Perhaps some of you have suffered financially during the pandemic and need to sell your car. But when the best time is to sell your car is something else. Let’s find out more.1
When is the best time to trade in your car?1
This is when the trade value for a car equals the settlement amount owed to a financial institution such as a bank. A car’s trade value or market value is the price you would be able to get when selling on the open market. If you still owe the bank, say R300 000, but you can sell the car for only R270 000, you will still require to pay the difference. This happens because the car depreciates faster than your monthly payments for the loan.
What is the current payment period?1
Today, most applications for vehicle finance are for 6 years or 72 months. Balloon payments are becoming more frequent, which will delay you from reaching the ownership stage. For those of you with a 72-month paying plan, your breakeven point will be between 48 and 52 months. The breakeven point is when a car’s selling price and what you still owe the bank are about the same.
When to trade in your car?1
Many motorists trade in their car before this breakeven stage, usually at month 38, which is well before this stage. A downside to this is that your car depreciates rapidly during the first year of purchase. That’s why experts advise holding onto your present car as long as possible.
The horrible effect of depreciation1
According to the Automobile Association (AA), by the end of the first year of owning a new car, it will have lost about 40% of its value. That means that a new R300 000 car will have a value of only R180 000 at the end of its first year of ownership. This is quite a reduction. Based on a mileage of 16 000 km per year, your car will have lost 60% of its value by the end of its third year. Most cars generally depreciate between 15-20% of their value each year, and by year 5, your car will have lost half of what you first paid for it.
Do cars travel as much as they used to?
Perhaps many consumers have been and are still working from home and as a result, have not used their cars much in travelling to and from work. The positive side of this is that your car will still get older but stays relatively new regarding wear-and-tear.
Disclaimer
Because car insurance is complicated, this article can only provide information. If you are thinking about buying a car insurance product, it’s best to consult first a certified financial advisor for professional advice.
If you want to trade in your old car for a new one, remember that the law requires that you purchase comprehensive car insurance if a bank finances your car. Prime South Africa provides affordable, comprehensive car insurance with fixed premiums* and reduce to zero excess*. So, contact Prime for further information about car insurance with unique benefits and world-class service. T and Cs apply.
Sources:
