When buying a new car with finance, any trade-in value can reduce the new loan but taking the cash for the trade may be useful for easing personal finances. Buyers are faced with many decisions when upgrading their current vehicle to a new vehicle with new finance. One of those decisions is around whether to use the vehicle as a trade-in, or take any cash offered from private sale or the dealer.
When buyers have an existing vehicle, they may be offered the option of trading in the vehicle on the new one for a discounted purchase price. Some dealers may offer a cash payment for the existing vehicle in lieu of the trade-in and discount. Buyers may choose to sell the vehicle privately for cash.
A key driver of the best option may be if money is outstanding on the finance on the vehicle being traded in. If the current vehicle is under finance, any proceeds from any sale or trade-in would typically be used to payout the loan. Dealers and private buyers will check the PPSR to see if a vehicle is under finance. If so, they would want the loan finalised before they take ownership.
If there are no monies owed on the vehicle, then which is the best option – cash or trade-in? We present a range of considerations which may assist buyers with deciding which is most advantageous for their circumstances.
Taking the Cash When Buying New Car with Finance
Taking the cash option may be available by selling the vehicle privately or effectively to the new vehicle dealer. Depending on the vehicle, private sales may deliver better pricing than a dealer is prepared to offer. If the dealer is not that interested in having your current vehicle on their used car lot, the price offered may not be that attractive. Dealers need to on-sell the vehicle and typically offer what is known as a trade price.
The difference between private and dealer pricing can be significant. But buyers also need to consider what can often be a complicated process to sell vehicles on the private market.
Accepting the cash rather than opting for the trade-in may be of assistance if the buyer has other outstanding debts. The cash may be useful for other purposes such as the vehicle insurance. Alternatively, cash from a private sale may be used as the deposit on the new vehicle. This would require the current vehicle to be sold prior to buying the new vehicle. A process which may be time-consuming and lengthy, depending on the popularity of the vehicle in the used car market.
Depending on personal circumstances, any cash received from effectively the sale of a motor vehicle may need to be included in tax return. Tax may be payable. Individuals and businesses should refer to an accountant on tax related matters.
With the cash taken the new loan required would be on the full purchase price, less any downpayment.
Using Trade-in When Buying New Car with Finance
The process of trading in a vehicle involves the dealer offering a price which is either used to payout any existing loan and/or provide a discount on the price of the new vehicle. As with the discussion on selling for cash to a dealer, the amount offered for the trade-in will depend on the new vehicle, the trade and the dealer.
Some buyers are quite shocked with how little their current vehicle is worth as a trade-in. Dealers will be on-selling the vehicle and may need to effect repairs to get the vehicle into the best condition. Dealers typically offer a trade price.
Depending how keen the dealer is to make the new vehicle sale may determine how much discount the buyer receives off the purchase price. This can be significant when taking on finance for the new vehicle. The amount of the trade-in comes off purchase price. This can mean a lower loan amount is required.
A lower loan amount means lower repayments but may also contribute to securing a lower interest rate. Lenders consider the amount of the loan compared with the value of the vehicle that is being used as collateral for a Secured Car Loan or for business vehicle finance products. The lower the loan the lower the risk and potentially the lower the interest rate.
Business Vehicle Finance Considerations
It may be advisable for business vehicle buyers to speak with their accountant on the cash vs trade-in decision. The accountant can advise the most tax-effective option which may depend on the finance product selected – Leasing, Chattel Mortgage or Commercial Hire Purchase.
For example, if using the trade-in to reduce the finance required, is the entire purchase price subject to tax deductions or just the finance payments with Leasing? Similar questions may need to be answered regarding depreciation with Chattel Mortgage and CHP. Would the full value/purchase price be depreciated value or only the loan amount?
Taking the cash from a private or dealer sale may need to be claimed as income and capital gains tax may apply.
Tools to Assist with Buying and Financing Decisions
Use our Finance Calculator to assist with your decision. Work up loan payment estimates based on different finance amounts and request a quote from one of our brokers.
To assist in deciding whether to take cash or trade-in when buying new car with finance, request new vehicle finance quotes from Jade Car Loans 1300 000 003.
DISCLAIMER: IN REGARD TO MISREPRESENTATIONS AND ERRORS CONTAINED IN THE MATERIAL AS PRESENTED, LIABILITY IS NOT ACCEPTED. THE DETAILS AND CONTENT IS PROVIDED FOR CAR BUYERS AND INDIVIDUALS AND BUSINESS SEEKING FINANCE PURELY AS GENERAL INFORMATION. THIS IS NOT PROVIDED AS THE ONLY SOURCE OF FINANCIAL INFORMATION. ANYONE THAT CONSIDERS THAT NEED FINANCIAL ADVICE ABOUT THEIR SPECIFIC REQUIREMENTS SHOULD SEEK THEIR OWN FINANCIAL ADVISOR.
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