If you drive a three-year-old car and have a hankering for the latest model, buying a new car could actually lower your car payment. It may sound too good to be true, but it's not, thanks to a downward trend in interest rates and an upward trend in used-car values, according to research by Edmunds.com, an independent vehicle information website.
New-car buyers are likely to get a significantly lower interest rate than three years ago. A five-year, new-car loan averaged 6.88 percent in November 2007, while a loan with the same terms averaged 5.77 percent last month, according to Bankrate.com data. On a $25,000 loan, that's a monthly payment of $493.62 then, versus $480.65 now, or total interest of $4,616.95 versus $3,839.05 now.
For car buyers with good credit, the savings potential is much higher, since many manufacturers are currently offering low interest rates, including zero percent financing for those with the best credit. At 1.9 percent -- a common, low interest-rate loan -- that $25,000 car loan would result in a monthly payment of $437.10, and just $1,226.07 in interest.
In addition to getting a better interest rate, new-car buyers are likely to get top dollar on their trade. Trade-in values for three-year-old cars were up 10.3 percent in October 2010 compared with October 2007, due to an increased demand for used cars. Three-year-old cars are particularly in demand since they usually qualify for manufacturers' certified preowned car programs. Dealers like to see these cars traded in because they can demand a higher price for a car they sell as certified preowned. Consumers can get top dollar when they trade in a car that will qualify as a certified preowned car if they negotiate wisely.
While all three-year-old cars, trucks and sport utility vehicles have increased in value, some car segments have seen greater increases than others. Drivers of full-size and luxury SUVs and crossover utility vehicles will find their cars are in the greatest demand, as will owners of compact pickups and luxury cars, according to Edmunds.com data.
In general, for a three-year-old car to qualify as certified preowned, it should be in very-good-to-excellent condition, have had no major accidents and should have 45,000 miles or less.
Ask the adviserIf you have a car question, e-mail it to us at Driving for Dollars. Read more Driving for Dollars columns and Bankrate auto stories.
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