When It's Time to Get Rid of Your Old Car/ February 4th, 2008
Is that car you're driving driving you nuts? Let's say you're taking it to the mechanic's shop for the third time in six months. Or you're fuming at how often, and expensively, you have to fill up at the pump because it's old and gets low gas mileage. Or you worry that your vehicle doesn't have enough safety equipment like rear-seat air bags to protect the kids. All of those can be reasons to sell or trade your old car. But before you do, take careful stock of all the pros and cons—especially financial ones. In the past a typical pattern was to sell or trade a car after three years or so when it had less than 50,000 miles on the odometer and still carried strong resale value. But that seems to be changing, says Jack Nerad, executive editorial director and market analyst for Kelley Blue Book and its Web site kbb.com. A combination of better quality vehicles and longer warranties is aiding that trend, he adds. "People are keeping their cars longer," says Nerad. "Cars from almost any manufacturer now can reasonably be expected to go for 100,000 miles without major, very expensive repairs." Of course, that overall trend is not much comfort if you're driving around in a 10-year old clunker built before the general improvement in automotive quality. If trouble signals like blue smoke from the tailpipe or a slipping transmission seem to be signaling repairs ahead that could cost as much as the car is worth, don't wait. Sell it or trade it as soon as you can. Another sell-it-quick signal is if rust spots have just started appearing on the body but are not yet too bad. But if your situation is far less clear-cut, think over these issues:
What will it take to replace it?Before you get rid of the car in your garage, decide what you would need to put in its place. To replace a family's second car having limited use—that you only drive to the commuter train station, say, or to do local errands—you can look for a relatively inexpensive replacement. Let's say you're driving a 10-year-old Dodge Caravan minivan; you could move up to a seven-year-old 2001 Dodge Caravan for about $4,350 buying from a private seller. But if you have a two- or three-year old car that you would like to trade for a new car, go over the finances carefully. Remember to factor in not only car-loan payments but also insurance and gasoline costs. A new car with better gas mileage could cut gas bills, but the cost to insure that new car likely will go up.
"Cars from almost any manufacturer now can reasonably be expected to go for 100,000 miles without major, very expensive repairs."Diahann Lassus, a financial planner with offices in New Providence, N.J., and Bonita Springs, Fla., advises drivers to limit all auto expenses—include loan or lease payments, gas, and insurance—to 10% to 15% of total monthly living expenses. If a new car would strain your budget beyond that point, think twice about trading in. And if you do opt for a new car, budget carefully. "Car prices often go up faster than income," cautions Lassus. "That sometimes means that people are able to buy less car than they could before."
How do you stand with your car loan?Find out the payoff number on your car loan. Then go to the used car section on kbb.com and find out what your car is worth if you trade or sell it. If you're "upside down"—you still owe more on the loan than the car is worth—consider driving it a while longer. "People who keep their car until after the loan is paid off and thus get to drive for a year or two payment-free find that it is a good way to take a financial breather," says Jack Nerad of Kelley Blue Book.
Before you get rid of the car in your garage, decide what you would need to put in its place.
How much warranty coverage do you have left?If you're considering keeping the car you have, a big worry is the possibility of having to pay for major repairs involving the engine or transmission. If the "power train warranty" that would cover such costs has expired, that's an argument on the side of changing cars. (If you're not sure about your warranty, you can look it up in the used car section of automotive site Edmunds.com under "Standard Warranty.") Starting with Hyundai's 10-year or 100,000-mile power train warranty, manufacturers have extended this coverage beyond the traditional three years, 36,000 miles. On new, 2008 models, the warranty competition has intensified. General Motors now offers five-year, 100,000-mile warranties on its new cars and trucks, while Chrysler Group covers power train repairs as long as the original owner has the vehicle. So check whether you still would be covered for major repairs if you kept your current vehicle; it could be a big factor in your decision. If you have made the call that the old car has to go, you then have another decision: Do you trade it in or sell it yourself? Trading it in—especially if you're buying a new car—is by far the easiest way to go. But selling it yourself could net as much as 15% to 20% more money. To see the likely differential, go to the kbb.com used car section and look at the difference between "Trade-in value" and "Private party value." Be sure to fill in all the equipment on your car, but be realistic about its condition. Don't call it "excellent" if it's only "good." One car dealer flatly says no used car is excellent. Car dealers—and even private buyers—will know the difference. As an example of the trade-sell differential, let's look at a 2005 Toyota Camry LE sedan in good condition with 45,000 miles on the odometer. The valuation section at kbb.com shows a trade-in value of $11,850 but a private sale value of $13,575.
Your credit union can help with all your auto financing needs.If the cost and hassle of repairs on your old car are mounting, you have little choice but to replace it. But if you just feel that you would like a change, remember that every day you drive that old car probably is a day you're saving money vs. what a replacement would be costing you in overall expenses. Jerry Edgerton is an automotive writer whose work has appeared in Money and other national magazines. He also is the author of "Car Shopping Made Easy."