Should I trade my car or keep it?

[Twoquestions]

Long time reader, first time poster here.  About a year ago I was a consumerist dumbshit and bought a $25k car because I've never had a brand new car before.  About 2 months after that I started reading MMM and realized my error, but I was already $4k in the hole and I wasn't in as good of a financial situation as I thought.  I'm better off now, putting away $300/month, but the car payments are still $400.  Is it worth it to trade for a more reasonable car, or am I better off just biting the bullet and driving this car until it dies?

The vehicle in question is a 2014 Kia Soul with 21,000 miles on it now, with the loan paid down to $20,000 and KBB says it's worth $16,000 in trade, so I'd still be $4k in the hole from depreciation.  I'd bike to work, but I'm stuck about 25 minutes drive away from my workplace right now.

[EricP]

The good news is that you are in a small car with decent gas mileage.  If you were in a Ford F150 or some other behemoth of a car, it would be a no-brainer to switch.

But since it's a low mileage car, it will only make sense to switch when you can own the car outright so you can drop full coverage.  That's a big cost with financing cars, and if you can get enough cash together to be able to pay off the amount you are upside down and buy another $7k-$10k car than go for it.

[Chris22]

I'll disagree with most people.  I think the whole "buy a shitbox and drive it until it dies" thing is a bit of misplaced economy, depending on your need for reliable transportation.

I am of the mind that you should buy a new/nearly new car and drive that until it dies.  Personally, I rely on my car, and more importantly, my wife's car (my wife usually transports our daughter), to get us to work every day.  We both had fairly long commutes, which have shortened recently, but any disruption due to unscheduled work on the car is a monster PITA, and further, I don't want my wife and kid stuck on the side of the road somewhere.  There's also a large difference between a car you buy new or nearly new and drive for 100k miles, and a car you go out and buy with 100k miles on it.  One is a known quantity (assuming you've maintained it correctly and not crashed it severely) and the other is a complete crapshoot. 

My advice to you is that you have a reasonable, practical, reliable car, just keep it for another 10 years and you'll be fine.  Ignore the fact that you're $4k upside down, because that will fix itself on its own with time.  Just take care of the car and don't worry about it.

The only exception to this advice IMO is if you do not need reliable transportation (bike/public transportation to work or work from home or retired, for instance).  If you can tolerate unexpected downtime, by all means, you can cheap out on a car, but for most people that isn't a realistic option.

[Sibley]

I did exactly the same thing actually with a 2014 Ford Focus. I'm keeping mine - I like it, plan on keeping it for a long time, and the interest rate is really low.

[pagoconcheques]

Keep it.  Pay down the loan as fast as you can.  It's a reasonable car, you already own it, and even at your driving rate (21,000 a year!, holy sh__!) you should be able to get 10 years out of it by following scheduled maintenance intervals. 

[Retired To Win]

... the car payments are still $400... The vehicle in question is a 2014 Kia Soul with 21,000 miles on it now, with the loan paid down to $20,000 and KBB says it's worth $16,000 in trade, so I'd still be $4k in the hole from depreciation...

Take the hit.  If you hold on to the car, you'll be down another $4K in depreciation in another year -- and still paying $400 a month on the installment note.  So take the $4k hit now and be done with it.

And, as far as a replacement car goes...

Find something you like that is OLD but still in good enough shape for you to keep it up.  I drive a 1996 Dodge Dakota, and that is a 19-year old vehicle.  My wife drives a 1998 Subaru Forester, and that is a 17-year old car.  They both run great and have never given us any reliability problems or big repair bills.  So do yourself the same favor we did ourselves: get an older car and put the money you'll save towards your FI stash!

Good luck.

[SingleMomDebt]

I'm in the same predicament. Last night I considered trading but doesn't seem worth it (for me) because I have a newer working car (2012). Am upside down. Used APR rates tend to be higher.

Right now I owe $15k at 1.9%  upside down $5k. I found a $3500 reliable car. Overall loan 8500 with 5-7% Apr. I'd save approx. $6500 and 1 yr on payments.

Worth it? I'm afraid of the potential increase in maintenance costs.

Am interested hearing your decision on what you do for your car.

[paddedhat]

One other point for the OP to ponder is that in many cases, KBB is totally full of shit. Case in point, in my market area there are at least a dozen 2014 KIA Souls on dealers lots for under $15K, including some that are nearly new, with extremely low miles. Bottom line is that I would be shocked if you could get a dealer to buy the car outright, for much over $12-13K.

[Retired To Win]

I'm in the same predicament. Last night I considered trading but doesn't seem worth it (for me) because I have a newer working car (2012). Am upside down. Used APR rates tend to be higher.

Right now I owe $15k at 1.9%  upside down $5k. I found a $3500 reliable car. Overall loan 8500 with 5-7% Apr. I'd save approx. $6500 and 1 yr on payments.

Worth it? I'm afraid of the potential increase in maintenance costs...

Check out reply #5 in this thread re: older vehicles.

[Ricky]

I'll disagree with most people.  I think the whole "buy a shitbox and drive it until it dies" thing is a bit of misplaced economy, depending on your need for reliable transportation.

I am of the mind that you should buy a new/nearly new car and drive that until it dies.  Personally, I rely on my car, and more importantly, my wife's car (my wife usually transports our daughter), to get us to work every day.  We both had fairly long commutes, which have shortened recently, but any disruption due to unscheduled work on the car is a monster PITA, and further, I don't want my wife and kid stuck on the side of the road somewhere.  There's also a large difference between a car you buy new or nearly new and drive for 100k miles, and a car you go out and buy with 100k miles on it.  One is a known quantity (assuming you've maintained it correctly and not crashed it severely) and the other is a complete crapshoot. 

My advice to you is that you have a reasonable, practical, reliable car, just keep it for another 10 years and you'll be fine.  Ignore the fact that you're $4k upside down, because that will fix itself on its own with time.  Just take care of the car and don't worry about it.

The only exception to this advice IMO is if you do not need reliable transportation (bike/public transportation to work or work from home or retired, for instance).  If you can tolerate unexpected downtime, by all means, you can cheap out on a car, but for most people that isn't a realistic option.

I don't know where all these shitboxes and crapshooters are, but I think this is a semi-flawed philosophy. I can't say I disagree completely since I own a car I bought new but I can say I wouldn't be scared of buying a car less than five years old. Let someone else take the depreciation hit during the first five years of ownership. You'll get a car that will last a long time for a great deal usually.

Now, when you're talking 15+ years old, not only are we referring to cars that weren't built as good as they are today, there are infinitely more unknowns. A car less than 5 years old was likely maintained well and was definitely built well.

OP, I'm not someone to suggest keeping the new car usually, but in your case the numbers are kind of in the middle and you would be fine keeping or getting rid of it if you found a good car under $10k and could possibly pocket $5k. That's assuming you can pay the difference in what you owe now.

[crujonez]

One other point for the OP to ponder is that in many cases, KBB is totally full of shit. Case in point, in my market area there are at least a dozen 2014 KIA Souls on dealers lots for under $15K, including some that are nearly new, with extremely low miles. Bottom line is that I would be shocked if you could get a dealer to buy the car outright, for much over $12-13K.

This post is the truest in this thread. I have been selling cars for 15 years now and Kia Souls do not hold their value at all. I just retailed a 2014 Soul ! last week for $14,999 and the bank barely wanted to buy the note because book value was not there even though the person had good credit. Left side or trade in value was more around $11-$12,000 . The Soul is not a bad little vehicle though and has the great warranty. I would say keep the vehicle with the warranty. If you were only taking $4000 hit it might be worth it but like padded hat said it probably is more around $6-$7000 hit.

[ChrisLansing]

I'll disagree with most people.  I think the whole "buy a shitbox and drive it until it dies" thing is a bit of misplaced economy, depending on your need for reliable transportation.

I am of the mind that you should buy a new/nearly new car and drive that until it dies.  Personally, I rely on my car, and more importantly, my wife's car (my wife usually transports our daughter), to get us to work every day.  We both had fairly long commutes, which have shortened recently, but any disruption due to unscheduled work on the car is a monster PITA, and further, I don't want my wife and kid stuck on the side of the road somewhere.  There's also a large difference between a car you buy new or nearly new and drive for 100k miles, and a car you go out and buy with 100k miles on it.  One is a known quantity (assuming you've maintained it correctly and not crashed it severely) and the other is a complete crapshoot. 

My advice to you is that you have a reasonable, practical, reliable car, just keep it for another 10 years and you'll be fine.  Ignore the fact that you're $4k upside down, because that will fix itself on its own with time.  Just take care of the car and don't worry about it.

The only exception to this advice IMO is if you do not need reliable transportation (bike/public transportation to work or work from home or retired, for instance).  If you can tolerate unexpected downtime, by all means, you can cheap out on a car, but for most people that isn't a realistic option.

I went back and forth on the best approach but have now settled on buying 3-4 years old and then keeping it until it can't be fixed anymore.   

Cars are so reliable now that 100K miles is the new 40K miles.   (I'm old enough to remember when few cars made it to 100K miles.   Now few don't)    It makes real sense to buy used and save all that depreciation the first few years.       

I don't think a used car is much of a crapshoot.   Most cars require little maintenance in the first 5 years, and most people do (or have someone do) the maintenance, which largely consists of Oil/fluid replacement.   Buying new to avoid the crapshoot is an expensive illusion.    I say illusion because sooner or later a car will need repair.    If you bought new with the intent of driving it until it's dead, you will eventually have to deal the belts, hoses, water pumps, gaskets of various kinds, fuel pumps, etc.   Sooner or later that new  car you bought has 100K miles on it and needs some repairs.   The only way to avoid car repair is to buy new every 5 or 6 years, and that is very very expensive.   

Having the water pump replaced on a used car costs the same as it does when your new car becomes old enough for a new water pump.   Same with all the other repairs.    The repairs come a bit sooner on a used car, but you've saved all that depreciation.    A new car gives you several years w/o repairs, but you've paid through the nose for the "reliability".       

[Chris22]

I went back and forth on the best approach but have now settled on buying 3-4 years old and then keeping it until it can't be fixed anymore.   

Cars are so reliable now that 100K miles is the new 40K miles.   (I'm old enough to remember when few cars made it to 100K miles.   Now few don't)    It makes real sense to buy used and save all that depreciation the first few years.       

I don't think a used car is much of a crapshoot.   Most cars require little maintenance in the first 5 years, and most people do (or have someone do) the maintenance, which largely consists of Oil/fluid replacement.   Buying new to avoid the crapshoot is an expensive illusion.    I say illusion because sooner or later a car will need repair.    If you bought new with the intent of driving it until it's dead, you will eventually have to deal the belts, hoses, water pumps, gaskets of various kinds, fuel pumps, etc.   Sooner or later that new  car you bought has 100K miles on it and needs some repairs.   The only way to avoid car repair is to buy new every 5 or 6 years, and that is very very expensive.   

Having the water pump replaced on a used car costs the same as it does when your new car becomes old enough for a new water pump.   Same with all the other repairs.    The repairs come a bit sooner on a used car, but you've saved all that depreciation.    A new car gives you several years w/o repairs, but you've paid through the nose for the "reliability".     

Note I said new or "newish" which would fall in line with your 3-4 years old plan.  My thoughts on buying at that age is not to avoid maintenance, it's to minimize time in other peoples' hands, those other people may or may not be maintaining the car correctly (oil changes, etc).  You can skimp on maintenance for 20-30-40k miles, and not do TOO much damage, but a car run for 100k miles on a shoestring maintenance budget is not going to go a lot farther than 100k.  I have confidence my car bought new and maintained by me for the last 70k miles will last 200k miles or more; I do not have that confidence with a car of unknown history with 100k miles on it. 

[ketchup]

I think the sweet spot for most people in terms of value is around $5k (obviously paying cash) for a car with around 100,000 miles.  Anything newer than that is really just a waste unless you get a screaming deal.  The depreciation is just too painful.

For those starting out with relatively low assets (such as myself), a cheaper car than that makes sense if you're willing to get your hands dirty.  Makes no sense to drive your net worth down the road.  My girlfriend and I are young (22, 24) and have two older cars (1992 and 1999, both now up to around 170k miles).  Our cars combined are worth less than either of us make in a month (and I am NOT bragging about our income) and a single digit percentage of net worth.

My dad just bought a 2007 Nissan (manual transmission) with 84,000 miles for $4800 (to replace his 1994 Buick he drove for 12 years until it rusted out).  I'd say that's about perfect.  He's at the point where having the few extra grand compared to me tied up doesn't really matter at all (58 years old, low-six-figures income, low expenses, probably sitting on a mountain of cash, still working because he likes what he does).

[nereo]

About a year ago I was a consumerist dumbshit and bought a $25k car ... the car payments are still $400. 

The vehicle in question is a 2014 Kia Soul with 21,000 miles on it now, with the loan paid down to $20,000 and KBB says it's worth $16,000 in trade, so I'd still be $4k in the hole from depreciation. 

Is it worth it to trade for a more reasonable car, or am I better off just biting the bullet and driving this car until it dies?

Right off the bat you'll see that you've optimistically 'spent' $9k on this new car already (purchase price $25k, current value *maybe* $16k, + any interest accrued).   You are out of pocket at least $5k, and if you sell it you will need to bring at least $4k to the table to zero out the loan.  Worse, you'll loose a few $k more in depreciation over the year year if you hold onto it.  The one thing you didn't specify was your interest rate.

Here we have a classic case of a 'sunk cost' and how it can influence your decision even though the economically smart thing to do is sell the car and pick up something used.  Many here would go for a $5k car in the 100k-mileage neighborhood, and that wouldn't be a bad place to start looking.  Personally, I like to err a bit newer - around 4-5 years old, 60-80k-mileage and $8k or so.  Still incredibly reliable and you are further down the depreciation curve.

You can hold onto the car for the next 10+ years and chalk this up to a learning experience, but economically you will still come out ahead if you sell now and buy something cheaper.

[RoadLessTravelled]

I have a fundamental problem with people saying they bought a car when in fact they don't own it, whoever holds the loan on it owns it really.

As someone fairly new to the idea of FIRE Twoquestions, you might want to learn the lesson of buying only what you can pay for.  That means if you buy a car at all, you buy it for cash.  Figure out how much money paying off your $25k car is going to cost you in interest.  Then ask yourself how can it possibly make sense to pay $30k+ for a car that was only worth $25k to begin with. 

You have already made the mistake and it is going to cost you money whatever you do.  The question is, which will cost you more?  Taking the hit if you sell now or paying the interest on it until you finally do own it.  Do the real math.  Crujonez being in the business might be able to help you figure out the real numbers of sell now vs. pay loan interest.

[nereo]

I have a fundamental problem with people saying they bought a car when in fact they don't own it, whoever holds the loan on it owns it really.

Of course you own it.  You just also owe a bank a lot of money, but that doesn't lessen your ownership.  You can drive the car wherever you want, you can spray-paint it green, turn it into a dragoncar, or sell it for $500 to your nephew.  The bank can't stop you from doing any of those things.  All they can do is take legal (and occasionally shady) measures to coerce you to paying back the money you owe them.

I agree that you shouldn't buy something unless you can afford it, but OP clearly stated that he made the purchase before he saw the light and started reading MMM.

[Twoquestions]

The note on the car is 2.5%, so I'm not paying much in the way of interest and the math is fuzzy anyway, so I think I'll stick with this car.  Lesson learned.  I still have $20k of 6% interest student loans hanging over my head, so getting those knocked out first will probably help me more than trading down.

Thank you all for your help, and this will definitely be my last brand new car.  Never again!

[Forcus]

One other point for the OP to ponder is that in many cases, KBB is totally full of shit.

This is absolutely true. KBB and NADA are both way off on a vehicle I am trying to sell. I don't blame people for referencing it as they've become the standard, but if you look at what similar vehicles are posted at, and our general economy in this area, the numbers don't pencil out.

As far as the Soul goes, I didn't even know you could price them up to $25k (!) so I'm betting it's a much bigger hit to trade down than you might be anticipating. I'd try to find a CarMax to see what they'd offer as that sort of puts your options in perspective. I honestly don't know what I'd do, you could reasonably expect the thing to last 10-15-20 years or more and cost little (at least for the first 10 years) to maintain, depending on miles. But if you like to have something different every few years I'd say get rid of it now unless the current value is so ridiculous (like $12k) that no other options are really available that are as reasonably good and reliable.

[BlueMR2]

One other point for the OP to ponder is that in many cases, KBB is totally full of shit. Case in point, in my market area there are at least a dozen 2014 KIA Souls on dealers lots for under $15K, including some that are nearly new, with extremely low miles. Bottom line is that I would be shocked if you could get a dealer to buy the car outright, for much over $12-13K.

Keep it, you've already taken the virtual hit.  If you sell it and buy something else, you'll make the hit real.  Too late to fix the error, might as well enjoy the car as it should be decently mustachian from here on out.  Exception if you're about to lose your house or something and desperately need to be out from under the payment.

[nereo]

Keep it, you've already taken the virtual hit.  If you sell it and buy something else, you'll make the hit real.  Too late to fix the error, might as well enjoy the car as it should be decently mustachian from here on out.  Exception if you're about to lose your house or something and desperately need to be out from under the payment.

I'm wondering what would make the hit any more "real" to you. The OP spent $25k on a car that he still owes $20k on and is worth (at best) $16k.  Unless Kias become collector's items, they depreciation will only make the deal worse.

OP's made his/her decision to keep the car and chalk it up to a life lesson and enjoy the car. That's fine. Hey, it's a respectable car overall. But I disagree that it is "too late to fix the error".

[Chris22]

I'm wondering what would make the hit any more "real" to you. The OP spent $25k on a car that he still owes $20k on and is worth (at best) $16k.  Unless Kias become collector's items, they depreciation will only make the deal worse.

It's currently an unrealized hit.  If a car is worth $25k to you on the day you buy it, presumably if your needs don't change and your car doesn't fail to function, it's still "worth" $25k to you 5 years later.  It's worth less on the open market, and on your theoretical balance sheet, but you are still deriving the same utility from it. 

[paddedhat]

One other point for the OP to ponder is that in many cases, KBB is totally full of shit. Case in point, in my market area there are at least a dozen 2014 KIA Souls on dealers lots for under $15K, including some that are nearly new, with extremely low miles. Bottom line is that I would be shocked if you could get a dealer to buy the car outright, for much over $12-13K.

This post is the truest in this thread. I have been selling cars for 15 years now and Kia Souls do not hold their value at all. I just retailed a 2014 Soul ! last week for $14,999 and the bank barely wanted to buy the note because book value was not there even though the person had good credit. Left side or trade in value was more around $11-$12,000 . The Soul is not a bad little vehicle though and has the great warranty. I would say keep the vehicle with the warranty. If you were only taking $4000 hit it might be worth it but like padded hat said it probably is more around $6-$7000 hit.

Good to see that my semi-knowledgeable estimate of true wholesale seems to be spot on. I helped our recent college grad. daughter buy a used car last summer, and actually found a large, high volume used car dealer that has several 2 year old, super low mileage manual transmission souls for $10,999 asking. Unfortunately, I have a better shot at teaching a duck to sing, that I do of teaching my kid to drive stick without me buying a clutch every few months, so no deal. We I saw this thread pop up, I did a cars.com search in my area of the northeast, and found exactly what you are saying, nearly new ones retail for under $15K.