So here’s an interesting one. I have a car with a 72-month note, that I’m halfway through. The payments are pretty high, around $1,100/mo (luxury sports car). I just checked the Black book value, and the value on other sites and I have almost $20K in equity in it right now. I also have enough saved up to pay it off and still have more than enough money left. The interest rate isn’t too bad, around 5.4%.
So what I’m trying to figure out, do I:
- Pay it off - takes a chunk from my extra money, but no more payments. That extra equity is locked up and could go away if the market changes over the next few years
- Refinance - I could see keeping the car another 4-5 years, and I could put a little extra from savings in to further lower my months costs. I don’t think I’ll end up upside down with how far ahead I am, but again, the equity is locked up
- Trade it in - this is the tricky part. I could get a good chunk off something, but I love my car, and also there’s no way I could get anything nearly as nice as what I have. If I were to lease I could easily cut payments in half, but I have another car on lease and don’t want two of them that way
I can’t make it with one car, otherwise I’d flat out sell it, and I understand the pros/cons of leasing. I’m also not a “something to just get me from point A to B” type of guy, I like my cars, so please don’t lecture on that. I’m basically trying to think about cash flow for the near term and the fact that having a car with $20K equity is something I need to at least figure out if it’s worth accessing that.
It sounds like you still need to figure out what you want.
In the end where do you want to be? Do you want to keep the car permanently? Keep it then.
If you can only imagine another 4-5 years with it, that doesn’t seem worth worrying about, it’s a temporary placeholder until you find one you really like. If the $20K is useful to you right now, sell the car and take it. If you’d just roll it into the next car, make sure it’s the car you really want.
But that’s the point of view of someone who spent half a decade shopping for the car he wants to keep for at least two decades. If that’s not you, then sell it and just lease from now on.
Yeah I generally change out cars every 3-4 years. I tend to get cars I like, not ones that are known for the long haul. Quite a few of them there is no way in hell I’d own outside of warranty! I usually lease at least one car, but like buying one too in case things really go sideways as it’s easier to sell at a moments notice (breaking a lease is suicidal usually).