If you’re wondering when the best time is to upgrade your car, you’re not alone. In this article we’ll answer some of the most common questions about car upgrades to help you make the best financial decision possible.
Upgrading your vehicle – why is it necessary?
There are two major things to consider when it comes to buying a new car or trading in or selling one:
- The resale value of your car
- The maintenance costs of keeping an older car running.
Don’t trade in too soon – or you’ll end up owing money
Your vehicle’s trade in value (the price that a dealer would be willing to pay for it and offset the price against the cost of a new car) is the first thing to consider before you upgrade.
Vehicles lose value in the first two years of their lifespan, putting car owners in a difficult situation: if you trade in your vehicle too soon, you may end up getting less for it than you still owe in outstanding car payments. In this scenario, you’ll end up paying extra just so you can upgrade your vehicle and finance the new one.
Most cars “break even” – reaching a point where their value is greater than the outstanding payment amount – at about the three year mark.
If you’re comfortable continuing with your monthly car payments, you can upgrade your vehicle when it’s about 3 years old and not have to pay anything extra – unless you are liable for a balloon payment at the end of your vehicle repayment plan.
Hanging onto an older vehicle isn’t always cheaper
These days, with rising prices and tight monthly budgets, many families are deciding to keep their vehicles for a few extra years. This makes good financial sense if you think of the monthly cost of car payments – a year or two without that expense could really boost your investment portfolio or help you pay off your credit cards for good.
Unfortunately, as vehicles get older they tend to cost more to run and maintain – and this monthly expense will only increase as your car goes from 5 (the best time to upgrade) to 7 to 10 years old and beyond.
Once your car becomes too expensive to repair, it will also probably have a very low resale value. At this stage, you may have to sell it for however much you can get and use the proceeds as a deposit on your next vehicle.
No matter how old your vehicle is, or when you decide to upgrade it, you’ll have greater peace of mind on the road knowing that you have comprehensive car insurance. If you’d like to find out more about our innovative vehicle insurance products, learn more here.