I have a 2005 Explorer with 56,400 miles on it that gets 19-20 mpg on the highway, and I love it. It’s paid for. Do I trade it off for something that gets better mileage, and start making car payments, or can I justify keeping it because I have no car payment?
Unless you drive a very large number of miles per year (and you don’t seem to) or trade it in for a very small car, the savings in gasoline will not pay for the new car payments for a long time.
According to my calculations you drive about 16000 miles per year. At 18 MPG that’s 889 gallons per year, and at $4/gal it’s about $3500 in gasoline alone. Now, suppose you buy a car that gets 30 MPG. You would spend $2133 per year is gasoline for a savings of about $1300 per year in gasoline costs. Can you get car payments of less than $110/month for a new car if you trade in your Explorer? Would you really enjoy riding around in a small car? You could get a really small car and maybe boost the mileage to 35 or 40. Again, would you enjoy a really small car?
If you are paying cash, then you can just calculate the years it will take to pay back the cost of the new car minus the trade in. In general, unless you go really small it’s not worth trading.
You have to do a cash flow analysis. Start with how many miles you drive per year, and figure out your gas bill. Then find the Blue Book value pf your Explorer. Then find the cost of an econocar you want ot replace it with. There will be a difference between a new small car ($15,000 or so) and what you can get for the Explorer. But you will have a new car. A used econcar will be a very poor buy now. And the Explorer will be hitting some expensive repairs soon.
Whatever you do, don’t buy a 4 WD or AWD car; they use more gas than a 2 WD version.
If you drove a lot, say 20,000 miles per year at 20 mpg, your gas bill would be $4500 per year with $4.50 gas. The Honda Fit or other car would get about 36 mpg average, and cost $2500 in gas. So you are saving $2000 per year. If you got $10,000 for the Exoplorer, the difference in gas costs would pay for it in 5 years, not counting the much lower mainteance and repair costs for the new Honda Fit.
Somewhere there is a break-even point; buying a new Prius, for instance would take normally too long to pay back the differnce.
During the last gas crisis a friend of mine dumped his very thirsty Thunderbird, and bought a VW Rabbit Diesel. He went from 15 mpg to 45 mpg average, and with his long commute to work paid for the car quickly!
Two things are for sure; gas prices will keep going up, and the value of your Explorer will keep dropping like a stone.
I do drive a lot of miles per year (40k/yr). I own a 05 4runner that gets about the same mileage…and it’s NOT worth it. $20k will buy an awful lot of gas. I can drive 100k miles on that about of money.
What would you replace it with? What kind of mileage would it get? Unless it gets about double the gas mileage, you won’t amke up the interest on the loan. You probably won’t make it up even then. Do the cash flow evaluation Docnick suggests to see what gas mileage you need to break even. If it’s possible to break even, consider cars that fit the description.
Keep it. You won’t get anything for it. I have a neighbor with a 2001 Chevy Suburban that tried trading it in for the purchase of something that got better mileage, but the dealer didn’t want it. Said they already had enough big trucks/SUV’s that they couldn’t get rid of. So he has it parked on the front lawn with a For Sale sign. $2000.00! And it’s in mint condition!
This would be a steal for someone who didn’t mind the poor fuel mileage and the over a $100.00 at each fill-up.
Tester
With the economy the way it is, I don’t think it is a wise idea to get into a new car debt at this time. Take the aproximate value of what a car payment would be and put it in the bank.
Keep it. The market value of SUVs is in the tank right now, and you 'll get very little for it, and the market value of economy cars is full-tilt high. Lotsof dealers in my area (NH) won’t even accept SUVs as trade ins anymore. They can’t resell them.
There is no way you could win financially by trading it.
With no payments, keep it. It more than offsets high gas prices. Interest on principal is far worse than high gas prices IMO.
As mentioned, you won’t get anything for it in the current climate. Along the same lines of the Suburban Tester mentioned, I saw an '03 Suburban sitting for sale in a parking lot on one of the main roads the other day. It was very slick, marked 3500 OBO, and is still there.