When is the best time to sell your car and get another one? (not time of year. Lifecycle)

The_Riblet

I have always driven my cars for a long time because I thought that was the best way to get the most money out of them. However, some of the current incentives have me questioning whether or not I should go ahead and get another car now to take advantage of some of the incentives.

In the past, I have typically bought cars with 20-30K miles on them and paid off my car in 4-5 years. Once I pay it off, I start putting about $300/month into savings. I drive this car for another 4-5 years. Once I am ready to sell, I take the money out of savings and use that as the down payment and sell the car for whatever I can get for it. I think last time I sold a car I put half of the proceeds towards the new car and went on a trip with the rest.

Right now, I know that some manufacturers have some really good incentives because they are hurting pretty bad. Luckily, my work situation is pretty insulated from what is going on right now with COVID. My car is a 2015 Subaru Outback Limited with about 75K miles on it. From what I can tell, I should be able to sell it for about $16K and I owe about $7K on it.

I am increasing my equity in the car but the car is a depreciating asset. If I plan on paying it off and saving for my next down payment, then I will need to plan on driving the car for close to 3 years after I pay it off just to have the same down payment that I would have if I sold it today and got something else. At a certain point, the cost is all the same, you aren't really saving anything, and are just driving an old car when you could be driving a better, more reliable car, for the same amount of money. I need someone to help me figure out where that line is.

qbrozen

your math is confusing. So you have $9k equity now. Are you saying you wouldn't have $9k again until 3 yrs past paying it off? That doesn't make sense. Your equity will continue to increase until it is paid for, after which it will start to decline (but, of course, you aren't making payments any longer).

The real question, which is maybe what you are asking, is how that equity increases compared to your payment, which we can't answer because we don't know the details of your loan. Just for kicks, let's assume your car will depreciate another 10% in the next year, making it worth $14.4k next spring. Meanwhile, you've paid maybe half your remaining balance, or $3500. That means you have gained $1900 equity. Assuming your above numbers are correct, that puts you at nearly $11k total equity.

How you fare on a NEW car is going to depend greatly on what it is and what kind of deal you get. As you can see, there are just too many variables to make any generalized statements about any of this.

stickguy

Well, these day, really have to be sure your job is safe. but if it is, could be a good time. Very hard to say when prices will bottom out, and supply could shrivel up. Your car will also keep depreciating.

one thing though is, that seems like it could be overly optimistic to get for your car. especially on a trade. I would say validate that too. Because while new car prices have been hurt, used car values have too, and dealers don't seem to want a lot of used cars they can't sell. New cars come with manufacturer support (incentives an cheap financing) but used cars, that is all the dealers problem. So you might not get close to that amount.

if you can, you are probably in the sweet spot to trade up. still plenty of value, but in another year or 2, it will drop quite a bit when pushing or over 100K miles. You are also likely creeping toward needing some more expensive services (timing belt on that?).

you might get another good deal on a 1-2 year old car if the prices were hammered, but as you noted, this is a good time to buy new with healthy discounts and incentives, and can save a lot on finance charges at 0%, So in my case, I would likely get a new car to keep 7 years, instead of a 2 YO one to keep for 5. But you have to run the numbers and figure out what works for you and what is more important. Though possibly a 2020 CPO with say 10K miles on it could be a fine compromise.

texases

I think your current 'buy used, pay off, keep driving, and save money' is a GREAT way to minimize the overall money you spend on a car. I wouldn't change a thing!

Vbp1

I think mine plan is better. I pay it off in full. And try to keep it for 10y. Than repeat.
By putting away 350$ a month you can save 21k in 5 years almost 30k in 7 years.
Enought for a descent mid level car or SUV. Nothing flushee but good.

stickguy

Making you same car payment into a “new car” account after the loan is paid off is actually a great way to save for a car.

qbrozen

If folks actually followed that plan, wouldn't the process speed up or result in a nicer car? For example, pay off the first and pay into the account for that $21k, as mentioned above. Now you're putting down $21k on a ... let's say $30k car. So that $9k could be paid off in less than 3 years. Now you save up for 7 yrs to the 30k and you buy the next one outright. Now you've only gotta wait 7 yrs instead of 10 for the next.

I could NEVER drive one car for 10 yrs.

kyfdx

I made it nearly 10 years on my '06 BMW, purchased in April 2010.

stickguy

Some people can. I know, odd!

Actually takes less time. You also have the value of the paid off car.

Maybe do it over 6 years. 3 year car loan, then 3 years paying yourself to go along with value of a 6 YO car, if you started new.

stickguy

Also, the goal is to, over a few cycles, shorten it and get to paying cash. So the “loan” payment is always being made to yourself. Then you can flip as often as you like!