This is a tough question to answer because vehicle repairs are almost always cheaper than a new car. The question then becomes whether your old car still has value in it. First, you should go to a mechanic you trust to get an estimate for your vehicle repairs. If necessary, get a second opinion. Then, decide which option if better for you financially. Trinity Automotive offers the following food for thought.
Check Your Finances
Sit down with your monthly budget and bank account balances and take a good, hard look at your finances. Ask yourself two questions before you start crunching the numbers. First, is your current vehicle paid off? Second, can you afford monthly car payments? If you answered yes to the first question and no to the second, you cannot take on added debt and it’s best to repair your vehicle. If you answered yes to the first question and yes to the second one, or no to the first question and yes to the second one, it’s time to crunch the numbers. Consider the following:
- You car, truck, or SUV’s age
- The mileage on it
- How much you owe on the existing contract
- How much of a down payment you have saved
- Whether you can afford a higher monthly car payment
Consider these two scenarios: Your car is three years old, has 40,000 miles on it, you’re getting ready to make your last payment, you have $10,000 saved in the bank, and you can afford a $400-to-$500 a month car payment. This vehicle has plenty of life left in it if it’s well cared for and you can pay it off and put a substantial down payment on a new car with your savings. Depending on what’s wrong with your car, it might be best to get a new one as your current car’s resale value is relatively high.
What if your vehicle is only one year old, has 20,000 miles on it, you still owe four years worth of car payments, and you only have a couple of thousand dollars in your savings account? You are upside-down in your car loan, and trading it in would be financial suicide, as the dealer will not give you the full value of your loan balance. Rather, it will re-finance that balance into your new-car contract leaving you thousands of dollars in debt. It’s best in this scenario to repair the vehicle.
What About Older Cars?
Another scenario is your vehicle is quite old and has over 100,000 miles on it. It needs a complete engine overhaul, which will set you back $7,000 to $10,000. Other expensive car repairs include a new transmission at $4,000 to $5,000 or a blown head gasket, which will cost at least $2,000 to repair. Your older vehicle is not worth the money to repair it. It’s time for some new wheels unless you absolutely cannot get rid of your old car for sentimental reasons.