Financial Planning for Generation X & Y Women
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Expert Q&A Archive

The pros and cons of upgrading to a different vehicle and how to do so
Hi, I want a different vehicle, but I still owe $8000 on the one I have. I checked, and my car is worth $11,500. Is it smart/safe to upgrade from what I have? And if so, how do I go about doing this? Thank you in advance for your time.
Alyssa Rakovich:
expert info »
Look at the Kelley Blue Book pricing and do your research on the value of your trade-in as well as the cost of what you are looking for. If you sell the car yourself, chances are you will get more than if you trade it in. But if you are not able to handle the hassle of selling yourself,
look at trading it in and buying new from the same dealership. Try upgrading with [a] slightly used [car]. Let someone else pay the new car depreciation.
Jeannine Falter:
expert info »
Here are a few additional questions to ask yourself:

  1. How old is your current vehicle and is it in good condition?

  2. Are there any major repairs or maintenance coming due?

  3. Why do you want a different car?

  4. What interest rate are you paying on the $8,000 car loan you currently have?

  5. Do you have any cash to apply to a down payment for a new car, or would you be financing the entire transaction?

If you traded your car in for a different car--for example let's say the new car cost $20,000, and you actually got $11,500 in trade-in value for your old car--you would need a loan or cash for $8,500, plus you still need to pay off the $8,000 you owe on the old car, and you'll also have to pay
sales tax on the new car. You'll need about $17,095.00 to upgrade to a car worth $20,000. **$8,500 + $8,000 + $595 (tax estimated@7%) = $17,095.00. If you have to borrow all of the money and your current car is working just fine, I wouldn't buy a new car at this time.
Dorothea Bernique:
expert info »
First, is the vehicle you want to purchase "new" or pre-owned? I never recommend a brand new vehicle because of the markup you incur as the initial owner. It sounds like you owe too much to get a good deal from a dealer; they never want to give book value on a trade-in. If you still want another vehicle, try to sell yours yourself and then purchase. The answer to Is it smart/safe or not? can be determined by your budget. Remember your insurance and maybe even the cost of gas will increase with a newer car. Can you afford that?
Michael A. Masiello:
expert info »
I notice you said want vs. need a different car. First, if you can sell the car for the 11.5 and then pay off the 8k owed, then you can start from scratch with a dealer. Be very leery about trade-in/roll-ups with dealers. The facts and actual numbers are rarely fully disclosed, often buried in monthly payment gobbledy gook. Make sure you shop around for comparable offers etc. I'm not sure if its safe or smart based on the info provided. The smart regarding finance is above. The safe - use a good mechanic to evaluate.
Claudia James:
expert info »

The key word is "want."

I do not think it is a good idea to buy a different vehicle simply because you "want" a new one. If you are "flush" with money then I'd say go ahead and make the change; however it doesn't sound like you have an abundance of cash, because you have a loan against the current vehicle. Remember, cars are machines that depreciate. You are slowly using up your precious dollars through depreciation as well as through the interest on the loan. I'd rather see you accelerate your payments and pay off your current loan early and then start investing the amount you were paying each month for the loan. When your current car begins to require frequent repairs, then it is time to change. Who knows, by that time you may have invested enough to pay cash for the new car.

When you do shop for a new car, remember to look at used cars first--perhaps a "program car." New cars cost the individual a bundle in depreciation when they first drive the car away from the dealership. That first drive costs most new car owners anywhere from $1,000 to $5,000 in depreciation, depending on the type of vehicle. Remember, as soon as you drive away in that new car, it drops in value because it is now used.

Bettye J. Banks:
expert info »
You are not in as bad a position as you might think. Your car is worth more than you owe on it, so you have several viable options.

  1. Stay in your current vehicle, but recognize that cars depreciate in value very quickly. Depreciation can cost you big time.

  2. Sell it yourself at the best offer you receive, and use what ever proceeds you need to make a down payment on your new car. Any funds you have left you can pocket and save or invest.

  3. Trade it in. Let the dealership do the work for you. You might not realize as much on the financial end, but it can save you some hassles. Consider convenience over cost. Which do you value more?

  4. Remember, a new car also means a new (and usually higher) car payment, unless you purchase the vehicle outright.

Review your finances to make sure you can service the new obligation in an orderly manner.