Consumer Reports did a study on this issue and found that it is not a good idea to downsize and trade in your car if you’ve owned it for three years or less and are still paying off the loan. They recommend you should keep your car for at least four or five years to minimize the financial impact of depreciation and finance charges.
However, people who have their vehicles through a lease can take advantage of that agreement and trade in when the lease runs out. On the other hand, if you don’t lease, then rushing to buy a new car can be costly.
Our take? We'd add look at used vehicles the next time you're ready to trade in. Unless you have an SUV. Then don't be surprised if you'll really get little back for your trade-in.