When should I trade in my used car for a new one?

8 months ago, I was in a situation where I didn't have the best credit and I only had $1,000 down payment. The only car I could afford was an 06' Honda civic on buy here pay here financing. I soon realized I overpaid for the car at $8,000 @ 19.5% interest. The salesman told me as long as I make 10 months of consistent payments, i can then trade in the civic and buy something new. Well, time passed and i saved up $10,000 for a down payment for a new car and I payed off everything on my credit which did make it go up. I want to trade in the civic and get a brand new Nissan Sentra for $12,000. When should I trade in my civic if I currently have $5K in negative equity? (The only reason I didn't pay off the car is because I wanted to show consistent on time payments to get a better interest rate on the new car. And I wanted to have a big down payment to help convince the finance department to lend to me)

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Raul T.
Kia Social Team

If you are looking at $5000 in negative equity than half of your down payment money is going to be spent paying off the Civic before you can buy the Nissan.

Where can you buy brand new Sentras for $12k?

You should have paid off that car long ago. The small help in credit didn't offset the interest you were paying.

Go to the buy here pay here and negotiate an early buyout with the owner at a discount.

Even though you are currently upside down on your loan, you would probably be best off trading that car in sooner rather than later. 19.5% is a ridiculously high interest rate.

This article (that I'm disclosing now I wrote) may be helpful. It discusses how to buy a new car while you are still upside down on your car loan.
https://www.trustedchoice.com/insurance-articles/wheels-wings-motors/upside-down-on-car-loan/

I was about to submit my answer but then gave more thought to your situation. I do not think there's any reason you would need $10,000 for a down payment on a $12,000 car. With the interest rate as high as it is, you may be much better off just paying off that car loan. Find out what the dealership is willing to give you on a trade in, but don't accept it right away. You may be able to sell the car on your own for more money.

If you have your heart set on the Nissan Sentra, you may be able to get a great deal on the 2014 model if you wait until the 2015 version is released. Unfortunately, as far as I can see, Nissan hasn't announced a release date yet.

This article tells the best and worst times to buy a new car if you are looking to make a deal. https://www.trustedchoice.com/insurance-articles/wheels-wings-motors/best-time-to-buy-a-car/

I would use the extra money and just pay off the loan. Or else your losing money due to the interest rate. The sooner it's paid off, the better. Even though you paid more than you should for the car, when it's paid off you no longer have to worry about payments. Just keep your car for a few years and save more money. Then when the time comes either trade it in or sell it as a private seller and get a newer car. Also you have to realize that when you buy a new car as soon as you drive it off the lot after paying for it, it will be worth less and you will have to work on paying it down/off again.

You can't trade in the car until you get rid of the negative equity. You need to use the 10k you have saved up to pay down the loan. Then start over saving up for a new car.