Buying a car is a huge financial decision. And it’s definitely not one you want to take lightly. Contrary to popular belief and practice, it is possible to go through life without a perpetual car payment. But that takes discipline. And it likely means that you’ll drive your current car until the wheels fall off, as they say.
But no matter how reliable your vehicle is, chances are it’ll eventually need to be replaced. So is it really time to replace your car? Or should you just put some money into repairs and hang on for a few thousand more miles?
This is a personal decision with many factors that come into play. But if you’re considering replacing your car, read through these questions before you make the final call.
Is Your Vehicle Unsafe or Unreliable?
Of course, this decision should involve some math. But before you even start calculating whether to repair or replace your old car, figure out the answer to this question.
You may be able to salvage an unsafe or unreliable vehicle with some maintenance, even if it’s costly. And sometimes that may make sense. But if you cannot get your vehicle into a safe and reliable condition, it’s almost certainly time to replace the car.
The question of reliability is an interesting one, though. If your car dies once in a while due to a faulty something-or-other, that may not be the biggest deal in the world. Maybe you save up the money over a couple of months and then get the underlying issue fixed. But if you have a very high mileage car, you may be facing issue after issue.
Even if you can afford to keep putting money into the car to maintain it, the constant back and forth to the auto shop can become a problem. If your car problems are constantly causing you to be late for work or cancel plans, it’s probably time for a new-to-you vehicle.
How Much Are You Spending on Maintenance?
There are a few rules of thumb here to decide if you’re spending too much to maintain an older vehicle. Ultimately this is partially your own call, though. If you have a relatively reliable vehicle you love and it’s paid off, continuing to put money into maintenance may make sense. But at some point, you’ll want to step back and ensure that the money you’re spending on maintenance is actually worth it.
Here are two different rules of thumb to consider when it comes to this question:
Maintenance Costs vs. the Value of the Car
If your proposed one-time maintenance cost is more than half the current value of the vehicle (in working condition), it’s probably time to get a new vehicle. Say your mechanic quotes you $1,500 for some major necessary engine work. If your car is worth $4,000, that’s probably worth it. If it’s only worth $2,000, you might want to think twice before having the maintenance done.
Part of the problem here is that it’ll be hard to recoup the costs of the maintenance unless you have a guarantee that the car will continue running for several months or years after that cost outlay. Plus, as well talk about in a moment, it may make more sense to save that money for your down payment on a new car. This is especially true if there’s a good chance your car will need even more work within a few months.
Maintenance Costs vs. a Potential Car Payment
Another way to look at maintenance costs is through the lens of a monthly car payment. The average monthly car payment on a brand new car is about $510, according to Edmunds. On a used car, the average payment is $361.
So let’s say you’re putting, on average, $2,000 per year into your used car to keep it in running shape. That’s a huge savings over the course of a year! Even a one-time large maintenance cost of $3,000 could actually save you money over the long haul.
Of course, the key is figuring out what you’re likely to spend on maintenance for the full year. This can be tricky. Have an honest conversation with your mechanic about potential other maintenance issues before you write a check for a couple grand to fix the current problem.
How Long Will the Maintenance Keep it Going?
Another question, referenced above, is how long your car is likely to keep running with the proper maintenance. If you do make the repairs in question, how many months can you expect to go before more major repairs are needed? It can be hard to tell, but, again, having an honest conversation with a trustworthy mechanic can help.
For instance, though, say you have some necessary work done on your vehicle for $1,500. Your mechanic thinks another $500 problem will need attention in a couple of months. That’s $2,000 in a short amount of time. But if that amount of maintenance will keep your car running well for a year, it may still be worth the money over the long haul.
One way to get a feel for the answer to this question is to figure out your car’s average life span. How many miles are other drivers getting out of the vehicle before it breaks down for good? One way to find out is to check out Consumer Reports car reliability guides. They can give you an idea of how many miles your vehicle is likely to last. If you’re getting close to that mark, it may be time to part with your car.
Should You Use Your Money For Repair or a Down Payment?
If you do decide to buy a new vehicle, having a large down payment will be helpful. So sometimes it’s important to frame the question of buying a new car or repairing the old one in these terms. You could pay $1,500 to repair your vehicle. Or you could sell the vehicle to your mechanic for $500 and then take $2,000 for a down payment on your next vehicle.
This question may be even more important when you’re not facing a large maintenance cost but are considering buying a new vehicle. It could be better to sell your current vehicle while it still has some trade-in value, which will only serve to boost your total down payment, lowering the payment on your next vehicle.
Of course, your ultimate goal should be to buy your next vehicle in cash. So if you’re close to being able to do that, saving money on repairs to put towards a cash payment for a vehicle may make the most sense. This is especially true if you have the money to get into a significantly lower-mileage or more reliable vehicle right now.
What Would Your Total New Car Costs Be?
Before you dive into the new or new-to-you car route, be sure you understand what your total costs would be. As we noted above, Edmunds data shows that the average car payment is between $380 and $510, depending on what type of car you’re buying and how long you’re stretching your financing.
Unfortunately, many more people are stretching their financing beyond the standard two-to-three year loan. Some people are financing for 72 to 84 months! Seven years is a very long time to make payments on one car, especially if you drive a lot of miles and may not get it paid off before it totally breaks down.
You can look at your total new car costs using calculators like this one on Edmunds. If you can’t afford your next vehicle budget-wise, figure out how to keep your current one running--even if you’re holding on parts with duct tape--until you do. The last thing you want is to get into more debt than you can reasonably afford just to upgrade your car.
Compare Your Options
If you’re wondering how a car loan will affect your monthly budget and finances as a whole, Monevo can help.
Monevo is an online platform for comparing car loans. Once you complete an online form, you’re presented with multiple lenders along with their terms and conditions.
You can then calculate your monthly payment, as well as how much you’ll pay over the course of your loan. This information is invaluable when budgeting for a new car purchase.
Make the Decision Before the Car Makes it For You
With all this said, you want to make the decision to upgrade to a different car before your current vehicle makes the decision for you. Sure, you can drive your car until the wheels literally fall off. But if you’re dancing on that line of becoming unsafe or unsustainably unreliable, you may want to go ahead and trade in your wheels now.
Start thinking ahead of time about replacing your vehicle when it needs this, and then take the following steps to replace your current vehicle with your next new-to-you car.
Figure Out Your Down Payment
First, decide how much you can afford to put down on your vehicle. The obvious solution here is to dip into your mid-term savings account. (You do have one of those, right?) You can also figure out how much your current vehicle is likely to trade in for. Or try selling it yourself to get a better return on your investment.
In short, the larger down payment you have, the better off you’ll be. You’ll get a better interest rate on a loan, and you’ll be able to get a better car for your money.
Decide Whether to Lease or Buy
In general, buying a vehicle is a better option than leasing one. If you don’t have a large down payment or great credit, leasing can sometimes be a good option. However, if you buy another new-to-you vehicle and drive it as long as possible, you’ll ultimately save money in the long run. Potentially tens of thousands of dollars.
You can read our full breakdown of the lease vs. buy conversation here. But the bottom line is that leasing isn’t for everyone. And buying a used, reliable vehicle that you’ll drive for at least five to ten years is typically the best way to save the most money.
Buy at This Time
If your vehicle breaks down for good unexpectedly, you may not have much choice in when to buy your next car. But if you’re looking ahead a bit and expect to need a new car soon, planning when to buy can help you save.
According to Kelley Blue Book, there are three major times you’ll save more on a new vehicle: at end-of-year and holiday sales events, at the end of the month when dealerships are trying to meet their quotas, and right after a new model of that vehicle is released if you plan to buy the previous years model. Used cars have less obvious cycles, other than the month-end and year-end times when dealerships are trying to offload their stock.
Having an old car can seem like a drag at times, especially if your friends and neighbors all have newer models. But remember, you could save tens of thousands of dollars by hanging on to your paid-off beater as long as possible.
Eventually, though, all good things come to an end. And that includes your vehicle. Just be sure to think through your decision to be sure you aren’t making the new car choice for the wrong reasons. And once you have decided to opt for a new vehicle, make smart buying decisions you won’t regret.