Sell or Keep Relatively New Car with Car Loan

I bought a 2007 Toyota Avalon with a car loan. The car only has about 25,000 miles and is in perfect shape. BUT I still owe $15,000 on it. (I bought a 10 year, 100K mile warranty with it). So, does it make sense to sell and get some cash and buy a cheap car, with no monthly payment or should I bite the bullet and keep paying? I figure in 2.5 years it will be worth a few thousand above what I will pay between now and then.

Keep it and keep making payments. Then, after it’s fully paid for, keep it another 10 years. And if it’s still running good, yet another 10 years.

You make no economic progress by continuing to trade vehicles, especially when they still have large balances. You make economic progress by keeping them forever.

I would keep the car at this point, unless you don’t need a car. A “cheap” car will probably not be as trouble free as a Toyota Avalon. Keep up the maintenance on the car and see if you can pay ahead on the loan. If you can pay ahead, you are paying down the principal and thus paying less interest.

You will be money ahead in the long term if you keep the Avalon. It makes no financial sense at all to sell the car at this point.

I’ll bet you are upside down on the loan now and you will stay that way until the loan is almost paid off…Cars are almost NEVER worth what their owners think they are worth.

You did not buy a “warranty”…You bought a pre-paid repair plan that was priced to produce a 50% profit margin to the seller…

If you are looking to buy a “cheap car” now, it’s too late…You lost that option when you signed the papers on the Avalon…

You are facing a common problem for anyone who buys a “new” new car. The depreciation in the 1st 3 years of ownership is greater than the down payment so at year 3 or 4 the value of the car is less than the balance still owed on the loan.

You can deal with this situation by paying a larger down payment, making extra payments on the loan, or buying used cars. The best plan when buying a new car is to plan to keep it beyond 5 years. When you take care of your new car from day 1 it should last 10 years and still look presentable and be reliable. Years 10 to 15 start to get expensive with more frequent repairs and less reliablilty.

You should plan on keeping the Avalon until at least 2017. In years 5 to 10 you can save some money for your next new car purchase. If you are having financial difficulty making the payments you might have to sell the car, but the cheaper car you buy could need more work and not save you anything in the long run.

Thanks for all the advice. You confirmed what I thought. I am not upside down on the car but the equity isn’t all that much because I bought it new (max $9K if I trade in the warranty). The idea was, with the extended warranty and it being new, was to keep it for at least 10 years and probably longer so that is what I will do.

Stick to your plan. As the car gets older it will need some repairs and replacing worn parts (tires, struts, etc.). If you keep it beyond 10 years old you need to figure more per year for repairs, like $1,200 to $2,000 per year.

If you don’t have one already you should find a good independant mechanic. Dealer service is expensive and they tend to scare you with bill estimates hoping you’ll trade in your car for something new. Toyota dealers are perhaps the worst offenders selling high cost packages that you don’t need. A good independant mechanic wants to see you come back and will help you keep the car without excessive repair bills.

The Avalon is a very solid car and it should hold up much better than average. It is easy to see you keeping the car until it is 15 years old if it still meets your needs.