Should I Keep My Car or Buy a New One?

Keeping your current car is usually cheaper in the short run, because the largest costs of ownership — the initial depreciation and the sales tax and fees on a purchase — have already been paid. Replacing tends to make sense when your current car is losing value quickly anyway, when repairs and upkeep are climbing, or when the vehicle no longer matches how you drive.

The honest version of the answer is that it depends on numbers specific to you: what your car is worth today, what you still owe on it, what the replacement costs after tax and fees, and what each one costs to run and is worth at the end of the period you compare.

Monthly payment alone is a poor guide. Two vehicles with identical payments can be thousands of dollars apart once value, interest and running costs are included. The variables that move a keep-versus-buy decision are:

• Current vehicle value — what a dealer or private buyer would realistically pay today, not what you paid for it.
• Loan payoff — the amount required to clear the existing loan, which is not the same as the sum of remaining payments.
• Trade equity — value minus payoff. Positive equity reduces what you finance on the replacement; negative equity increases it.
• Replacement price, tax and fees — the real out-the-door number, which varies by state.
• Financing — rate, term and amount financed determine both the payment and the interest paid.
• Depreciation — usually the single largest cost of owning a newer vehicle, and it is front-loaded.
• Running costs — fuel or charging, insurance, maintenance, likely repairs, tires and any subscriptions.
• Ending equity — the projected value of each vehicle at the end of the comparison period, minus whatever loan balance remains.

• Comparing payments instead of total cost plus ending equity.
• Treating the remaining payments on the current loan as the payoff amount. The payoff is the balance today.
• Counting trade equity twice — once as a down payment and again as cash in pocket. It can only be used once.
• Ignoring taxes and fees, which can add thousands to the out-the-door price depending on the state.
• Assuming a newer car costs nothing to run. Insurance often rises, and depreciation is steepest early.
• Deciding on a single annoyance — a dead battery, a noisy brake — rather than the pattern of costs.

• The car still does its job and upkeep is predictable rather than escalating.
• The loan is nearly paid off, or already is.
• Financing rates on the replacement are high relative to what you hold now.
• Your equity is thin, so a switch would mean financing more than the car is worth.

• Repair exposure is rising and each fix buys little remaining life.
• Your equity is strong enough to meaningfully reduce the amount financed.
• The running-cost difference is large — for example a long commute where fuel or charging economics genuinely change.
• The current vehicle no longer fits the job: not enough seats, not enough range, wrong capability for the driving you actually do.

If mileage is what worries you, the more specific question is covered in when to replace a high-mileage car. If you owe more than the car is worth, start with trading in with negative equity.