With the average fuel prices at around $4 a gallon, many motorists are opting to trade in their big vehicles for small fuel-efficient models and purchase new car warranties. But, while that is a smart goal, it could cost you more in owner costs if you switch too early.

It makes sense that motorists want to cut down on their gas expenses and reduce the negative environmental effects as soon as possible. This is apparent from the recent dramatic drop in sales of pickup trucks and large SUVs.

However, it usually doesn’t pay to downsize if you’ve owned your vehicle for less than three years. It is important to remember two factors when considering a trade-in: financing charges and the depreciation of the car.

If you still owe on your car loan, it won’t be worth downsizing until after three years. This is because your initial monthly payment is made up mainly of interest, therefore less principal is paid into the loan in the first year than at the end.

Depreciation is the other main hurdle. In the first five years of ownership, depreciation makes up approximately 48% of the total car costs. After that point, depreciation will level off.

So, if you’re within the first five years of ownership hold off on purchasing a new car to save money because you won’t really be saving. It’s better to keep your car and purchase an auto warranty to protect yourself from costly repair expenses.