4 Ways to Get Rid of Your Old Car and Make a Profit in the Process

You've got an old car you've outgrown -- maybe it's collecting dust in the garage or maybe you're still driving it but dreaming of something better. Getting rid of it could free up extra space for you and take some costs, like its auto insurance premium, off your plate. But the question is, what should you do with it?

You probably have more options than you realize. Here are four ways to get that car out of your life and put a little extra cash into your bank account at the same time.

1. Trade it in

Trading a car in could be a good fit if you're looking to purchase a new vehicle. You take your old car to a dealership, it decides how much it's willing to pay for it, and you can use its value to reduce the cost of your new vehicle's purchase. For example, if you own the car free and clear and the dealer decides it's worth $5,000, that's $5,000 off your purchase price of a new vehicle.

But things get a little more complicated for those who still owe money on their old car. You'll have to pay off the balance of your loan at the time of the trade-in and only the value left over after this counts toward your new car purchase. If you're upside down on your loan -- you owe more than the car is worth -- you'll have to pay your lender the difference between the loan balance and the trade-in offer when you trade the vehicle in.

This method could make sense for drivers who have low-mileage or newer vehicles in decent condition that have a high trade-in value. It might also make sense for cars that need repairs if you think repairing your old vehicle would cost more than buying a new one.

It's worth getting quotes from a few dealerships before accepting a trade-in offer. To do this, gather all necessary documentation, including the vehicle's title, the details of any auto loans you have, your vehicle registration, and driver's license. You may also want to do some research into your car's value on your own so you know if you're getting a fair deal.

2. Sell it

Selling your car on your own is another option for those who don't want a new vehicle right now or those who don't think they'd get a decent trade-in value for their old car. There are two ways you can do this.

First, you can sell to a private party on your own. You'll have to advertise the car, take care of setting up test drives, and negotiate with prospective buyers. If you have a loan on your vehicle, you'll also have to speak with your lender so you know how to properly go ahead with the sale. When you and the buyer reach a deal, you'll have to sign the title and give them a bill of sale.

Selling this way could net you more money than you'd get by trading your car in at a dealership. But you'll probably encounter your fair share of scammers too. You'll have to be careful to ensure the person you're working with doesn't write you a check that bounces or takes off with your car on a test drive.

The other option you have is to sell to an online marketplace like Carvana. To do this, you enter some basic information about your car into the site and you'll receive an offer right away. If you decide to accept, the marketplace will come pick up the vehicle and pay you the agreed-upon price. This is simpler, but unfortunately, it's usually not possible to negotiate on their offers.

3. Scrap it

Scrapping your old vehicle could make sense if it's in poor shape and won't fetch much as a sale or trade-in. This could also be the way to go if your vehicle's manufacturer is no longer making certain parts.

To do this, you'll need to gather the vehicle's title, your registration, and your driver's license. You'll also want to remove your license plate and any personal belongings from the vehicle before you hand it over.

Look for a reputable scrapyard to work with. You can check out reviews online or get recommendations from friends. If there are a few in your area, it's worth getting quotes from each of them to see which offers the best price.

4. Donate it

Donating your car could allow you to get rid of it more quickly than you could with any of the above methods. You won't earn a profit from this, but you could earn a tax break. Plus, you'll be helping a good cause.

You can't just give your car away to anyone if you want it to count as a donation. You must give to a qualifying tax-exempt organization. It may use the vehicle for transportation or hauling goods. Or it might sell it and use the proceeds to fund its mission.

In most cases, your tax deduction is equal to the car's fair market value. But if the charity sells the car, your deduction is limited to the lesser of the sale price or the car's fair market value. The only exception is if the car sells for $500 or less. Then, your maximum deduction is the lesser of $500 or the fair market value.

You'll have to sign over the title to the charity. Then, you'll need to include the vehicle identification number (VIN) and the date of the donation on your Schedule A when you file your tax return. You'll also need to complete Form 8283 if the car is worth more than $500.

It's worth exploring a few options before you decide how you want to get rid of your car. Think about what's most important to you -- selling it quickly or beefing up your bank account -- and let this guide you toward the best choice for you.