There is nothing better than the new car smell. The thought of this alone attracts many people into a car dealership. While there is nothing wrong with buying a new car, you have to consider your current situation before moving forward. For example, what are you going to do with the vehicle that you have right now? You may think that it makes financial sense to trade in your car and upgrade to a new one, but until you focus on the finer details you will never really know for sure.
Are you Upside Down?
If you own your current car outright, you are in good position to trade it in if necessary. This means that any money you receive on your trade in can be put towards the down payment of your new vehicle.
On the other hand, you may still owe money on your car loan. If so, you have to decide if you are really in position to upgrade. If you owe more than the car is worth, you are going to “take a hit” when you trade it in. In turn, you will have to roll this amount into your new loan.
Does your Car have any Life Left?
If your car is paid off you may be tempted to trade it in. After all, you can receive money for your trade that can be used to lower the cost of your new vehicle. But remember one thing: you are going to be spending additional money. In most cases, this means another car payment. And most likely a higher car insurance premium, as well.
Although buying a new car may be exciting, you don’t want to jump the gun if it is not going to benefit you financially. If your car is doing its job without showing any signs of breaking down, you may want to hold onto it a bit longer. With each month that goes by, you can save the cost of a car payment.
READ ALSO: Quirky ways to save money on your car
Should I Keep my Trade In and Buy a New Car?
In some cases, it may make sense to keep your current car and buy a new one. Of course, this is based on a case-by-case situation. For example, maybe you have a child who just received his/her driver’s license. At this point, you may want to give your child your old vehicle and buy a new one for yourself. This gives you access to enough cars, without having to buy two new ones.
Some people decide to keep their old car and buy a new one, even though they don’t need both vehicles. Even if your car is paid off, there are other financial considerations such as the cost of insurance and maintenance.
Sometimes it makes sense to trade in your vehicle. Other times you are better off keeping it. In the end, you need to make the decision that is going to best benefit you from a financial point of view.
Does it make Financial Sense to Trade in your Car? is a guest post by Chris at CarInsuranceComparison.com.au.