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Should I Fix My Car or Get a New One?

Posted January 17th, 2012 in Cars by Jeremy Waller

fix your car or buy a new one

For most people cars are a necessity. They can also be huge headache.

If you own a car it’s inevitable that you’ll someday face a stupidly expensive repair bill.

When we got married my wife drove a 1996 Eagle Talon. Don’t tell her I said this, but it wasn’t the greatest car. It was a bit of a beater. But it was paid for.

One day I’m sitting at work and I get a call from my wife.

Hey – I was driving though the intersection when my car made this loud bang and now it won’t start.

…wonderful…

I leave work and head towards where she is now stranded. It’s about a 20 minute drive the whole way I’m running everything though my head that it could be and figuring how much it was going to cost us.

I get there, take one look at the car and know exactly what it is. The water pump died which caused the car to overheat which caused the engine block to crack – leaking antifreeze all over the concrete. Bad news. Real bad news.

To make a long story short it was going to cost $2,500 to fix and the car was barely worth that.

Do We Fix The Car or Buy a New One?

We had to make a decision. Do we fix it or do we cut out losses and find a new car? If we shell out the money to fix it, who’s to say that next week it’s not back in the shop with something else wrong? Then what?

On the other hand, we could pay to fix it and the car could run fine for the next 5 years.

So what do you do?

We trashed it.

Here’s why…

My rule is if it is going to cost more to fix than the car is worth then it’s not worth it to fix. I just can’t see putting $2,000 into a car that’s only worth $2,000. Once it’s fixed it isn’t going to suddenly be worth $4,000. More-than-likely its still only going to be worth $2,000.

Have a car that’s worth $15,000 and needs a new transmission? Pay $2,000 and get a new transmission. That makes sense. Have a 1992 Honda Accord that’s worth $800? You would be throwing your money away on a new transmission.

So what do you do if you have a beater that needs $1,000+ in repairs?

The Financially Smart Answer

Buy a new beater!

Beater cars are like diapers – they’re disposable.

If you are working to get out of debt or if you’re debt free but don’t have the cash to buy a nice car outright – the smartest financial move is to buy another throw-away car for a couple thousand dollars and drive that for the next two years.

The Realistic Answer

I’m a realist. I know that the financially smart answer doesn’t work for everyone. Sometimes a $2,000 car won’t cut it. If you have to travel for your job, the last thing you need is to break down on the side of the road 250 miles from home. And there are a dozen other cases where you need a good reliable car. (Just FYI, being embarrassed to drive an old car isn’t one of those cases.)

For us, my wife was in school and I worked on the other side of the city. I also had to travel occasionally with my job. The last thing we needed was another car that might break down.

We decided to buy a newer car which meant we were going to have to take on a new car loan (ugh…)

My Rule For Buying A Car When You Aren’t Paying Cash

If you have to buy a new car, but can’t pay in cash there are a few rules you should follow.

First, don’t buy a new car. A new car depreciates 15% to 20% in the first year. Buy a used car that is 2 – 4 years old with no more than 15,000 miles per year. (i.e. If the car is 3 years old it shouldn’t have more than 45,000 miles on it.)

Second, the loan should be for no more than 36 months and your payment should be no more than 10% of your take home pay.

For example, if your take home pay is $4,000 per month then your car payment should be no more than $400 per month when financed for 36 months. That gives you around $13,000 to work with. You can easily find a nice used vehicle in that price range.

Now here we are 3 1/2 years later with a paid-for car that will last us a good 8-10 more years.

What would you do if you were faced with this decision?

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17 Responses so far.

  1. Andy Hough says:

    We drive a 97 Camry that is looking pretty rough due to a couple of accidents. It is paid for and cheap to operate though. If we had to put $2000 of repairs into it we’d probably buy a new car.

  2. We actually had a similar problem a couple of years ago with my husband’s car. We donated it to a charity and he’s been driving my car ever since.

    • Jeremy says:

      We’re actually a one car family this week. My wife’s parents borrowed one of ours since one of their cars is in the shop. We’re fine this week, but I don’t know if we could make it work for more than a week or two.

  3. Charles says:

    I always get the longest financing available. It gives me cushion in case I can’t make high payment that comes with only 36 month finance. At the same time, I can pay additional in principal and still pay less in interest. I had a 5 year finance on my wife’s honda accord we bought last year. I JUST paid in full a month ago.

  4. Jackie says:

    Hm, I think a lot of people hold this view: “My rule is if it is going to cost more to fix than the car is worth then it’s not worth it to fix” — but I’ve gotten a LOT of use out of doing repairs on my car that cost more than it’s worth. (Of course, it’s hardly worth anything.) But it’s a great car!

    • Jeremy says:

      I know a lot of people that have gotten years of additional use out of a car after paying for a major repair. I also know my in-laws that have spent nearly $8,000 repairing their car over the last 2 years. Something else always seems to break as soon as they get something fixed.

  5. Good cars that still run are seldom worth less than $3,000 even if they have 200K miles. Accords, Civics, Camry’s will be bought by someone as long as the car is in reasonably good shape and running order.

    My old civic still runs well. Every year I keep it, I save at least $500 in collision insurance. So, putting a 1K in repairs each year I still come out ahead.

    An engine block break or other major powertrain failure would need to occur for me to consider buying another car.

  6. I’ve had a lot of successess with beaters! I bought one when I was 18 for $1300 cash and it lasted six years with minimal repairs. We purchased another beater for cash with less success–a nissan truck for $3500–though it was sold in a charity auction for $1250 after it died (we are taking that as a tax write-off). It only lasted for 1.5 years. Now we’re onto our third beater, a 2003 chevy cavalier that we paid $2500 for in cash. So far it’s been great!

    • Jeremy says:

      I’ve had similar experiences as well. I bought my first car for $500 and it lasted 3 years (I actually turned a profit by selling it for $1,000! Ha!). I bought my next car for $1,500 and drove it for 4 years.

  7. Bill says:

    Glad to read this article.
    I am actually having this dilemma right now. I have a 2003 Nissan Altima with 81k miles on it but needs shocks and struts. Trying to decide whether I buy a two year old Honda or spend the money to fix it.
    Thanks for writing this…

  8. Sonia says:

    I am in that pickle now! I have a great 97 civic, manual transmission with almost 200K miles on it – all incurred in the last 5 years, I have owned it for 7+ years or so. Needs new timing belt, of course, water pump, clutch – about 2K worth of work for now. What to do?! Rear suspension is needed but can wait a bit – 600$ there. Paid off, will run probably for more years – the dealer even says I can keep it if I want to. But should we? I have a 2001 Accord still paying for which needs new exhaust & clutch too. Need 2 cars. Prefer to get out of debt totally but a new(used) car would prevent that for a while more…help?!

    • Hey Sonia – A 97 civic with 200,000 miles is worth somewhere around $1,500 – $2,000. You’re borderline on this one.

      If I were in your shoes I would have the mechanic take a look at the overall mechanical condition of the car – particularly the engine and transmission. If he gives any indication that you could be looking at another large repair bill in the future, I would sell the car as is and find something else.

      On the other hand, if the mechanic feels that the car has a lot of life left in it then I would have the repairs done. If $2k gets you 2 more years out of the car – that’s less than $83 per month for transportation.

  9. Laura says:

    My husband and I are having a problem with our 2006 Buick Rendezvoux. The auto shop says it will coust about $3000 to repair the engine. I still owe $3750 on the vehicle. We had the engine rebuilt two years ago for that much and two months ago we spent $900 on new ignition coils , spark plugs, and wires. We are hesitent to use our savings account buffer to pay off the car, but its value right now is only $750. If it was in top condition it would be workth almost exactly what I still owe on it.

    Should I pay off the car and get rid of it, or keep paying the monthly payments, pay interest, keep paying insurance, and have a lawn ornament?

    • Hi Laura –

      Sorry to hear about all the trouble that you’re having with this car. Financially, it makes the most sense to pay for the repair and pay off the car. Then you have a paid for car that is only 6 years old and, hopefully, still has a lot of life left. According to KBB.com, your car is worth between $6,500 and $8,500 depending on its condition. Even though it’s painful to pay a $3,000 repair bill, it’s worth it to save a car that is worth at least twice that.

      Now, if you are tired of dealing with the car and want to sell it afterwards, I don’t have a problem with that. It’s not going to have a big financial impact either way.

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