Old Cars: Repair or Replace?

There are many reasons to consider replacing an older car. Maybe regular maintenance and small repairs are starting to add up. Maybe it needs a huge repair, like a new engine or transmission. Maybe the promises of lower gas mileage and modern safety features are sounding more and more enticing. But how do you know if you’re making the best financial decision—whether it’s to stick it out with your older vehicle or spring for a newer one?

First thing to know is that it’s almost always less expensive to repair your older car. To get the clearest picture of how much your current ride is costing you in repairs and maintenance, make sure you’re minimizing your current maintenance expenditure.

A DIY approach to oil and filter changes isn’t for everybody, but it can save you a big chunk of change over time. Before you write it off as inconvenient or difficult, check some online videos. If you own a popular model, chances are there’s a tutorial that will provide step-by-step instructions.

Also make sure your mechanic is reputable. If there’s always more than one thing wrong with your car whenever you take it to the shop or there’s always “up-sell” pressure for extra services, get a second opinion elsewhere.

If you trust your mechanic and already do as much of your own maintenance as you can, but your upkeep and repair costs are still too high, it’s time to compare the costs of keeping your clunker as opposed to buying another car.

When you own your car outright, it’s generally pretty simple to figure out whether you should repair or replace it. Is your current regular maintenance less expensive than payments on a new car? In the case of a major repair, is the cost of the repair less than a year’s worth of car payments? If you answered yes to either question, it’s probably not time to ditch your ride yet. If you answered no, it’s likely time to move on.

Generally speaking, if you’re still making payments on your car, you’re better off not buying a new car. When you trade in your car, it may not be worth as much as you owe on it, in which case your negative equity will be rolled over into the payments for the new car. Even if you aren’t underwater on your current vehicle, the cumulative cost of payments on a new car will be greater than almost anything you need to spend on your current vehicle. The only exception here would be if your car needs a series of major repairs.

One rule of thumb you may encounter regarding major repairs is that you should only proceed if the cost of the repair is less than half the value of your vehicle. The thinking goes that if the repair costs more than half the car’s value, you’re better off selling your car and then purchasing a used car for a sum that’s less than the value of your car added to what the major repair would have cost.

For example: suppose your car needs a $750 repair and is worth $1,000 as-is. The $750 repair isn’t going to increase the value of your car much, so the rule dictates that you should sell the car for $1,000 and buy a better car for $1,500. This strategy would cost $250 less than making the repair. Although it makes some sense financially, this route is a big gamble. The used car you buy probably won’t have a warranty, and it could also end up needing major repairs.

Regardless of the financial comparison, if you find yourself worrying whether your car can even get you from point A to point B, that’s a definite sign that you should replace it. Just remember, even new cars need repairs sometimes. If you do opt for a replacement, make sure to buy a model with a reputation for longevity. And make sure it fits comfortably within your budget in case anything does come up.

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