Many people think that when a charity uses a car donation center to process their vehicle donations, it is a negative thing. They believe the center will eat up all the profits and the charity will get little from their donation. That is not necessarily true. All car donation centers are not alike and there are very good reasons charities use them.
Donating a car is a complex thing. The charity is required to obtain a car dealer’s license in order to handle vehicle donations. An advantage of a having a dealer’s license is that the charity does not have to title the car in their name and therefore will not have to pay any title and sales tax fees on the donation. Every state has its own requirement for handling a vehicle title and what must be done with the license plates. A donation center will know the ins and outs of the requirement s for each state. The failure to properly handle the title and/or license plates can result in problems for the donor. Charities certainly want everything involved in the car donation process to go smoothly for the donor. There is a certain level of expertise that is required for this. That expertise is expensive to come by. Many charities certainly cannot afford this. Others simply prefer to use all their resources towards their mission.
It costs money to get a dealer’s license. In addition to this, special insurance is required. That insurance is expensive. And, most states require the dealer to have a bond for $25,000 or more. That, of course, is an additional expense.
The other reason charities use a car donation center is to get the best price for donated cars. Due to the volume of vehicles, car donation centers can negotiate better prices for cars. They can get higher prices for vehicles no matter whether the car goes to the junk yard, used car dealer or auction facility. Car donation centers are also able to negotiate better prices for the cost of towing and auctioning a vehicle. These economies of scale benefit the charity and the donor. The amount the donor can claim as their tax deduction is determined by the amount the car is sold for. Smart car donation centers will place a minimum bid on each car at auction so that a car will not be sold for an unusually low amount on an off day. Again, the objective is to get both the charity and the donor the maximum benefit from each donation. Car donation centers also provide the donor with the forms and other paperwork they require in order to claim that tax deduction.
In return for this service, the centers charge the charity a fee. Unscrupulous centers will charge the charity a flat rate or a percentage of the sale price minus towing and auction fees. Both of these methods can result in the charity losing money on a car donation. Reputable centers charge a percentage of the sale price of the car. Under this method, the car donation center pays the towing and auction fees and the charity cannot lose money on a donated car.