7 reasons NOT to trade your gas guzzler |
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3. You may be upside down in your loan
If you took out a five, six or seven-year loan, odds are you owe more on your car than it's worth. Getting out of the car will be that much more complicated, especially if its value is depressed further than normal. In a trade-in, you'll have to pay cash on top of the value of your car to grease the deal or borrow more money than what your new car is worth, an unlikely scenario in these days of tight lending policies. So before you start shopping, call your lender for a pay-off amount, which will tell you how much it would cost to pay off your loan today and compare that to what you can get in a trade or outright sale.
4. Your insurance may increase
Insurance is a cost that most consumers don't consider until after they've gotten the keys to the new car. Higher insurance rates, especially on a hybrid, may wipe out any gas savings you achieve on a new car. Many consumers don't consider that hybrids have higher insurance premiums because they are more costly to repair in the event of an accident.
Hybrids aren't the only cars expensive to insure. "In most cases, a brand-new car is more expensive to insure than an older one," says Scott. "Also, higher mile-per-gallon cars tend to be smaller, and smaller cars are frequently more expensive to insure than larger cars." If you're in the market for a specific new or used car, get some insurance quotes before you buy, and compare them to what you are currently paying to get a better handle on whether your insurance costs will increase.
5. You may not get favorable interest rates on a loan
With banks merging and failing and finance companies pulling back from lending and leasing, this isn't a great time to be in the market for a new or newer car. Many consumers, even those with good credit, are encountering higher rates than they expect or have gotten in the past, given how low overall interest rates currently are.
The automakers that are advertising incentives such as zero-percent financing are reserving those deals for the most-credit worthy customers on the cars that they want to move the most, which are often the very large SUVs that most consumers are avoiding. "Smaller cars are flying off the lots and thus dealers and manufacturers typically aren't offering discounts and special financing terms on those cars," says Scott.
When you do shop for a car, make a few calls to your local bank or credit union and try to get preapproved before you go to a dealership. That way, you'll know exactly what your interest rate will be, and if the dealer can beat it, you'll be in even better shape.
6. Your family may not fit in the smaller car
The best gas sippers are pretty small, especially to consumers who are used to a roomy SUV or minivan. Here are the specifications of several 2009 models.
Honda Fit 5-speed automatic:
- Length: 161.6"
- Height: 60"
- Width: 66.7"
- Gas mileage: 28 city/35 highway/31 combined
Honda Pilot LX 5-speed automatic 4-wheel-drive
- Length: 190.9"
- Height: 71"
- Width: 78.5"
- Gas mileage: 16 city/22 highway/18 combined
GMC Yukon 5-speed automatic 4-wheel-drive
- Length: 202"
- Height: 76.9"
- Width: 79"
- Gas mileage: 11 city/14 highway/12 combined
Before you take the plunge to smaller car, bring your family to the dealership and have everyone sit in the car you are interested in, to see what it feels like.
7. It can't hurt to wait
Six months ago, analysts were predicting $200 a barrel oil in 2009, which could have jacked up gas prices past $5 a gallon. Instead, two months shy of 2009, oil fell below $70 a barrel, and gas is below $3 a gallon.
Just as no one knows where the price of gas will go, the future improvements in technology are also not readily apparent. Hybrid technology continues to develop, and although analysts don't expect hybrids to get much cheaper in general, their current premium might erode as more models hit the market.
Also, the credit crunch will inevitably ease, so you might be able to get better terms on a loan or lease by waiting six months or a year or longer. Prices of SUVs may also moderate as the current glut works its way through the market.
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