How to Decide Whether to Keep or Replace Your Car

Trying to decide whether to trade in your old car for a new one? The decision of what to drive is a big one. There are many things to consider before you replace your older car, including upcoming financial needs, the age of the car, repair costs, and safety concerns.



1. Figuring out the Costs of a New Car.



* Do the math. Calculate how much you are paying in car repairs every single month. Compare that to the cost of a new car. Consider the age and mileage of the car.

New cars typically depreciate about 22 percent in the first year. Most people keep their car about six years before trading it in. Whether your car is paid off or not makes a difference because, if it’s paid off, you will be able to take the value of the car off the purchase price of a new one.

Calculate the monthly cost of your car, including fuel, insurance, and the repairs. It’s a trickier question if your car is costing you money to repair and you haven’t paid it off yet. Then, you need to consider how much you would get if you traded it in. Compare this figure with the costs of a new car. Which is more?

Consider insurance costs. It’s usually more costly to pay insurance and registration fees on a newer car.



* Determine how much you spend in maintenance costs. A few hundred dollars every month in regular maintenance on your used car might actually be less than a car payment, even if you purchased a used car.

Keep in mind that new vehicles will have some maintenance costs too, just not as many, especially if they are on warranty. But you will still need to change the oil, perhaps the tires, the brakes, or change a belt, and things like that.

How regular are your maintenance costs? If you’ve had one big repair, but it’s something that should keep the car running for some time, that might make driving your old car longer worth it.

However, if the car is starting to nickel and dime you with repair costs for small things on a regular basis, and those costs are more than a new car payment would be, the math points you toward the new car.

Step 3 Determine your budget….



* Determine your budget. A lot of this depends on your own personal budget. Budgeting is simple. How much money do you bring in, and how much money do you spend per month?

Financial advisers say you should not spend more than 22 percent of your net pay on a new vehicle’s costs. If buying a new car is easy for you to afford, because your revenue exceeds expenses, it’s probably a much easier call.

If you can’t fit a new car payment into your budget without incurring hardship, you probably should hold onto the old car, unless it’s costing you more in repairs to drive it than you would spend on a new car.

Could you afford a newer used vehicle? Consider all options. Calculate the cost of a new vehicle, a leased vehicle, and of a new used vehicle with lower mileage than the one you have now.



* Factor in less obvious costs. New cars come with more hidden costs than just the sticker price or monthly payment, as do older ones. Make sure to fully calculate all costs of new versus old.

You may have lower insurance premiums, registration fees or even personal property taxes on an older, used car depending on the state.

For example, some calculators include things like the price of a replacement vehicle, the percent sales tax on the purchase, vehicle license cost per year, title mortgage and registration fees, whether you’re financing the down payment amount, the annual percentage rate of financing, the number of months financed, annual insurance cost and miles driven per year.

Other factors include miles driven per year, fuel price per gallon, age of the vehicle in years, and repair and maintenance costs per month.



* Determine gas mileage differences between new and old. How much gas mileage does your old car get? There are some costs to old cars that add up.

If you got a new car, could you purchase a hybrid? Are you driving around a large gas guzzling SUV, when you have a lengthy commute?

In such a case, you might save a lot of money on gas costs by trading down to a smaller fuel efficient vehicle. It’s also better for the environment.

Use a keep your vehicle calculator. Some online sites have developed calculators that help you determine whether to buy a new vehicle or keep your present vehicle.





* See how long you can drive the car. Some people say the most reliable way to save money on a car is to drive it until it drops. This is an intangible consideration, but everything can’t be broken down to basic math.

A good rule of thumb is that a well-cared for car can run past the 100,000 mile (160,000 km) mark on the odometer. A new car should be more than a «want.» Do you «need» it?

Do you enjoy your car? Do you like the car you are in, or do you cringe when you have to drive it?

Do you have a long commute? How many hours a day are you inside your car? All of these questions can help you decide whether you should trade it in.



2. Making an Old Car Run Longer



* Save money on regular maintenance costs. Consider: Are there ways that you can make keeping your used car less expensive? If so, that may be a better option.

For example, have you paid a dealer or a mechanic too much to change your oil or check your fluids? Can you do these yourself or find a cheaper place?

Have you kept the car up by changing the oil, replacing the filters and tires, taking it in for routine checkups, and so forth?

Ask around. Do you have a mechanic you trust or are you paying too much for routine repairs when other places will do them more cheaply? Maybe you’re being ripped off, and that’s why your repair costs exceed the cost of a new vehicle.



* Consider whether it’s worth a major repair bill. Let’s say you have a big repair bill you’re facing right now. You need to decide – now – whether it’s worth doing those repairs.

Again, it’s a good idea to do the math. If the repair costs less than a single month payment for a new car and your car is paid off, it might make more financial sense to do the repairs.

If the repairs are less than a few months of payments on a new vehicle and you don’t think you will need more repairs soon, go ahead and get them done.

You should consider upgrading to a new car if you start having expensive repairs on your old car every few months. The key is whether the maintenance costs become a regular thing. That’s a problem that indicates you should probably consider getting a new car.



* Be honest about your DIY abilities. If you’re able to repair a car yourself, or you have a relative or friend who will do it for dirt cheap or free, that matters.

If you don’t have someone like that to rely on, you’re awful at vetting mechanics, and you have no idea how to repair a car yourself, you might be better off getting a new one.

Do you feel comfortable trying to learn how to do some basic repairs yourself? That also matters. For example, replacing front brake pads is a job that some people can do on their own for about $20, whereas car repair shops will charge about $150.

Believe it or not, but one man in Maine drove a 1990 Honda Accord for one million miles. Honda gave him a new car as a result. The man said he followed his owner’s manual and maintenance schedule. He checked his car’s fluids. He kept his oil over a quart. He replaced the fuel pump, the fans, and the radiator.



3. Deciding Whether to Sell



* Determine the car’s market value. If the repairs are less than half of your car’s market value, then you should probably do the repair.

However, if, for instance, the repairs are, say $1,500 and the vehicle’s market value is $2,000, then doing the repairs is probably not worth it.

Check Edmunds’ True Market Value Calculator or Kelley Blue book to determine the market value of your car. Do you even know your old car’s actual worth? This can matter when you go to trade it in, because the trade-in value will be counted off the price of a new car.

Consider how long the repairs will add to the life on your car. A new engine, for example, can greatly extend the shelf life of some cars. Consider how nice it is to enjoy life without a car payment too! What could you do with that extra $300 or so? Within five years, a new car loses about 50 percent of its value.

Step 2 Lower car costs if you do purchase.



* Lower car costs if you do purchase. There are ways you can lower costs when you purchase a car. These are things to keep in mind.

Pay cash if you can. This will lower interest costs on the car, and that will make a huge difference in the overall amount you actually end up paying on it.

Consider buying a used car. It’s best to consider cars under five years old with mileage limits under 100,000, which have had no refurbishing or major accidents, and for which there is a warranty.

They say you should always buy the most house you can afford and the least car you can tolerate, because the value of homes often builds, whereas the value of cars depreciates the second you drive them off the lot.



* Consider your peace of mind. You can only put a mathematical calculation on some things, like the cost of repairs. However, there are some costs to a car that are intrinsic. Safety concerns include whether the car has working seat belts or dual front airbags.

For example, do you worry about being safe? Do you have to drive in tough winters with bad tires? Do you drive at night a lot for work? Are you in situations with children where you just can’t risk the car breaking down and being stranded? It might be worth the extra cost then, if there is one.

A newer vehicle is going to be more reliable. That’s worth something. In addition, it will look nicer and ride nicer. Consider how much time you spend in your car.

Research the costs of new cars thoroughly. Might you qualify for a leased car at lesser cost, and does this work for you with the miles you drive? Can you afford a new car, or would the cost of the car payments cut dramatically into expendable income you need?

Can you get a warranty to cover early repairs on a new car, so you don’t have to worry about repairs at all? The key here to some degree is whether you’ve maintained your car well in the first place. If you haven’t, expect more maintenance costs to crop up fast.



* Consider professional factors. Both your personal situation and plain old math should dictate whether you replace your car with a new one.

Image is one thing, but if your profession requires you to maintain a certain level of professionalism, a new car might matter.

For example, if you’re a salesman, and you think pulling up in a new car can influence your sales, that makes a difference.

Consider whether, professionally, you have time to deal with back-and-forth trips to repair shops constantly. Some people have high-demand jobs or childcare duties that make this more than a simple inconvenience.

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