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Re: Re: Keep my car or trade it in?


    In Australia, the average age of a car is over 10 years old. Your two cars are very young in comparision. I have an above-average 8 year old car, purchased when 3 years old. I plan to replace it in about 4 years. It is a top-of-the-line model by the way, airconditioning, airbag, ABS, CD player, leather interior, electric windows and mirrors, but not a prestige brand name model.

    A 2-3 year old car can be bought for 60-70% of the price of a new car. Take an example. Person A and Person B both have $25,000 to buy on a new vehicle.

    Person A decides to buy a new vehicle at the price of $25,000 and replace it for a new vehicle in 5 years time and after spending the $25,000 has no money left over. After three years the vehicle is worth $12,500 (50% of new car price). Person A has $12,500 after 5 years.

    Person B is like person A but doesn’t have a fancy to material things. A car is a car after all. Person B has the same amount of money as person A but instead of buying a new car buys something that is below what he can afford. Person B buys a 2 year old vehicle for the price of  $17,500 (70% of new car price). The $7,500 left over is invested in a 5 year term deposit at the rate of 4%p.a. After 5 years his term deposit is worth  $9,124.896 and his 7 year old car is worth  $8,750 (50% of his pruchase price or 35% of the new car price). Person B has  $17,874 half of which  is in cash and drives a 2-7 year old car (average 4.5 years). Person A has $12,500 and drives a 0-5 year old car (average 2.5 years). After 5 years Person B has 40% more money ($5,374) than person A.

    After 5 years Person A requires $12,500 to replace his vehicle with a new vehicle. Whereas person B only requires $7,556 (actually person B doen’t reqllly have to cough up anything because $17874 > $17500  and you can see by this fact that Person B is more financially independant than person A but we have to make both have $25,000 so person B has a $7556 shortfall). In fact person B might just as well cough up $8,750 to replace his vehicle with another 2 year old $17,500 vehicle and leave the $9,124.89  that he has in the term deposit and reinvest it for another 5 years.