Should I Sell My Car to Save Money? 6 Questions to Ask First
“Should I sell my car to save money?” It’s a question you may have asked yourself once or twice. Maybe you’re wondering if you should sell your car to pay off debt. Or perhaps you’re making monthly payments on a pricey auto loan, and selling your car could free up cash for other things.
But will selling your car help you achieve your financial goals? It depends on your situation. Read on to find out what considerations should go into the decision to sell a car.
When to sell your car
If your goal is to save money and/or increase cash flow, there are three options you might consider when selling your car:
- Sell your car and buy a less expensive one
- Refinance your car loan
- Sell your car and pocket the cash
Here are 5 steps to take that can help determine which option is right for you.
1. Calculate the true cost of ownership
Knowing your car’s true cost of ownership gives you a baseline for comparing your current car situation with other options. Cost of ownership takes into account how much it costs to own and operate your car each month or year. Be sure to include:
- Payments of principal and interest (if you have an auto loan)
- Insurance rates
- Fuel costs
- Parking fees
- Licensing and registration fees
- Maintenance and repair costs (more on that below)
Once you’ve done the math, you can more accurately assess how much you’ll save by selling your car. You can also compare the cost of owning your current car with that of a cheaper car.
2. Determine what your car is worth
Use online tools like Kelley Blue Book and TrueCar to research average selling prices and establish an approximate value for your car. Note that your car will likely be worthless as a dealership trade-in than if you sell it privately to another individual.
When it comes to depreciation, know where the sweet spot is. A new car’s value will be most heavily impacted by depreciation in the first year, then again in the fifth year and beyond. The low-depreciation years two through four might be a good time to sell and recoup as much value as possible.
3. Review your auto loan
If you financed your car, check the payoff amount. Owing significantly more than the car’s worth is known as being “under water” or “upside-down” on the loan, and it can complicate the decision to sell. advises people in this situation to “drive through” the loan: Keep making payments until you own the car outright, or you owe less than the car is worth.
If your goal is to save money on interest or lower your monthly payments (or both), auto refinancing might be an attractive alternative to selling your car. Refinancing can make sense if interest rates have declined, your credit score has improved or you didn’t get a great rate the first time around (which is common for people who financed their car at the dealership).1
4. Know your car’s maintenance outlook
Looming maintenance needs can impact the price your car fetches. Though the exact timing depends on the car, major maintenance hurdles are typically around 30,000, 60,000 and 100,000 miles. If your car is coming up on a big milestone, its value will dip, says U.S. News & World Report.
Maintenance costs also influence the “fix it or sell it” debate. At what point is it best to just sell and move on? Dave Ramsey focuses on whether the repair will add value. Say your car is worth $5,000 if you don’t fix it, and worth $6,000 if you do. If the repair costs $2,000, it’s probably a bad idea—after all, you only gain $1,000 in value. You could be better off selling the car as-is for $5,000, adding in the $2,000 you planned to spend on repairs, and buying another car for $7,000.
5. Consider your lifestyle
Thinking about giving up your car altogether? While slashing all car-related costs can be tempting, mull over your current commute and study the other available options like public transportation and car-sharing services. Consider whether owning a car—or a certain type of car—is important for your quality of life.
So, should you sell your car?
Each car owner’s financial goals are unique, but reviewing these considerations should help you get to a confident answer. While one person might choose to embrace the subway and fully eliminate car costs, another could be better served by trading in a high-maintenance car for a more affordable ride.
Curious if refinancing could be a better alternative to selling your car? Find out whether refinancing could reduce your cost of car ownership in minutes with a LendingClub rate quote.