You haven't shared many details, but I'm going to do the best I can to look at your situation using several of the rules of thumb I've developed:
1. Until you have a net worth of more than a million dollars, you should be extremely careful about buying too much car and/or buying the wrong car. You are not rich enough to afford motorized toys, and anything above basic transportation is at least in part a motorized toy.
2. My rule of thumb to define "too much car" for non-millionaires is based on yearly family income: $100,000 or more, you can have up to 2 cars valued at about $10,000 in the aggregate. This is because depreciation on "too much car" is a massive silent killer of wealth, above and beyond the obvious running costs of gas, insurance and maintenance. Lower your income, and the value cap lowers proportionately. Somewhere below $50,000 you should not have 2 cars at all, because the gas, insurance and maintenance alone will bog you down. Get an electric bike or motor scooter for your second set of wheels if you truly need something. But no second car -- period.
3. It sounds like your current setup is probably too much car -- it sounds like the fleet is probably worth just about $10,000, and if you had a $100,000+ income or million dollar net worth I think your story would sound different than it does. Moreover, it is very likely the wrong car. The mileage is terrible, the insurance sounds high (how much higher than your Toyota? You haven't said...) and premium fuel is a real tip-off that it has a high-performance engine and is therefore in part a toy. If this car were less expensive to run and less of a toy, the transaction costs of swapping it might mean it makes sense to suck it up and keep driving for an additional 10+ years until the wheels fall off. There's not an overwhelming amount of depreciation left in an $8,000 car, especially if it will give you reliable service for the next 10 years. But I don't quite get there on this car.
4. You should therefore sell this car and replace it with something more suitable. A 10 year old Toyota Corolla is probably fine. You've said nothing about your family's home and work setup, except that you think it may be possible to drop down to one car, which I think would be financially ideal. I would suggest you look very hard at all your options: manual bicycle, electric bicycle, moped, bus, the occasional taxi or rental car, or a combination of the foregoing. Some people would suggest motorcycle, but unless that's your thing they can be difficult and dangerous to use, and possibly a bit too much of a toy.
5. But don't rush into the trade and do it on sub-optimal terms. It's almost certainly better to hold on to this car for the next 6 to 12 months and get good pricing on its sale (and good pricing the purchase of any replacement car) than it is to bail out super quick and come out thousands of dollars further behind.
6. I would avoid trading through a dealership. They try really hard to find ways to rip you off or up-sell you on too much car. They will pay you too little for the car you are selling and charge too much for any replacement car which you buy.
7. Find a way to pay off the loan within the coming year, so you can have a clean title in hand. Then list the car on various websites and sell it privately. Over the course of the year, research your options and try different things to see if you can get by without a second car, or, if you feel you need one, which makes and models of used car are suitable. I would suggest not buying another used car until the current car is sold and the check cleared, so it doesn't make sense to shop for individual cars, but it does make sense to narrow down what you are looking for and experiment with one-car living.
8. Note that the issue here isn't the interest rate on your car loan, which I haven't mentioned until now. Five percent interest isn't bad. It's the fact that financing allowed you to buy too much car (and the wrong car) to begin with, and now you are faced with the wealth-killing effects of depreciation: A car that is currently worth a lot less than the price you paid for it, and it will continue to go down in price while costing too much to insure and run.
Let us know how things go, and good luck!
