Question:  Is there some way to calculate when the best time is to either sell or trade-in a car still under financing?

June 22, 2004

Hello Tony

Can you tell me if there is some way to calculate when it is best to either sell or trade-in a still under financing car?  My thought is that if I spent the extra couple years paying off my car loan, in that time, the value of the car and the mileage, wear, etc., would be worse than if I sold when I had maybe $5,000 or something still left on the loan.

Is it always better to try and pay off the car in full before looking to replace it with a new one?  I'm thinking not.  Is there some sort of rule of thumb that can be applied?

I'm sure it would depend on the make/model/mileage, etc., but with taking all that into consideration, can it be estimated?

Thanks for any input you can provide!

Alan

Answer:

Hi Alan,

I don't know of any set formula that can tell you the most opportune time to trade.  There are too many variables involved.

Most people who trade are "upside down;" that is, they owe more on their trade than what it's worth.  Then the difference is financed along with the new car.  So in effect you're still paying for the old car long after it's gone!

In my opinion the smart move is to drive your current vehicle until your payoff is the same or less than the value of your trade.  This usually doesn't happen until the last 12 months of your loan.  This way you aren't losing money.  Also, you'll do much better selling the vehicle yourself rather than trading it in.

Keep in mind that when a dealer takes your car on trade he is buying it from you. Now, he can buy used cars all day long at auction or from other dealers for wholesale.  So don't fool yourself or let him fool you into thinking that he is going to give you more than wholesale for your car.  If you sell it yourself you can get much more for it...generally speaking anyway.

Most cars today are pretty reliable, and with minimum maintenance they will run trouble-free for many years.

I suggest you go to the following page on this website, Used Car Tips, and follow some of the links.  Hopefully the information found there will help you to make an informed decision as to what's best for your particular circumstance.

All my very best...

Tony Iorio