Author Topic: Does it make sense to Trade in Vehicle that was just purchased  (Read 2721 times)

Mustacheyou

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Hey all,

Should I trade in my 2013 Outlander Sport that I still owe about $12k on for something cheaper? The car isn't worth the amount I owe so I would take a loss there, but would the savings from the older cheaper car make up for this?

Going carless or biking to work isn't really an option, but I'm working on finding a new job to make it one.

ready....go.

Jakerado

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Re: Does it make sense to Trade in Vehicle that was just purchased
« Reply #1 on: March 03, 2016, 01:52:48 PM »
The answer to your question depends on how much the car is costing you and how much of a loss you'd take.

Mustacheyou

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Re: Does it make sense to Trade in Vehicle that was just purchased
« Reply #2 on: March 03, 2016, 01:54:46 PM »
Thanks Jakerado,

Right now the car is worth about 1000 less then what I owe on it. I currently pay about 240 a month on the loan.


Jakerado

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Re: Does it make sense to Trade in Vehicle that was just purchased
« Reply #3 on: March 03, 2016, 02:20:52 PM »
Operating costs are going to be the biggest concern -- how many miles? Insurance?

MsPeacock

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Re: Does it make sense to Trade in Vehicle that was just purchased
« Reply #4 on: March 03, 2016, 02:27:37 PM »
Without additional details of your specific situation, you would likely be better off selling the car (not trading it in) and also purchasing through a private party.

That said, I had a good experiencing selling my clown car at Carmax and using the equity to purchase a completely paid off car.

neo von retorch

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Re: Does it make sense to Trade in Vehicle that was just purchased
« Reply #5 on: March 03, 2016, 02:35:35 PM »
Pros

* Probably spend less overall (less depreciation)
* Save money on interest
* Lower your insurance (possibly drop collision)
* Become accustomed to driving lower cost vehicles

Cons

* If you trade, you're giving away some of the car's value
* An older car has more unknowns and more miles already on it

What you owe vs. what it's worth tells you nothing really about whether it's a good move. The strategic way to do this is to make a spreadsheet showing overall 5 year and 10 year costs.
Include these factors:

* How many miles you drive a year
* How much maintenance each car will cost
* How many more miles before replacing the car
* Difference in insurance (especially if you drop collision)
* Difference in interest costs
* Opportunity cost of invested savings (optional, but eye opening)
* Gas mileage and other operating costs that may change with your car (smaller tires, more confident working on an older car, etc)

Mustacheyou

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Re: Does it make sense to Trade in Vehicle that was just purchased
« Reply #6 on: March 03, 2016, 03:10:05 PM »
Thanks team!

I'm working on the spreadsheet now.

For reference my current vehicle has about 46,000 miles on it.
Insurance is about 133 a month.

I have been thinking this out in my head for about a week now, but it helps to have some categories to help me make the decision.

Jakerado

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Re: Does it make sense to Trade in Vehicle that was just purchased
« Reply #7 on: March 04, 2016, 12:34:47 AM »
Thanks team!

I'm working on the spreadsheet now.

For reference my current vehicle has about 46,000 miles on it.
Insurance is about 133 a month.

I have been thinking this out in my head for about a week now, but it helps to have some categories to help me make the decision.

So you put 15k miles / year on it. I'm going to make a random guess and say you get ~27mpg, which means you put ~555 gallons of gas into it per year. At a cost of ~2.50 per gallon that means you spend ~$1390/year on gas. You're spending 133/mo on insurance. I'm not going to ask what interest rate you have on your loan. Now let's say you switch to something like a honda fit. That puts you at ~36mpg or ~420 gallons of gas / year (+$390/year). Then you have insurance. If you own the car outright you can drop comp and collision, which should easily bring you down by at least 75-85/mo(+1000/year). So now you're at a savings of 1390/year by switching cars. You'll more than make up your 1000 loss on the loan in one year, assuming you had a way to return this car and switch it out for a "new-to-you" one paying only what you're underwater. Beyond that, you need to look at what you'd have to spend out of pocket to acquire your "new" car, and figure out how many years it'd take to pay back, vs the interest payments you're making on your current car (since you wouldn't have interest except to yourself)
« Last Edit: March 04, 2016, 12:52:54 PM by Jakerado »

Cassie

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Re: Does it make sense to Trade in Vehicle that was just purchased
« Reply #8 on: March 04, 2016, 12:11:12 PM »
I would keep it but then drive it for a very long time. It does not have that many  miles on it.  If you sell it you have locked in your loss.  YOu may also need to repair an older car. We always buy a car about 3 yo and then drive until the repairs get to be too much.

AZDude

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Re: Does it make sense to Trade in Vehicle that was just purchased
« Reply #9 on: March 04, 2016, 12:41:49 PM »
I might keep it until you find that closer job, then sell, to save on transaction costs.