- An over-allowance is the extra you put on a part exchange above what that car is worth to you.
- It hides inside the monthly payment. Pull it out and look at the metal on its own.
- A small one can be a choice. A large one is a car you will regret, dressed up as a deal.
Part exchange over allowance is the extra you put on a customer's car so the deal on yours looks affordable. That gap is an over-allowance on a part exchange. It is not a line most people write down. It sits inside the monthly payment, and it feels like customer service until the part exchange is on your pitch and you cannot remember why you paid that much for it.
This is how to see the number on the metal, on its own, before you agree.
What a part exchange over allowance actually is
A part exchange is a car you are buying. The allowance is the price. An over-allowance is the gap between that price and what the car is worth to you.
Worth to you is not a book price copied off a screen, and it is not the figure the customer opened with. It is the number you would pay a stranger for the same car, in the same condition, with the same history, knowing what you will spend to sell it and what you can sell it for. If you would not retail it, worth to you is the trade value, the price the trade would pay, after you have been honest about the work.
Anything above that is the over-allowance. It has to come from somewhere. Usually it comes off the margin on the car you are selling. Sometimes it is added to that car's price so the paperwork still shows a profit that is not really there. Either way the customer experiences it as a helpful figure. You experience it later, as a car that will not make its number.
How to value a part exchange is the appraisal. This guide is the moment after the appraisal, when the deal tries to talk you out of it.
Why the monthly payment hides it
Customers buy a monthly payment. You buy a car. Those are different jobs, and the finance illustration is good at mixing them up.
Change the allowance and the payment moves. Change the price of your car and the payment moves the same way. A customer who is staring at the payment cannot see which lever you pulled. That is not a trick you should be proud of. It is the reason dealers talk themselves into metal they do not want. The payment looked fine. The car did not.
Do the sums in the other order. Price the part exchange as if there were no other car in the deal. Write that figure down. Then price the car you are selling as if the customer were paying the whole amount in cleared funds. The difference between those two honest numbers and the deal in front of you is the over-allowance, plus any discount you have already given. If you cannot explain that difference in one sentence, you do not have a deal. You have a wish.
Trade value, retail value and the part-exchange figure are three different prices. The over-allowance lives in the confusion between them.
A small one, and a large one
A small over-allowance can be a choice. You want the deal. The car you are selling still clears its figure after you have taken the extra off. The part exchange is a car you can live with, or a car you can move on without a drama. You have written the number down, and you would make the same choice tomorrow morning.
A large one is different. The part exchange is a car you would not buy. The allowance only works because the other car's price has been pushed up, or its margin has been given away. The customer is happy because the payment fits. You are hoping the market will be kind to a car you already know is wrong. It will not be kind. You knew that when you appraised it.
There is no universal line between small and large. A modest extra on a car you like is not the same decision as a large gap on a car you plan to send to auction. The test is whether you can say the number out loud to yourself without wincing. If you need the finance screen to make it feel acceptable, it is already too big.
If you would rather the next car arrived already booked in, so the allowance is a decision and not a rescue, get your buying site. The metal is still yours to price.
Where the extra usually hides
The extra hides in three places, and dealers rotate between them without noticing.
It hides in the part-exchange figure itself. The appraisal said one thing. The order form says another. Nobody writes the difference in the margin column, so the stock card later shows a cost that was never the car's cost. When that car is retailed, the profit looks thin and nobody can remember the Saturday that caused it.
It hides in the price of the car you are selling. You add the same sum to the screen price so the allowance looks generous and the margin still prints. The customer who shops around sees a dearer car. The customer who only looks at the payment does not. You have not created margin. You have moved the same pounds from one line to another, and you have made your car harder to sell to the next person who compares like for like.
It hides in the prep you have not listed. A car allowed at a clean figure, which then needs tyres, a service and a dent, was not allowed at a clean figure. The over-allowance and the forgotten work are the same hole. Put the work in the first line, before you talk about what you can "do" on the allowance.
None of this needs a spreadsheet with a name. It needs the three lines from the next section, written before the finance illustration is on the screen. If you cannot fill them in while the customer is still in the office, you are not ready to agree. Ask them to leave the car, or ask them to come back. A deal that only works when you are tired is a deal you will pay for on a Tuesday.
What to write down before you agree
Three lines are enough.
What the part exchange is worth to you, and whether that means retail or trade. What you are actually allowing. What is left on the car you are selling once the gap is taken off its margin.
If the third line is a number you would still be happy to make, the over-allowance is a decision. If the third line is thin, or gone, the deal has stopped making sense. Say so. Offer a lower allowance, or a different car, or nothing. A customer who leaves is not a failure. A car that sits for months because you were polite is the expensive version of the same afternoon.
The prep on the part exchange belongs in the first line, not as a surprise after you have shaken hands. Used car margins only work if the allowance was real.
If you would rather appraise the car on your own drive, with the customer already booked in, get your buying site. The allowance is still your decision. The car arriving on its own is the part you no longer have to chase.
Common questions
Is an over-allowance always a mistake?
No. It is a mistake when you have not written the number down, or when the car you are selling no longer clears its own figure once the extra is taken off.
Should I show the customer the trade figure?
Show them a price you can explain. If the allowance and the car's value to you are miles apart, the conversation is already going wrong.
What if the customer will walk without the extra?
Then you are choosing between the deal and the car. Write both outcomes down. A lost deal is cheaper than a car you cannot sell.
See what the fees come to on the auction cost calculator, or try the live demo.
