A Trees Full of Money subscriber recently posted this comment in regards to my article on refinancing automobile, boat, motorcycle, and RV loans…
I was wondering if you could give me your advice. I bought a 2007 Ford Expedition in September. My payment is 462.34 a month. I owe 25,000. I really want to downsize my car so I am not spending so much money on gasoline. How long do I have to keep it in order to make it worth my while to trade it in? If I could just get them to pay the loan off and start over on a smaller SUV I would be happy. Does this make financial sense? My husband says we need to keep it at least 2 years. Our loan rate is 6.5%. Thanks for your help. I love your website and your daily articles. – Susan
Does It Make Sense to Trade in a Large SUV for a More Fuel Efficient Vehicle?
Thanks for the question Susan! All things going equal, you can save a significant amount of money trading in larger car for a more fuel efficient model. However, there are several things you need to be careful of before heading off to the dealership!
Even when gas prices were well over $4.00 a gallon two years ago, filling up the tank was still not the most expensive aspect of owning a vehicle for many people. What was the culprit you ask? The answer is new vehicle depreciation. As you’ve probably already experienced with your Ford Expedition, the average car loses about 60% of its value over the first 4 years.
You most likely paid around $35,000 for your Expedition. Following the formula above, you are “losing” about $400 a month due to depreciation.
If I were going to replace a vehicle to save money on gas, I would make sure I bought a used vehicle that costs less than what my current “gas hog” was worth.
Sales, Excise, and Road Taxes:
Depending on your state, you may be required to pay a large amount of sales and excise taxes on any new or used vehicle you buy. If the mileage difference between your current vehicle and the one you’re considering buying isn’t at least 5 mpg, you may be better off sticking with your current vehicle and following my simple tips for improving your vehicle’s fuel economy.
As an example, lets say you bought a $20,000 Toyota Camry to replace your Ford Expedition. You would need to pay $1,000 in sales tax when you bought the new car, plus an additional $440 per year in excise taxes to operate the vehicle. With your 4 year old Expedition, you may only need to pay $200 a year.
Looking at operating costs alone over the next 4 years, you’re likely to pay $1500 more just in sales, excise, and road taxes.
Before buying a new or used car to save money on gas, make sure you also check into any increases (or decreases) you may need to pay in automobile insurance premiums.
Consider Selling Your Car Yourself:
I’m not a big fan of trading your car in at the dealership. In most cases it makes much more sense (financially) to sell your vehicle yourself to cut out any profits a dealership banks when processesing and reselling you vehicle.
What Should You Do?
Too often, people get scared by high gas prices and never consider the other factors of vehicle ownership. You need to compare your gas savings with the additional expenses associated with buying a new or used car. In many cases, you’ll find you’ll be better off driving what you have.
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