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Is it time to trade in yet? The 5 factors to consider

Nov. 29, 2006 - 03:21PM   |   Last Updated: Nov. 29, 2006 - 03:21PM  |  
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When should you start thinking about buying a new car?

For many people, that decision is coming later and later. Drivers are keeping their cars much longer these days -- eight to 10 years on average, according to AAA.

The precise moment varies from case to case and car to car, but there are some signposts along the way to the junkyard. The factors you should consider include:

1. Trade-in value. How important is trade-in or resale value to you? Virtually all new cars begin to lose value as soon as they are driven off the dealer's lot. After the initial hit -- a car might lose 25 percent or more of its original sticker-price value in the first year -- the speed of depreciation drops off considerably. But there comes a point -- roughly around the five- to six-year, or 50,000- to 60,000-mile, mark -- when that value takes another plunge.

That's what you want to watch out for.

If you want to get top dollar, you should be thinking about retiring your car sometime before it reaches middle age.

2. Price trade-offs. Would you rather have a monthly payment or face the possibility of occasional (and potentially large) repair bills?

Once a new car is out of warranty, you start playing Russian roulette with unexpected expenses.

Some cars are more reliable over time. Checking sources like Consumer Reports, J.D. Power and Associates customer satisfaction rankings and government recall data will give you a good feel for vehicle track records.

If you keep track of how much money you're putting into your car for upkeep, you'll be able to notice any expense trends that scream, "It's time for a new car." A $2,500 repair bill for an older car is the equivalent of more than seven months of $350-a-month payments on a new car.

3. Hassle. How willing are you to deal with more frequent trips to the repair shop? The older the car, the more often you'll find yourself returning for both big repair bills and regular service. For some drivers, maintenance is a labor of love, but for others, it's just a hassle. And for those who live and die by reliability -- especially one-car families and people who need a car for work -- the maintenance challenges of an older car might be a bit much.

4. Peripheral costs. Beyond your monthly car payment, consider the "peripheral" costs, such as insurance and personal property taxes.

One of the real downsides to owning a new or relatively new car is that peripheral costs can be high. And many people don't take them into account when considering a new car purchase.

Some states levy personal property taxes that can be $1,000 or more annually on a new vehicle. But a car that's eight or nine years old might cost you next to nothing in personal property taxes.

It's the same story with insurance. New cars cost more because repair or replacement bills are more expensive than for older cars.

5. Newness. This last factor is the most subjective, but it's no less important in your purchase decision. Some people are perfectly content to drive an older car, so long as it still runs well and is paid off. But others put a lot of stock in what their wheels say about them. And there are people in some professions, such as real estate, where it's important to be seen in a car that isn't a faded old beater.

It's hard to say with any precision when a car has grown too long in the tooth -- you know it when you see it. But if you consider these factors before you start trolling the dealerships, you'll be better armed to make the right choice.

Eric Peters is an automotive columnist who has covered the auto industry since 1992. His work has appeared in the Wall Street Journal, Detroit Free Press and Detroit News, among other publications. E-mail him at Epeters952@aol.com.

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