What Is the Diffence Between Trade Value and Cash Value on a Car?

One way to get rid of a current car and buy a new one is to trade the car in at the dealership. For a trade in, the dealer pays what it considers to be a market value for the trade, and the trade value is applied against the purchase price of the new car. Trade and cash values have different meanings to the dealer.

Cash Value

At the dealership, the used car department appraises your trade in and gives the car a value. This value is the wholesale value of the car, and if purchased at this price, the dealer should be able to sell it for a profit. The appraised value is the cash value. If you brought the car to the dealer to sell it, not as a trade, this is the value you would receive.

Trade Value

The trade value is the amount listed for the trade in on the deal proposal or purchase order. The trade value may be different than what the dealer thinks the trade is worth -- the cash value. A high trade value may be used to make the deal more attractive to the new car buyer. A low trade value offer most likely means that the dealer is trying to make extra profit by offering the customer less than the trade is worth.

Negotiating the Trade Value

For the dealer, the real value of the trade in is the cash value. Any difference between the trade value and the cash value is either a reduction or increase of profit to the dealer. If the dealer offers a high trade value, the negotiating room on the new car is reduced. Dealers may offer low trade in values in hopes that the customer will accept and allow the dealer to book a bigger profit. A car buyer must protect herself by researching the value of her trade before heading off to the dealership.

Trade Value When Upside Down

If the outstanding loan balance on the trade in is greater than the cash value, the trade is "upside down." If the cash value is used as the trade value on the new car purchase order, the trade will show negative equity. Car lenders do not like to see negative equity in a car finance deal. To avoid showing negative equity, the dealer will increase the purchase agreement on both the trade value of the trade and the sales price of the new car to erase the negative equity -- at least on paper.