When is the Right Time to Upgrade to Another Car?

The desire to upgrade to something better is a natural part of the human condition. So is wanting a set of flashy new wheels. However, how can you know when the time is right to trade in your current vehicle for another one?

In order to make the best decision for you, make sure to take the following considerations into account:

• (1) Your current vehicular needs;
• (2) The state of your finances;
• (3) Your progress paying back your loan;
• (4) Whether you are planning to trade-in your vehicle.

Your Current Vehicular Needs

Like any large financial decision, you should try to let your needs dictate your purchases. For instance, if you are expecting a child, it might be time to trade-in your convertible for a minivan.

In general, the contours of your car usage should define your purchase. Factors to consider include your car’s reliability, how often you will be driving, who you will be ferrying from place-to-place, and even the surrounding weather and the type of roads you will traversing (i.e. will you be driving on slippery roads in snowy conditions?).

If the car you are driving can meet all of your current and near-term needs, think long and hard about whether it makes sense for you to expend capital on a new vehicle. You should have a strong and compelling rationale for replacing a trustworthy vehicle that is running just fine.

If your reasoning is a matter of taste or preference, that is also legitimate. However, this makes the state of your finances that much more important.

The Status of Your Finances

Making sure that you can afford your upcoming expenditure should be at the center of your considerations. Like any major purchase, do your homework to understand what you can comfortably afford prior to getting tempted by the shiny new models at the car dealership.

Using TipRanks’ Auto Loan Calculator can help you break down your purchase by providing estimates of your monthly payments. This will help you determine your budget, and the price range you should be aiming for.

Purchasing a car by obtaining a loan is also an option, though financing contains its own set of pros and cons to weigh.

Making sure that your finances can absorb another significant outlay of cash is crucial. This is especially true if you used financing to purchase your current car.

How Much Car Do You Own?

If you are still financing your current car, it is important to understand how much of your vehicle you actually own. You can plug the terms of your loan into TipRanks auto loan calculator to learn how much equity you have built up, and how much belongs to your lender.

This is where the value of your current car comes into play. Unlike a house, cars are depreciating assets and their value will begin to decrease as soon as you drive off the lot. Your car could theoretically be worth less than the amount you still owe, making this asset underwater.

This is an issue if you are thinking about selling your car in order to purchase a new one. For instance, if you owe $3,000 on a car that is only worth $2,000, you will still owe your lending institution $1,000 even after you sell your car. This means that you will be paying money on a vehicle that is no longer even in your possession.

Are You Trading in Your Vehicle?

Trading-in your vehicle can save you hassle and time, streamlining the process of using your existing vehicle towards your new purchase. While you might receive a higher offer if you were to sell you car on the open market, working with a dealer has the advantage of allowing you to complete both sides of your transaction all in one place.

Trading-in a car might also give you more of an opportunity to bargain with your dealer, especially if your current car is a popular model that you have been taking care of through regular maintenance. To increase your chances of maximizing your trade-in value, make sure to fix any dents, scratches, or other issues (cosmetic or substantive) prior to arriving at the dealership.

In addition, there are significant tax advantages that come with trading-in a car. This is because you will only be charged taxes on the amount you pay on your new car. If you are trading-in a car that is valued at $10,000 and purchasing one that costs $25,000, you will only pay taxes on $15,000, not the entire $25,000.

If you plan on taking a loan to finance your upcoming car purchase, you can add your trade-in value to TipRanks’ auto loan calculator to receive an estimate of how this will impact both your monthly payments and the overall cost of the loan.

Conclusion: Knowing When to Upgrade Your Car

There is no magic formula for the right time to upgrade your car. However, answering the following questions can help you understand if you are ready now, or if it would be better to continue driving your current ride.

• (1) Does your car satisfy your current and near-term needs: If your car is satisfying all of your current and near-term needs, you should have a compelling reason for adding an additional expense to your monthly budget.
• (2) What is the status of your finances?: Simply put, can you afford to make a large expenditure at this moment in time? If you truly need an alternative vehicle–and financing is your only option–make sure you examine a number of options to make sure that you do not buy more car than you can afford.
• (3) How much car do you you actually own?: This is a combination of two figures: how much of your car you have paid off and what your car is currently worth. If your equity stake is below the car’s market value, selling your car and purchasing a new vehicle will leave you in a situation where you are paying money on a car that you no longer own.
• (4) Will trading in your car help you purchase a new vehicle? It is key to understand whether you can use your current car to facilitate the purchase of your next vehicle. Trading-in your existing car can help ease your way into a new vehicle, limiting both the price you pay and the taxes that are part of any transaction.

Understanding both your needs and financial capacity can help you determine if now is the right time to purchase another vehicle.

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