Is it better to sell your car to a dealership or more advantageous to sell privately? The Auto Consultants often get this question and are here to discuss the pros and cons of both.
Dealership Option
Advantages
The main advantage of selling your car to a dealership is convenience. Regardless of year, make, model or condition, the dealership will make you an offer. If your car is in bad condition or has been accidented, the dealership will assess the appropriate deduction and still make an offer. Another important advantage to recognize, is that, should an issue with the car be discovered after the dealership purchases the vehicle, the seller is never liable. The transaction is final.
Taxes
There is also a tax savings when trading in your car to a dealership. In Canada when trading in a vehicle you will automatically get a tax savings equivalent to the federal and provincial sales tax amount from your trade-in towards the new car.
The federal and provincial governments of Canada offer tax incentives when trading in a used vehicle. Sellers will automatically obtain the tax savings, equivalent to the sales tax value from your trade-in. This amount gets applied towards the new car.
Here is an example, let's say you are shopping for a car that costs $30,000 before tax and you are trading in a car and the dealership offers you $10,000. Both the federal and provincial tax on the vehicle are 15%. In this example, it is as though the dealership has offered you $11,500 because the extra $1500 gets applied, as a savings, towards your next purchase.
Rather than accepting the final $34,500 (total value of new/used car $30,000 + 15% tax) minus $10,000 (value of trade-in), which equals $24,500, you can benefit from the tax savings, which is calculated as $30,000 - $10,000 = $20,000. The $20,000 amount would then have the taxes added, bringing the total to $23,000, which represents the $1500 tax savings.
Disadvantages
The dealer will purchase the vehicle at a wholesale price. Ultimately the dealership has two goals when taking your car in on trade.
Pay enough money for you car to incentivize you to purchase a new car from them
Pay wholesale prices so they can profit from reselling the car
Selling Privately
Advantage
The biggest upside to selling a car privately is the ability to maximize your return. Typically, a vehicle can be sold for a few thousand dollars more than what would be offered by the dealership. Seeing as you are the private seller, you can charge the fair market price and not have to accept a wholesale offer.
Disadvantages
When selling to a dealership, the full tax savings get applied automatically. Through private sales, the seller only has to pay the provincial sales tax. Those living in provinces with 5% federal sales tax and 10% provincial sales tax, could potentially benefit from the PST savings.
You can ask your private buyer to assume both taxes, which is called an accommodation sale. If the buyer is aware of all the tax rules, there is a chance that the buyer may refuse the extra 5%.
The best way to sell your car privately, is through an automotive classified site like Autotrader, which may charge a listing fee. Some sites, like Kijiji, offer the ability to post the car for free, but may charge to promote the car and have it appear either on the top of the page or more frequently. The benefits of a paid listing, includes better positioning on the page and the ability to add additional photos. Another option is Facebook Marketplace, which allows private sellers to post a vehicle with photos at no charge.
Reach out to Autos Consultants if you have any questions about selling your car.
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