Suze Orman: This Common Trade-In Habit Is Quietly Wrecking Your Finances
Car prices are brutal right now and Suze Orman isn't pretending otherwise. In a recent blog post, the money personality and podcast host called today's car market a "financial danger zone."
With average monthly payments sitting at $750 for new cars and $550 for used ones, it's no wonder her audience is stressed about squeezing in an emergency fund or retirement savings on top of a car note. But Orman's real point isn't focused on the fact that cars are expensive.
Read Next: Here's How You Should Answer the Question Car Dealers Always Ask
Don't Delay: Start Growing Your Net Worth With Smarter Tracking
A lot of the financial pain people are experiencing isn't coming from the price tag. It's the buying habits. Read on for more.
The Trade-In Trap
Orman gave people some credit. "I realize some of this is out of your control. There simply aren't a lot of affordable models being sold in America these days and used car prices have remained high since the pandemic shortage," she said.
Fair enough. But then she pivoted hard to the stat that actually matters.
About a third of car purchases involve trading in a vehicle that still has a loan attached, and that trade-in typically comes with about $7,000 in negative equity. Even worse, about one-fifth of trade-ins are on cars with outstanding loans in excess of $10,000. Translation: you're rolling debt from your old car straight into your new one, meaning you start the new loan already underwater.
Orman wasn't fully unsympathetic. "Look, if you are driving an unreliable car, or your family has expanded to the point your small sedan doesn't cut it, I understand," she said. "But I think this is often just some sort of very costly lifestyle choice."
Then there's the timing problem: roughly 1 in 5 new car buyers is back in the market shopping for another new car within just three to four years of their last purchase. Orman didn't hold back here — "Are you kidding me?" — and she's not wrong to be baffled. There's rarely a financial case for trading up that fast.
Part of the blame, she said, goes to lenders who make rolling old debt into a new loan sound painless. It isn't.
"I am telling you it is a huge problem," Orman said. "Right now, that likely means you are giving up a lower-rate loan and taking out a much bigger new loan at today's higher interest rates."
You're not just buying a new car. You're refinancing your last mistake at a worse rate.
By driving ol’ reliable instead of always trading up for the best and brightest car your credit score can abide, Orman’s math suggests you’ll save about $35,000 over five years, greatly reducing the need for a loan — if you need one at all.
Not Everyone's Buying It
Orman posted this advice to Facebook, and the comments were split. Some readers backed her up hard, with several proudly repping high-mileage Toyota Camrys. Others took a middle path, arguing that bigger down payments and extra principal payments can get you the new-car feel without the trade-in death spiral.
The most interesting pushback, though, came from a commenter who accused Orman of skipping over leasing entirely, arguing that leasing sidesteps both maintenance headaches and depreciation while keeping monthly payments lower than financing a purchase. It's a fair point, and one Orman's post doesn't really address. Leasing has its own tradeoffs (you'll never build equity, and mileage limits can bite), but dismissing it outright ignores a strategy that works well for a lot of drivers who value predictability over ownership.
Whether you lease, buy or drive your car into the ground, the math Orman's pointing to is hard to argue with. The $35,000 question is whether that next trade-in is really about need or just about wanting something new.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
More From MoneyLion: