What matters more is the model year. If your car is only a few years from new, it is likely to retain 60%, or even up to 70%, of its original value. That remains true even if you racked up the miles. Cars that are 5 years old or older, however, are less likely to reach those figures whether they were babied or not. Still, if your car is in good shape, it will retain value — dealers can often resell older vehicles much more quickly than newer ones. But when it comes to getting the most money for your trade-in, newer is better.
Best month/time of year to trade in
Buyers often focus on the best time of year to buy a new car, whether it's around holiday discounts or end-of-year clearances. Trade-ins can be an afterthought in this line of thinking.
But there actually is a good time to trade in a car. Values are higher in the first two quarters of the year, with larger drops in the final two quarters. Obviously, the longer you have a car, the more it will depreciate. But there are other valid reasons that keep values afloat early in the year.
First of all, there are more buyers in the market early in the year and dealerships need more cars to feed the demand. Also, a used car feels more new when it is eight or 10 months away from turning a model year older rather than just two or four months away. These are good things to keep in mind when you're looking to either time your trade-in or negotiate with a salesperson in March instead of October.
Best age of the car to trade in
Again, newer is better. Your car will hold more value the more recent its model year. As with mileage figures, there typically isn't one particular age when a car's value plummets. It will decline gradually but steadily. But by the time it's about 5 years old, its residual value has likely dropped significantly.
When it's between five to seven years past its model year, the decline in its value slows and mostly settles. So if you didn't trade in during the first five years of ownership, there's not much reason to rush to do it before the car turns 8. You'll get about the same amount of money back as long as the mileage doesn't skyrocket, so consider taking that extra time to build your savings for a down payment on something you really want.
Best point in the loan to trade in
If you took out a loan to buy the car, the best time to trade it in is a subjective decision that will differ for each person. But there is, objectively, a worst time.
We do not recommend trading in your vehicle if you still have a balance on the loan and have not yet earned any equity. This means you still owe more money than the car is actually worth and are underwater on the loan. With the average length of car loans increasing in recent years, this scenario is becoming more and more common. Learn more by reading our article on how to deal with underwater loans. If you trade in the vehicle for another at this point, you'll be underwater on that loan too, exacerbating the problem.
Instead, reach out to your creditor to find out how much you owe on the loan. Compare that to the estimated value of your car on a trade-in, and when its value is higher than the amount you owe, consider that a green light. Now you'll have something to put toward buying a new vehicle. But it will be up to you to decide when you can get the most return, keeping in mind that your car declines in value with each passing year and each additional mile.
What vehicles do best/worst as a trade-in?
It's difficult to predict what will happen in the used car market as the world recovers from the coronavirus pandemic. But certain trends are likely to hold true. Generally, you can count on the following:
- SUVs keep their value better than sedans.
- The Toyota Tundra and Tacoma are the two best vehicles at holding residual value.
- Specialized vehicles, such as Jeep off-roaders or Porsche sports cars, perform better than most.
- Popular in-demand vehicles such as the Honda CR-V and Toyota RAV4 do well.
These are typically among the leaders at holding value because they are considered more rare, more reliable or long-lasting, or easier to resell than the average vehicle. Some, such as Jeeps, Porsches and Tundras, check all three boxes.
SUVs outperform sedans because they are seen as more durable and more practical. That said, compact and midsize sedans hold their value well compared with most electric vehicles and expensive luxury cars.
And of course, a car that's in good shape will command a larger sum than one with multiple repairs and chipped paint. The best thing you can do for your car's value is take care of it.