Q. Does it make sense to trade in a car with no payments in order to lease a new car that is valued at less than the trade-in value of the car that I own?
I own a car that is worth approximately $27,000. I don’t have any more payments to make on it. Does it make more sense to keep the car for the next several years, or lease a new car whose lease value is around $25,000?
A. Do you like the car you currently have? If so, I’d recommend continuing to drive it. If the $25,000 car is more appealing to you, by all means, sell your car and purchase the brand new car. Keep in mind, though, that the brand new car will most like depreciate much faster over the next couple of years than your current car.
The issue, in my mind, is not which car to own going forward. It’s the use of a lease, or really, any financing option on a car purchase. Surely that monthly payment could be going to more productive ventures, like paying off other debt, building an emergency fund, or increasing your retirement contributions.
If you do have other non-mortgage debts, you may want to consider selling your current car, buying something much less expensive (but still dependable, of course) and use the extra cash to pay down the debts.
I enjoy a nice car, too, but is it the best use of your equity? If it is, chose the car you’d like to drive long-term and don’t finance it!
Best of luck and feel free to reach out to me if you have any other questions!
John is a CPA and personal finance coach. Email your questions to firstname.lastname@example.org.
If you need confidential financial coaching for your particular situation, please contact John for a no-cost, no-obligation discussion of your needs.