People are keeping their cars much longer these days than they used to -- eight to 10 years and more being increasingly common. But when is it time to start thinking about a new car?
The precise moment will vary from case to case (and car to car) but there are some signposts along the way to the junkyard to guide you. Those include:
How important is trade-in/resale value to you?
Virtually all new cars (excepting a few exotics) begin to lose value, or depreciate, as soon as they are driven off the dealer's lot. But after the initial first-year hit -- when a car might lose 25 percent or more of its original sticker price value -- the depreciation slide slows (usually; there are exceptions).
While the vehicle still will lose some of its value with each passing year, it doesn't typically free-fall for the first few years of ownership after the initial, first-year depreciation cycle. But there comes a point -- roughly around 5-6 years and when the odometer clicks past 50,000-60,000 miles -- that value takes another plunge. Even though most modern cars with 5-6 years on them and 50,000-60,000 miles on the clock will still run reliably for another 5-6 years and 50,000-60,000 miles or more, the perception is these are "old" cars -- and the market value dips accordingly.
So even though there may be nothing wrong with the vehicle, if you want to get top dollar on it as a trade-in/resale, you should be thinking about "retiring" it sometime before it hits the 5-6 year-old mark (and before the clock shows more than about 50K on it). Alternatively, it can be a very good financial move to drive it until the wheels fall off; after all, a paid-for car is basically free transportation every day you drive it.
Would you rather have a monthly payment -- or face the possibility of occasional (and potentially large) unexpected repair bills?
Once a new car is out of warranty (especially its powertrain or extended warranty) you face the Russian roulette of dealing with unexpected expenses from that day forward. And the older the car (and the higher the mileage) the more the odds are stacked against you that, eventually, something's going to break or require costly service. Some cars are better built (and thus more reliable, for longer periods of time) than others. But just as people get creaky as they age, even the best-engineered car will eventually wear out. If you keep track of how much money you're putting into your car for upkeep (a logbook is a great idea), you'll often be able to notice the trend in more frequent breakdowns/repair expenses that should serve as the hint it's time to think about a new car before the old one suffers a major breakdown. A dead transmission or other repair to a major component could force you into the awful position of having to put more money into the car than it might be worth (and without increasing its value significantly after having done so). A $2,500 "hit" to fix an older car is equivalent to more than six months' worth of $350 per month new car payments.
The Hassle Factor
Related to the above is your willingness to deal with more frequent trips to the shop -- not just for unexpected repairs, but for preventive upkeep and maintenance. The further you get from the day you drove off the dealer's lot, the more you'll find yourself coming back for service. Everything from new batteries and tires to fairly big and involved jobs such as timing belt and MacPherson strut replacement are things you can avoid entirely, if you trade in once every 3-5 years or so (or lease). For some people, the higher costs associated with buying a new car more often are worth it -- if it means minimizing or even entirely avoiding the need to spend time at tire stores, brake shops, the dealer -- and to be stuck without wheels while the car's being worked on.
How important are "peripheral" costs -- such as insurance and property taxes -- to you?
One of the real downsides to owning a new/late model car is that peripheral costs of ownership can be very high. Personal property taxes on motor vehicles (where applicable easily can be $1,000 or more annually on a new vehicle. Conversely, the same car, when it's eight or nine years old, might cost you next to nothing in personal property taxes -- because it's worth next to nothing! It's the same story with insurance; new cars cost more because it costs more to cut you a check if there's an accident and the vehicle needs to be repaired or replaced. As the car ages and racks up mileage, its worth less and less -- so premium costs tend to go down, too.
You should weigh these costs vs. the costs of a new car monthly payment, determine the point at which the balance tips in your favor -- and make a decision accordingly.
The Newness Factor
This last criteria is the least objective -- but it's no less important in terms of deciding when to ditch Old Faithful. Some people are perfectly content to drive a car that's obviously older -- so long as it runs well (and is paid for). Most Americans, however, have a lot of their personal images and even their sense of well-being wrapped up in their wheels. And there are people in professions, such as real estate for example, where it's important to be seen in a car that isn't a faded old beater.
It's hard to say with any real precision when a car has grown long in the tooth, but each of us has his own ideas. And it's a smart move to tie that point into one of the criteria listed above when possible. That way, you can tie your subjectives to the objectives -- and go shopping for a new car when it makes as much sense to do so as it makes you happy to do so.