How Do Dealerships Make Money on Your Trade-In

There are two ways to sell your car: you either try to sell it yourself, through some online ad website such as Craigslist, or you take it to a dealership. The dealership is generally the preferred choice, as it takes away the hassle of having to find a buyer yourself.  It will trade in your car for you, and in exchange, get a commission for it.

But how will the dealership handle your vehicle, and how will it make money from it? Is your car more valuable if you sell it yourself? Well, that depends. While it takes the hassle of having to sell the car yourself, you may not receive the best price for it. Here is how dealerships make money when you trade your car in.

1.    Lowering the Vehicle Value

Dealerships are expected to make a profit from every sale. Before giving you money for the trade-in, they will appraise your car and look for its most appropriate selling price. Remember that just because you saw your car being sold at a certain price before, it doesn’t mean you will get the same price for it now.

Dealers will look at the condition that the car is in before determining its value. For example, if your car has high mileage, sports scratches, and dents, or doesn’t look its best, this will significantly affect its value. The dealership will negotiate for a lower price, and then turn that price around to make a profit. You may be able to negotiate a better rate if you prepare your car beforehand.

2.   Monthly Repayments

Dealerships will often prefer monthly repayment options as opposed to receiving the entire sum upfront. This is because they usually form liaisons with banks so that they may provide a loan. This helps you if you only have $3,000 but need to pay $5,000. At the same time, it benefits the dealership, as they get a commission out of that loan.

Depending on the loan, their commission will be different. If the loan covers an extended period, they will receive a monthly payment based on the interest rate. The monthly rate can be higher if you decide to pay faster, or lower if you go for smaller installments.

3.   Financial Institution Commissions

When you go with your car to a dealership, you will see that a lot of them offer to finance a potential new vehicle. This happens because most dealerships represent a certain financial institution, and for each loan sold, they will receive a payment. This is different from monthly repayments, as this commission is given all in a lump sum.

The amount they make may depend on the age and condition of the car. If the vehicle is older, they may not be able to get a good price. This is because most loans go past the price appraisal of the car. People may have a better deal buying it from the showroom than a dealership. However, when selling new cars, they have more pricing flexibility. This means they can sell for a profit.

The Bottom Line

Dealerships can take the hassle out of selling your car, but they are still businesses. This means they aim to make a profit, so you may not get the best price. That being said, there are still a few dealerships or car-selling options that can offer you a better price than you can get by yourself. For example, you can check SoldAuto.com to skip the dealers and sell your car for the fair price.