It may clunk and clank, but your ratty old car may be the best bargain out there. Here are the facts on keeping that bucket-of-bolts running and knowing when it’s really time to step up to a new car.
Let’s divide the car-buying world into two camps: those who keep a car until the wheels fall off, and those who think a new car will change their lives.
To the first, a round of applause. There’s nothing short of taking the bus that’s less expensive than keeping a car until it disintegrates into a pile of rust. Any car can be maintained to 250,000 miles without endangering your life, and even a new engine is cheaper than all but the cheapest used cars.
To the second, another round of applause, because the 17 million or so new cars they buy every year immediately become used cars; and are soon available at a substantial discount to those in Camp 1. And a moment of silence if you will, because a new car will change their lives in ways they never foresaw on the dealers’ lot.
If you’re a drive-until-the-wheels-fall-off wannabe, read on. We’ll look at ways to keep your car on the road longer and realistically weigh the costs of trading.
I’d Love to Keep My Old Car, BUT….
“It no longer fits my life.” You may have taken up gardening in a big way but still own a Mustang. You may feel nervous about taking your 2001 Ford on a trip to California. Your little Kia Soul may be a tight squeeze when family comes to town. The answer to all: Rent. Why buy a gas-guzzling pickup because you visit Home Depot twice a year or spring for a $50,000 SUV because you take the family skiing for a week in February? Even at $150 a weekend, renting is far cheaper than a car payment. Plus you get to drive the very latest without worrying about licensing, insurance, depreciation or maintenance. Or try trading cars with a friend, return it full of gas (with the oil changed too if it was a longer trip) and washed. You want to be able to ask again next year, and doing a little extra than expected goes a long way.
“These repair costs are really adding up.” Let’s do the math. Does the cost of repairs exceed the cost of a new car? A typical new car is $35,000, about $550 a month for five years after 15% down. A transmission rebuild might run $3,500, which is a huge outlay in one chunk, but only about half of the $6,600 a year you’d spend on new-car payments alone. If you can’t afford repairs twice a year, it’s unlikely you can afford a new car payment every month. In any case, anybody with a car older than three years should be tucking aside $100 per month or so for repairs and maintenance. With any luck, you’ll never use most of it and you’ll have a tidy sum to blow on your next car. And remind yourself that every month that goes by without a car payment gives you the financial flexibility to cope with life’s other uncertainties.
“I’m nervous about driving an older car.” Maybe little things are beginning to go: a new thermostat one month, a starter 2 months later. You might simply spend $50 on an AAA membership and carry your smartphone, reminding yourself that even new cars aren’t immune to mechanical failure. The upside of frequent breakdowns is that you’ll get to know mechanics quite well. Find one you like. Flatter him. Pay your bills on time. And the next time he fixes your car, ask him to take a few minutes to see what else will need repair soon.
“The repair costs more than the car is worth.” A $4000 engine rebuild that keeps your 2002 Toyota on the road still makes good financial sense. It’s at this point, however, that all but the most tightwad drivers begin to think about trading up. This brings us to our next question.
“Am I ready for a new car?” Your first step is to do nothing except transfer a payment to your savings in the amount you’re thinking you can afford every month. Put aside a car payment every month for three months (long enough for at least one of life’s little emergencies to crop up).
Use a loan calculator online to find out what kind of rates your bank charges on loans to people with your credit score.
Call your insurance company to get the rates for full-coverage insurance on the model you’re thinking about.
Talk to your mechanic. Ask them which models are generally more reliable and cost less to fix than others.
How much did it hurt? If you skimped at all on other bills or lowered the amount of the payment, even once, you are not ready.
What would I have left over to pay for insurance and licensing fees each year?
Sooner or later, every new car becomes an old car, and you’ll feel about the next car just the way you do about your old beater.
Would you rather have the cash? A typical car payment of $550, adds up to more than $1600 in just three short months. Perhaps you’d prefer to get a tan in Mexico and limp along with Old Bessie another year. Could you continue to save for another year and simply pay cash? Eight grand would buy any of hundreds of reliable used models. Save for two years and you’re in new-car country, if your old car will trade in for a few thousand.
If the craving for a spiffier car hasn’t passed in three months, at least you begin the shopping process with a few months worth of car payments and a more realistic idea of the hit your wallet will take.