You’re driving to work, singing along to your favorite song on the radio. All of a sudden, your car makes a violent sound and smoke starts pouring out of the engine. “Uh-oh. This looks expensive…” Your car is ten years old. The paint is pealing off. There are 100,000 plus miles on the odometer. The question, “Should I fix my car or buy a new one?” crosses your mind. Here are four things to consider before you make such an important decision.
1. How expensive will the repair be?
Repairing your old car is almost always cheaper than replacing it with a new one. There are two major exceptions to this rule.
Depending on the make and model of your car, critical damage to your engine or transmission could lead to a repair that costs as much as a used car.
Bring your car to an auto shop and ask for a price quote. If it’s a really big number ($2,000+), it might not hurt to get a second opinion. You could also ask if there are ways to cut the cost.
Engine replacements are cheaper with used or remanfactured parts. Transmission rebuilds aren’t as expensive as a full replacement. Granted, new parts are a safer bet than used ones… but when the repair costs more money than your car is worth, this might be a risk worth taking.
2. Have you done the math?
Leave emotion out of the equation. Find out how much your car is worth at Kelley Blue Book.
If you have a car that’s valued at $2,000 and the repair costs $2,000, your intuition might say, “Time to replace it!” In reality, it’s a bit more complicated than that.
Let’s say you want a new car that costs $20,000 and one year of car payments costs $4,000. All of a sudden, that $2,000 repair doesn’t sound so bad… does it?
Take an honest look at your finances. If you’ve got the budget to replace your car, go for it! But if buying a new (or slightly used) car would cause immense stress, invest in the auto repair.
3. Is your car becoming unreliable?
Investing in a one-time repair is okay. Having to buy the same repair over and over again isn’t.
If several mechanics have tried (and failed) to fix the exact same problem, it might be time to count your losses. Also reflect about how your car is impacting your work and daily life.
If your car is breaking down so often that you’ve been late for work several times, it might get you fired. If your car is starting to make you feel unsafe, you’ll feel anxious about driving.
Your car should be perceived as a source of strength and reliability, not stress and anxiety. When your car has so many problems that your perception changes for the worse, consider replacing it.
4. Have you considered all of your options?
Don’t be extreme. There are more options besides “continue driving this piece of crap” and “spend my life savings on a brand new car.”
In fact, new cars are bad investments. They lose 11% of their value as soon as you drive them off the car lot. If the car costs $20,000, that translates to an immediate loss of $2,200.
If you have your eye set on a 2017 model, why not consider the 2015 edition? The car you’re already driving has lasted ten years, so surely a car that’s two years old would serve you well.
You could also invest in the critical repair today (assuming it’s not a repair that’s creeping up over and over again) and plan to buy your dream car in the future. If you save aggressively for two or three years, you’ll be able to make the investment without stressing yourself out.
This is especially important when you have a poor credit score. Your credit score has a huge impact on your interest rate. Spend some time paying off debt and tightening up your credit score. The cost of financing will be a fraction of what it would be today. Don’t rush! Take your time.
Do you know a friend who’s considering the question, “Should I fix my car or buy a new one?” If so, send them a link to this blog. They will appreciate the advice!