Should You Sell Your Car to Save Money? 8 Questions to Ask
With increased work flexibility and high gasoline prices, the movement to ditch private cars in favor of walking, biking, and taking public transportation has been gaining traction across the country. As more cities invest in public transport and bike lanes to reduce traffic and carbon emissions, at some point you might think about selling your car, too. But is this a good idea?
8 Questions to Ask Before Selling Your Car
Financially, selling your car may make sense if the savings or cash you could get would be more helpful to you than keeping the vehicle. In some situations, selling your car and replacing it with something cheaper or going without one entirely can be a great way to save money, make some quick extra cash, or pay off debt. Before making your decision, here are 8 questions to ask yourself first.
1. Why do you want to sell your car?
Clarifying the real reason(s) behind why you’re considering selling your vehicle can help you make a decision that will benefit you both personally and financially. Are you facing a temporary financial difficulty and need to raise cash quickly to make ends meet? Are high monthly auto loan payments preventing you from meeting your savings goals? Has paying off debt recently become a higher priority for you? Or maybe you’re rethinking how you’re spending money in general and want to reallocate expenses so they’re more aligned with your values and beliefs (e.g., reducing your carbon footprint).
If your future income is not dependent on having a vehicle and alternative ways of getting around are available and accessible in your community, selling your car can be a good way to raise extra cash quickly or pay down debt. For example, maybe you’re primarily working from home now and no longer require a car to commute to the office. Giving up your car in this situation could make a lot of sense, especially if you live in a two-car household.
Not owning a car can also help you save money on the cost of gas, registration, insurance and vehicle maintenance, reducing your expenses. Many people are choosing to embrace the slower pace and neighborhood connection that comes with not owning a vehicle, opting for active transportation (walking, biking, public transportation, ridesharing) instead.
If you find that growing your savings or increasing your cash flow is your true goal, selling your car for one that’s less expensive, or refinancing your existing auto loan may make more sense.
2. What’s the true cost of owning your car?
The cost of owning your vehicle is more than its purchase price. The true cost of car ownership is the total ongoing expense of owning and operating your vehicle on a monthly and annual basis. It’s important to know the true (or total) cost of car ownership because it gives you a baseline for comparison and how those expenses fit into your overall budget. When calculating the true cost of owning your car, you’ll want to take into consideration all the following:
Payments of principal and compounded interest (if you have an auto loan)
Auto insurance premiums
Gasoline (and the rising cost of)
Parking fees and tolls
Licensing and registration
Maintenance and repair costs
Once you’ve added up all the costs of owning your vehicle, you can more accurately assess how much you’ll save (going forward) if you decide to sell it and pocket the cash. You’ll also be able to compare the cost of owning your current vehicle more accurately with one that’s less expensive should you choose.
3. How much can you sell your car for?
Online tools like Kelley Blue Book® can help you research average selling prices and establish an approximate value for your car. Note that your car will likely be worth less as a dealership trade-in than if you sell it to a private individual. When it comes to depreciation, a new car’s value is most heavily impacted by depreciation in the first year, then again in the fifth year and beyond. Typically, the low-depreciation years two through four are a good time to sell and recoup as much value from your vehicle as possible.
4. Do you still owe money on a car loan?
Assuming you don’t own your car outright and have an auto loan, check your current interest rate and the payoff amount. Owing significantly more than the car’s worth is what’s known as being “under water” or “upside-down” on the loan, and it can complicate the decision to sell. In this situation, you might consider “driving through” the loan: Keep making payments until you own the car outright, or you owe less than the car is worth.
If your goal is to save money on interest or lower your monthly payments (or both), auto refinancing might be an attractive alternative to selling your car. Refinancing makes sense if you don’t have a great rate on your current loan, or if your credit score has improved since you got the loan, as you may qualify for a lower rate now.
5. What’s the maintenance and mileage outlook on your current vehicle?
Depending on the make and model of your car, looming maintenance needs can impact the price your car fetches. Generally, major maintenance hurdles are typically around 30,000, 60,000 and 100,000 miles. If your car is coming up on a big milestone, its value can drop. Maintenance costs also influence the “fix it or sell it” debate. Consider whether the repair will add value. Say your car is worth $5,000 if you don’t fix it, and worth $6,000 if you do. If the repair costs $2,000, it’s probably a bad idea—after all, you only gain $1,000 in value.
Another factor impacting the price you can sell your car at is mileage. The average miles driven per year in the U.S. is about 13,500 for most vehicles. When it comes time to sell your car, if your vehicle’s mileage is under the average for its age, it could be an attractive selling point to potential buyers.
6. Are you ready to go carless?
If you’re thinking about giving up your car altogether, slashing all car-related costs can be tempting. Nowadays, there are multiple ways to haul groceries and get yourself and your family from point A to B locally with cargo bikes, e-bikes, strollers, wagons, not to mention buses, subways, trains, and carsharing services. Be sure to think through your current lifestyle or commute and test drive the other available options before ditching your car altogether. Owning a car may not be all that important to you after all. And you may find going car-free brings you unexpected perks, adventure, and a better quality of life.
7. If you still need a car, can you downsize?
Let’s say you’re considering selling your car to pay off debt, but you still need a car to get around. Could you afford a smaller, less expensive vehicle? If you would need to borrow money to pay for it, think twice before selling your current vehicle. If you can sell your car, eliminate some of your debt with the proceeds from the sale, and can still afford to pay cash for a less expensive car, then it might be worth selling. And if you can downside into an slightly older model EV with low miles, you could also save a considerable amount of money on gas.
8. What do you need to sell your car to a private party?
Before you post an ad anywhere, get your paperwork in order and understand the documents you’ll need to close the deal. Your state will have specific requirements, but generally you’ll need the following:
Vehicle bill of sale documenting the terms and conditions of the sale (purchase price, VIN, model year, odometer reading, warranty, buyer/seller contact info and signatures)
Current vehicle title proving the vehicle belongs to you; a duplicate title can be obtained from the Department of Motor Vehicles (DMV)
Vehicle title transfer form transferring vehicle ownership from seller to buyer
Valid smog certification (if your car isn’t exempt or state does not require it)
Lienholder signature and release (if you have a loan)
Vehicle maintenance records (if requested by the prospective buyer)
The Bottom Line
Each car owner’s financial goals are unique, but reviewing these considerations should help you get to a confident answer. While one person might choose to embrace public transportation and fully eliminate car costs, another could be better served by trading in a high-maintenance car for a more affordable ride.
Are you curious if refinancing could be a better alternative to selling your car? Find out in minutes whether refinancing your existing auto loan could reduce your cost of car ownership.