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Trading in your current vehicle towards another can partially offset the cost of the new vehicle. The trade-in's net value goes towards the purchase or lease of a new car. Conditions of a trade-in vary depending on who owns the vehicle.
If you own the vehicle, trading-in means that you're selling the car to the dealer for some determined price. As a result, the price of the new car goes down, only.
If you are leasing a vehicle and do not own it, trading-in means that the seller of the new car agrees to pay the outstanding costs associated with the lease. Depending on the financing of the new vehicle and the outstanding balance on the old one, trading-in can either raise or lower the new car's price.
Why is it beneficial to trade-in?
When you trade-in you don't have to worry about selling the vehicle yourself or any of the associated costs (advertising, showing the car, etc). A dealer may offer a price you could not get yourself as an incentive to purchase a new vehicle. If the trade-in has known problems that could plague you later (when the buyer returns complaining), selling the car to the dealer eliminates the bother. Trading-in a lease car may relieve you of, in the long run, monthly costs you cannot afford. Sometimes people trade in lease vehicles because of poor gas mileage or lack of practicality.
Why decide against trading-in?
If you think you can get a better price selling privately, and it's worth the time, money and effort, do not sell to the dealer. Some cars are of special interest and dealers will not always recognize those interests.
What happens to a trade-in?
Some are kept by the dealer and resold as used cars. Many are sent to auction and purchased by other dealers for resale. Dealers know that auction prices often will not match the sum credited toward a new vehicle, but they absorb the losses as sales incentives.
How much can I expect to get?
Check used car values in guides issued by organizations such as Edmunds.com or the National Automobile Dealers Association (NADA). Often both trade-in and private sale values are listed. Factors such as mileage, overall condition, damage and known mechanical problems heavily influence the trade-in value.