Author Topic: Replace car now or once I've paid down the loan? (a depreciation question)  (Read 808 times)

FinanceFam

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Hi All,

We have a second kid on the way which has forced some changes in our auto needs. We are very active (climbing, skiing, camping, etc) and have a family place in the mountains. We need a 4 wheel drive vehicle that is also large enough for a family of 4 (with car seats), a dog and luggage/gear.

We currently own a 2010 Jeep Patriot outright. We also have a 2016 Chevy Colorado that I bought for a combo of work and the needs described above. It's financed at 0% with a balance a little less than what it's worth, roughly 8k less than what I bought it for 2 years ago. I know... depreciating assets. Problem is- the midsize truck is not big enough for the family needs described above and I no longer need it for work to the same degree I once did.

We are debating replacing one of our vehicles with a 4WD midsize SUV at some point. We may not need to do this right away because we likely won't be travelling/adventuring much with a newborn. Our assumption was that we'd replace the expensive car (that we have a payment on) and continue driving the other into the ground.

My question: Does it make more sense to sell the truck now and make the change while it's still relatively valuable or wait another year as it continues to depreciate but as I also continue to pay down the 0% auto loan? Does anyone have a sense for how quickly something like this will depreciate? I pay about $500/month toward the principal. I doubt highly that it depreciates anywhere near that quickly. And note- I completely recognize how dumb it was to buy a new car, the pitfall of depreciating assets, etc. I am already kicking myself for that call and for having not foreseen the second kid....


Any input would be appreciated!


RWD

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Depreciation is higher (by absolute dollars) the newer a vehicle is. If you wouldn't buy the vehicle today for what you can sell it for then you should get rid of it sooner rather than later. Whether or not you have a loan has no bearing on this.

I usually estimate roughly 12-15% depreciation per year, but it varies based on the specific vehicle and how many miles you put on it.

Car Jack

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Look on sites like edmunds or kbb or google "car name" depreciation.  I've had a number of mid sized pick ups and SUVs and they depreciate like a rock until they're only worth a couple $k.  With that said, you're typically better off financially keeping the vehicle as long as possible.  The depreciation curve starts out with the biggest drop driving off the lot and it drops at a lower rate every day.

Scortius

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I think you need to change your mental approach to the equation. You are thinking as if the loan and the car value have a relationship to each such that the value and cost of one will affect how you handle the other. This is for the most part false. The two are essentially completely separate entities. On one side you have an obligation with an interest rate, and on the other side you have an asset that is depreciating in value. You can pay off the obligation in full and that will have no effect on your asset and its value. The symmetry is not quite complete because if you sell the car you will be required to pay off the loan, but you would probably want to go ahead and do that anyway.

So, treat them as separate things. The question you are really asking has to do with the depreciation of the asset, not the loan itself (as you already signed the papers and are obligated to pay the price of the contract). If you're not using the truck you should absolutely sell it immediately as $500/mo is a crazy price to pay for a set of wheels (especially when you have another car). If you do need two vehicles, you should probably sell the truck and buy a small 4-door car for commuting and use the Jeep as your family vehicle (that Jeep is huge by the way, just buy a roof storage unit if you need space for camping gear or skis).
« Last Edit: March 13, 2018, 04:47:31 PM by Scortius »

Sibley

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Wait, you're going to have 2 adults and 2 kids, and you can't make everyone fit in either of the vehicles you already have?!? What are you trying to haul that a roof rack won't work?

Before you do anything involving thousands of dollars, please take a realistic look at the amount of stuff you actually need to put in the vehicle. Because if you're taking everything and the kitchen sink, of course you're running out of space. You will ALWAYS run out of space if you have that mindset.

FinanceFam

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Wait, you're going to have 2 adults and 2 kids, and you can't make everyone fit in either of the vehicles you already have?!? What are you trying to haul that a roof rack won't work?

Thanks for the replies thus far. Re: the two thoughts above, the problem with the existing Patriot isn't the space per se- is that it's 2WD and is pretty terrible in the kinds of conditions we'd be likely to drive in. It's car mismatch- the car that has the room we need doesn't have the performance and the car that has the performance doesn't have the room.

Scortius- your point is a good one. I should probably separate the two in my thinking. Regarding the Jeep however, see above. Also, I wouldn't call that car huge for someone who is 6'2" and 210lbs sitting in front of a car seat. By the time a second car seat my similarly tall wife and a dog are in there, pretty much anything else has to go in the rocket box. 

MayDay

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According to a quick Google,you've just finished the rapid depreciation of the Colorado and hit the kink. It's still got a lot of depreciation but it is at a slower speed.

I would wait to sell until you are really in need of the bigger 4wd vehicle. Depending on how the second kid's temperament is,it could be awhile, or not.