You just finished paying off your car loan and are finding yourself studying advertisements for new cars. Your current vehicle is four years old, has 70,000 miles on the odometer, and will eventually hit a significant maintenance milestone — and a costly one at that. Moreover, you are concerned that your depreciating vehicle won’t be worth much if you wait a few additional years to trade it in.
Deep within yourself, there is a question that remains unanswered: when is the best time to trade in a car? That answer is best left to later, once we explore a key reason for delaying action.
Trading in a fairly young model means that you will have a more significant value now that could be applied towards a newer car than if you were to wait a few years. Your automobile is in the midst of a prolonged depreciation spiral and will continue to lose its value moving forward. Consequently, it can be so tempting to cut your losses now and buy new.
Nevertheless, the temptation is not a compelling reason to buy a new vehicle: you may prefer to carry out your decision based on a practical, financial standpoint.
When Purchased New
To illustrate, you need to recall the purchase price for your vehicle when it was new. For example, let’s say you purchased a 2011 Toyota Camry SE Sedan. Your car is powered by a 3.5-liter V-6 engine paired with a six-speed automatic transmission. It has all the desired amenities, including power accessories, a tilt steering column, cruise control, air conditioning, and an audio system. A moonroof, navigation system, and premium wheels are among its upgrades. For $24,200, including taxes, tags, and fees, you obtained a reasonable deal.
Furthermore, your Camry is in good condition as you have maintained it according to the manufacturer’s recommendations. A visit to a price estimator site, such as Kelley Blue Book, shows an average trade-in value of $11,656 or just under half of its original value following unrelenting depreciation. Were you to sell it to a private party, you might fetch nearly $2,000 extra for it.
Using the example of the trade-in to a dealer, your car lost $12,444 of its value over 48 months or $259 per month on average. However, that monthly amount fails to explain the entire story: the depreciation rate was substantially higher initially and it gradually declined month by month.
Early on, depreciation may have topped $400 per month before falling to under $200 per month as your car was paid off. Your other operating costs, including insurance, should also now come in lower. Moreover, in states where property taxes are collected, that expense will diminish too. For every vehicle, you can determine its value to estimate its monthly and annual depreciation year by year.
Older Model Comparative
You can also explore older models to estimate what they are worth today. In the example of the Toyota Camry, you will notice that the depreciation rate of 2010, 2009, 2008, and earlier model year vehicles continues to slow. For a higher-quality automobile, such as the Camry, the depreciation rate can slow to a crawl after seven or eight years of ownership. Besides Kelley Blue Book, Edmunds.com and NADA offer book values. Use all three to obtain a market estimate of your current model’s valuation.
A car depreciates at its greatest rate in the first few years of ownership, especially so during that first year alone. That may explain why some people prefer a late-model used car, a vehicle that is three or four years old, is reasonably priced and is still in respectable shape. It may no longer be under the new car or bumper-to-bumper warranty, though its powertrain and corrosion warranties may be active for a few additional years. Those warranties are oftentimes transferable to a new owner.
Emotive Reasons for Buying
Unless you want a newer car simply for the reason to trade up, for accessing the latest technologies, or for moving over to another body style, your current note-free ownership has you in the best financial position. Likely, you still have several years of worry-free driving ahead of you before major repairs are consummated. That extended finance-free interlude can be the best time to sock away money toward your down payment.
Further, your annual maintenance costs will probably be lower than what you paid on your banknote each year. New tires, brake pads, oil changes, air filters, wiper blades, and air filter maintenance represent routine work. Stay with these expenditures and you can avoid greater and significantly costly repairs later.
The tipping point in car ownership comes when your repair bills begin to pile up. Besides the bills, the inconvenience of not having access to reliable transportation should also be factored in. Together, your costs may approach what you would pay for a new car, making the tipping point an ideal time for trading in your car.
Making Your Decision
To sum up, if being cost-effective is of paramount importance to you, put off your new car purchase and begin saving money immediately toward your eventual acquisition. Later, you can allocate those saved funds toward the purchase price of a new car or otherwise use those funds to buy a quality used car that has already passed through much of its depreciation.
Featured image by mohamed Hassan from Pixabay
Chevrolet S10 photography Stumpwater Media Group, LLC. All rights reserved.
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