Trade-in value is generally lower than the amount you could sell the car for yourself in a private-party sale, but by trading in you avoid significant pitfalls. You save time, effort and potential post-sale headaches. As Donna Reichle, spokeswoman for the National Automobile Dealers Association , explained, "If you sell your car yourself you are basically making yourself available to the buyer. When you trade in your car to a dealer you absolve yourself of liability."

Trading in is about convenience—there are no advertisements to place, no test drives to arrange, and no legal battles to fight if your recently-sold car breaks down. For those people without the time or inclination to sell a car on their own, trading in makes sense. Once a car is in the dealer's hands, it's the dealer's responsibility to prepare it and handle the resale.

Of course, for those efforts and responsibilities a dealer is justified in setting a suggested retail value on the vehicle that is higher than the trade-in value. The higher price covers refurbishing, marketing costs, "and, frankly, dealer profit," said Reichle. "The next person buying the car gets the advantages the dealer has put into it," she added.

Trading-in may also offer a tax advantage if you are buying a vehicle at the same time. In most states, according to dealers and regional authorities contacted by MSN Autos, when your car is taken in trade you only pay sales tax on the difference in cost between its trade-in value and the price of the new car. For example, if a dealer gives you $10,000 on your trade-in and the purchase price of the car you are buying is $25,000, you'll only be required to pay sales tax on the $15,000 difference between the two amounts. In states with a high sales tax, this benefit can help narrow the difference between trade-in value and private party price.

Selling a car on your own is good insurance that you'll obtain top dollar, and it may be your only option if you are buying your next vehicle through a private-party sale. But be aware of the work involved. Prepping your vehicle for sale will take time, and depending on its condition may also cost you some money. Honestly assess the car's condition, and then decide how much you want to spend on minor repairs, always remembering the liability involved with a private-party sale. Be sure to fix things well enough to avoid running into possible legal troubles farther down the road.

Once the vehicle has been cleaned and repaired, you'll need to determine what it's worth. All of the dealers interviewed by MSN Autos suggested using Kelley Blue Book values as a starting point. By looking at both the trade-in and suggested retail values listed by Kelley for your car, you can determine an asking price somewhere between them. Also check your local newspaper's classifieds, and newsstand publications containing used-car ads in order to determine local market pricing. Look for listings of vehicles similar to yours and compare their asking prices. Using multiple sources helps assure that you arrive at a fair and realistic asking price.

The next step is to advertise and field phone calls. Since most private party vehicles are sold through local classifieds or used-car publications, start by placing ads in those but be prepared to advertise in multiple sources. Remember to calculate the costs involved. If the car doesn't sell right away, make sure you can afford to run ads for an extended period of time if necessary.

After the ads have been placed, remember to set aside time to answer phone calls and meet interested parties for test drives. Prepare yourself for possible scheduling hassles like multiple buyers wanting to see the car at the same time, and for negotiating in general. How low a price will you really accept? How will you handle competing offers and other dilemmas?

When you finally find a buyer and have the money in hand, the last step is to transfer the title and registration, and cancel your insurance on the vehicle.