With the poor economy, drivers are trading in their big gas-guzzlers for fuel-efficient cars.  Yet, while that makes sense, if you switch too soon you might be looking at more overall car costs than you’ll save on gas.  According to Consumer Reports, downsizing is beneficial in the long run if you time it right.

A study by Consumer Reports reveals that if you still owe on your car loan, it might not be beneficial to downsize after just three years.  With a loan, initially your payments are made up of a large percentage of interest.  Trading in too early will leave you with less equity, which will limit a down payment for a new car.

Another hurdle that affects the equity of your car is depreciation.  In the first five years of ownership, depreciation makes up about 48% of total vehicle costs for the owner.  On average, costs for fuel only equal about 21%.  Within the first three years, depreciation is the greatest, and then it begins to level off.

So, trading in a 3-year old car will result in a whole new depreciation ride.  However, if you have owned your vehicle for more than four years trading in makes more sense.  Just make sure you have an auto warranty for peace of mind when keeping your vehicle for several years.