The cost of trading in a car? $1,000 or more

It's always been tricky to negotiate the best deal if you're buying a new vehicle while trading in a car at the same time. That's partly because the deal involves two separate negotiations with neither vehicle having a fixed price when you walk in the door.

It's always been a given that you won't get top dollar for your trade-in. The dealer who buys your car needs to resell it at a profit. But not only will you get less for your old car than you might through a private sale, there's a good chance you'll also pay substantially more for the new one. (Learn more about trading in a car.) 

That was the key finding of a recent study of close to 170,000 new-car transactions in southern California. The researchers found that new-car shoppers who were trading in a car wound up paying, on average, $990 more for the new car than customers who had no trade-in.

How could that be? Jorge Silva-Risso, a business-school professor at the University of California, Riverside and a co-author of the study, explained in an email that car dealers know more than most of their customers do. The term for that in economics is "information asymmetry." In all kinds of price negotiations, the person with the most information has the edge.

The study also indicated that shoppers trading in a car for a newer version of the same car spent $1,204 more. But based on our experience, it is common for a shopper buying the same model to upgrade equipment or choose a higher trim level. So brand-loyal customers may not be financially penalized as much as the study may suggest.

Visit our new-car buying guide for more advice and money-saving tips.

What should you do if you have a trade-in?

Level the playing field by gathering the most information you can. You want to find out how low a dealer will go on the new models. The easiest way to do that is to make dealers compete against each other instead of you. This can be done online, and it is made easy using services like Consumer Reports' Build & Buy program. There is also great data readily available on local transaction prices, available on the ConsumerReports.org model pages and through TrueCar.com.

The better informed you are, the better your chances of success. And in your negotiations, it's probably a good idea not to tell the car dealership that you're just dying to be rid of the car you're trading in.

—Gordon Hard