Unless you must immediately replace your vehicle following a devastating accident or a major mechanical breakdown, the time is going to come when you'll need to make the decision to bid your trusty -- or not-so-trusty -- car goodbye, trade it in and get a new ride. Determining when it's time to trade up can be difficult sometimes, although many vehicle owners have common reasons for trading in their car for something better.
Fuel Efficiency
Gas prices might have risen dramatically since you purchased your SUV, and paying $120 each time you fill your tank may no longer be an option. Before you trade in a gas guzzler for a fuel-efficient compact, look past the immediate savings in gas prices. Sure, you'll be saving 60 percent on fuel costs each month, but how long will it take for those savings to recoup potentially higher car payments, insurance and licensing fees? Calculate the cost of your new vehicle against the savings at the pump to determine if this is a sound decision to trade your car in.
Repair Costs
Owning a car you've paid for in full is great, but if frequent trips to the garage start chipping away at your savings, it may be time to consider trading up for something more reliable. Although it's almost always cheaper to repair an old car than buy a new one, frequent breakdowns and the hassles associated with car problems may quickly tip the balance in favor of trading a car in. If the cost of a repair exceeds the value of the vehicle or a year's worth of payments on a new one, you're best served trading the clunker in.
Managing Depreciation
All vehicles are a depreciating asset, so it's unlikely you'll sell yours for the same amount you purchased it for, particularly if you bought it new. Depending upon the type of vehicle you drive, its value may hold relatively stable for several years, then steeply begin to decline after it reaches the five- or six-year mark. Your trade in will be worth much more if you time your new car purchase just before your car's value starts plummeting quickly.
Lifestyle Changes
Sometimes the decision to trade in a car has nothing to do with financial matters, but changes in your lifestyle. The two-door coupe you purchased shortly after you got married was great for a while, but it's impractical now that you have a family. That rear-wheel drive sports car was fun when you lived in the Sun Belt, but after moving, you discovered it's a nightmare on Colorado's snowy roads. Holding onto a car because it makes good money sense is only an option if holding onto the car itself makes sense.
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