This is a question people ask often, along with “How much more money should I spend on repairs?” Every situation is unique, but there are some guidelines you can follow to help make sure you aren’t spending too much on an older vehicle or spending too much on an unnecessary car payment. It is not unusual today to see vehicles with more than 200,000 miles that are still worth keeping. At the same time, it is not unusual to see the same model vehicles with over 200,000 miles that seem to need a repair every other week. The difference is usually the result of how the car was driven and maintained. To decide whether or not to keep your vehicle, first asses its condition. How long have you had it? Have you maintained it during that time? How much do you spend on repairs each year? How much does it cost to insure? Once you answer these questions you can weigh the costs and benefits of keeping the car.
There are both costs and benefits to owning both a new vehicle and an older vehicle. You need to assess your situation and decide what is right for you. Let’s look at the most obvious costs and benefits for each:
Monthly Payment: With a new car the monthly payment will be a significant cost; while an older car may have no monthly payment
Repairs: With a new car repairs are usually covered by a warranty for a certain period; you will need to budget for repairs with on older car.
Insurance: Insurance can be significantly higher with a newer car; and with a loan you will be required to carry full coverage insurance.
Maintenance: Both cars will require maintenance (oil changes, wiper blades, tires, brakes, etc.); maintenance can be higher in an older car depending on how it has been maintained.
There is also the value of comfort that needs to be considered; if you can purchase and insure a new vehicle for what you are paying to keep your existing car running then it is an obvious choice.
What I do is take the cost of purchasing a new (pre-owned) vehicle, assuming my current vehicle will be used for the down payment, and estimate the monthly payment for a 5 year loan. Then I take the difference of what it would cost to insure the new vehicle, versus what I am paying now to insure my current vehicle. Depending on the vehicle, driving record, etc., this can be significant. In my case it would cost me an additional $2,000 a year to insure a newer vehicle with full coverage (about $165 a month). The car payment would be another $450. So the total cost of trading my vehicle in for a newer vehicle is a little over $600 a month. I then cut this number in half, and get $300 a month. When it starts costing me more than $300 a month (average) in repairs to keep my current car on the road, it is time to think about getting a newer one. Depending on the car and insurance, the numbers vary. This is just a method I use; it is not the answer for everyone.
Next Post: Another difficult question: What if the repair costs as much as (or close to) what the car is worth?