Hold off that SUV trade!

Gas prices in the country (actually worldwide too) have been increasing for some time now. With the Middle East controlling most of the oil trade, global economy is working towards an increase in the oil prices, resulting in a higher cost per gallon for the common person for gasoline. Experts state that the trend is unlikely that we will see a slow down or reversal in this trend for a few years now.
It almost seems as if the big three in Detroit, namely Ford, General Motors and Chrysler have led us to purchase large SUV’s. These car manufacturing giants have done this by subliminally suggesting that they have a connection with Washington and that all those who buy their cars shall never have an issue. Well, things have definitely not been as planned. What has happened is that oil companies have made large revenues due to the amount of gasoline that these vehicles guzzle.

Earlier, we would see the large SUV’s driving (well, almost flying) down the highways and we all wondered at them in awe. The amount that these vehicles cost can sometimes be compared to small townhouses that some people buy. However, the tables have turned now and we hear of these owners whining about the increase in gas prices and how it is almost unaffordable to continue driving SUV’s.

The result of all this has been fairly obvious. Most of the SUV and large vehicle owners are today trying to get rid of their vehicles and are trading them for smaller, fuel efficient smaller cars. Trading in the SUV with a smaller car has almost become a rage in the country. However, due to the great demand for turning in the SUV’s, the used-car markets have already adjusted the value of the SUV’s downwards. And therefore, most of the SUV owners today trade their vehicles at a loss.

You can do some simple mathematics to understand whether you gain from trading in the old SUV or not. For example, consider a 2007 Ford Expedition Eddie Bauer with an initial price of approximately $35,500. If the vehicle has run about 15000 miles, it is likely to fetch you approximately $19,000 now. A year and a half old vehicle is likely to have a pay off of about $28,000 and therefore the net amount that you will still have to pay off to the car loan is $9000 ($28,000 – $19,000). This creates a negative equity of $9000 for you.

Due to this negative equity, you will add about $180 per month to your new car payment, calculated on the basis of a 60 months loan with an interest of 6.5%.






There is no doubt about the fact that the smaller car that you purchase will give you a better average mileage than the older SUV. Typically, an SUV would give you a mileage of around 15 miles per gallon and a new smaller vehicle is likely to give you a mileage of around 26 miles per gallon. If you assume that you run 15000 miles in a year, you would have spent $3700 (assuming $3.7 per gallon) if you had continued to use the SUV. With the smaller new vehicle you are likely to spend $2135. This is a saving of $1565 per year.

But remember that you have added another $180 to your monthly payout by trading the SUV. This works out to a value of $2160 per year and therefore is higher than what you save by way of fuel efficiency. In effect you are loosing out about $595 ($2160 – $1565) per year (or approximately $49.5 per month) and opting for a smaller car that is less spacious and has lesser power.
Additionally, you will have a new car loan that would imply paying out for the next five years (instead of the four years that you would have had to if you kept your older, larger and more powerful SUV) and would be taking a loss twice.

The only way in which you can make money by trading in your old SUV is to ensure that you are not loosing out on the trade that you are making. If that is possible given the current marker scenario, the cost saving that you accrue due to fuel efficiency shall actually reflect true saving.

The above scenario is a hypothetical one and if you are planning to trade in your SUV for a smaller car make sure that you run your numbers through such a formula before you take a decision. To understand how to make an educated decision about mortgage, credit cards, credit reports and auto loans, log on to slicemypayments.com.

Eddie Momeni is the president and CEO of http://www.Slicemypayments.com, a company that provides helpful support to consumers who are looking for someone who can help them in obtaining approved credit cards, auto loans, credit report resolution and mortgages at the click of a button. Eddie has been in the finance field for more than 23 years and continues to bring value to his customers by providing relevant and timely information and updates.

Hold off that SUV trade! / Author: Eddie Momeni