When to trade in a relatively new car for maximum value

Question

I am considering purchasing a new car in the next year to replace my current car.

I currently own a 2010 model year vehicle which I estimate to be paid off early spring 2012.

My question is, in order to receive the highest trade-in value, and/or save the most money, when exactly should I trade in my current car and purchase the new one? Immediately after my current car is paid off, in full? I've heard dealerships may buy your loan if there is still a remaining balance due, but I do not know how much this affects the overall value that they're willing to give you for it.

Answer 1

To save the most money - don't trade it in, sell it to a private party. Dealers will always give you less, because eventually they'll be selling to the same private parties, so why do you need the middle man? Craigslist is your friend.

Answer 2

My suggestion would be to keep it. The value of a new car is that you get to drive it around when it's still new and shiny, and that you know its history. If you maintain it in good condition, both mechanically and cosmetically, then you can have both of those benefits for the life of the car.

Your question merges the old car sale and new car purchase transactions together, but that's not correct. The value of your 2010 car has no relationship to the value of any new car you might buy, except incidentally through the market forces that act on each. The car dealership is likely to be skilled at making you feel like your most important criteria are satisfied, but they will try to construct the deal to maximize the money you pay them while making you feel like you're the one maximizing your value. Also note that the dealership cannot give you maximum value for your car, because it costs them money to sell it and they take all the risk. Some of the difference between typical direct-sale and trade-in prices is the commission you are paying them to both sell it for you and absorb the risks in the transaction.

Answer 3

I don't disagree with the current answers, but I feel like no one really answered your question directly. Seems to me like what you were asking is when to trade in your car in relation to when/whether your loan is paid off?

Assuming you are committed to trading your car in (and not selling it privately as has been suggested), whether the car is paid off should have no impact on what you get for a trade-in. The car is worth what it's worth, and what you owe on it should not affect the transaction.

Answer 4

Cars depreciate the most their first year after introduction. So you could buy a "new" car in year 2 for the optimal price, and at year 4 (when you finish paying yours off) you could buy the next car in year 2

(this is surprisingly similar to rolling options in a buy-write strategy, an arguably more constructive use of your money)

Answer 5

So this has been bugging me for a while, because I am facing a similar dilemma and I don't think anyone gave a clear answer.

I bought a 2012 kia soul in 2012. 36 months financing at 300/mo. Will be done with my car loan in 2015.

I plan on keeping it, while saving the same amount of money 300/mo until I buy my next car. But, I also have an option of trading it in for the the next car.

Question: should I trade it in in 2015. should I keep it for 2 years more? 3 years more, before I buy the next car? What makes most financial sense and savings.

I tried to dig up some data on edmunds - the trade-in value and "true cost to own" calculator. The make and model of my car started in 2010, so I do not have historical data, as well as "cost to own" calculator only spans 5 years.

So - this is what I came up with:

Where numbers in blue are totally made up/because I don't have the data for it. Granted, the trade-in values for the "future" years are guesstimated - based on Kia Soul's trade-in values from previous years (2010, 2011, 2012)

But, this is handy, and as it gets closer to 2015 and beyond, I can re-plug in the data where it is available and have a better understanding of the trade-in vs keep it longer decision.

Hope this helps.

If the analysis is totally off the rocker, please let me know - i'll adjust it/delete it.

Thank you

Answer 6

I love giving non-answer answers. It will depend on you. Suppose you are embarrassed by driving older cars, your significant other doesn't like having you drive an older car, you don't really maintain the car well, it develops a variety of problems, acquires a few dents and you really worry about reliability. Then the value of the car will probably drop rather quickly below the blue book value and you should sell it.

On the other hand, if you don't care how the car looks, it runs pretty well (fewer repairs than you would expect), you maintain it yourself (aka cheaply) and do a good job at that, and have plenty of friends who owe you a favor and will give you a ride if your car won't start, there will probably never be a time that the value to you drops below the 'official' blue book value (what others will pay), so you would drive it until the engine drops out of the chassis. The blue book value represents some kind of rough consensus about what a car of that age and exterior condition is worth to the typical person; it will be the discrepancy between the 'typical' person and you that determines whether you'll sell.

An illustration of this: I know a few people who (1) don't care what their car looks like and (2) are very handy at repairs. These people started out by buying cheap used cars and ran them until they basically fell to pieces. However, even though their 'taste' in cars didn't changes, as their incomes increased, it finally reached the point where doing their own repairs was too much of a time sink, so the value of really old cars dropped in their minds and they shifted to buying newer cars and selling them before they completely fell apart. That's why this is a hard question to answer.