Third party buys them and sells them. Third party pays Apple for the value (minus percentage). Apple is giving you the funds ahead of time.
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Apple Now Accepts Google Pixel 4a and Pixel 5 and Samsung Note 20 for Trade-In Towards New iPhone Purchase
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It depends on the country really. For those interested in the officially posted info,
Apple Reuse and Recycling Program
Learn more about the available recycling options made available through the Apple Recycling Program.
www.apple.com
Click through for your country. For the US, it’s here.
Apple Trade In
Trade in your iPhone, iPad, Mac, Watch or any other device for credit towards a new one, or recycle it responsibly for free with Apple Trade In.
www.apple.com