auto

Repair your old car or buy a new car?

Tara Baukus MelloThere are some terrific advantages to driving an old car, including cheaper car insurance and owning your car outright. But old cars need repairs, especially those that are five years old or older. So when you are suddenly faced with a costly repair for your old car, does it make more sense to repair it or replace it with a new car?

While it's almost always cheaper to repair your used car instead of buying a new one, you need more information before you can make a solid financial decision. Find out the answers to these questions:

How much is your car worth? Check the value of your current car at several third-party car information websites such as Edmunds.com, Kelley Blue Book or NADAguides.com to determine what it's worth, assuming it's working properly.

What would it cost to replace it? Assume for a moment that if you replaced your old car, you'd buy a new car that's a similar make and model. Do a bit of research online to determine what the new car would cost. Chances are it's at least $20,000 and possibly a lot more. Then use Bankrate's auto loan calculator to estimate your monthly payment.

How much does the repair cost? Get a couple of quotes on the cost of the job. You can call mechanics or dealers in your area and ask them to quote the job for you. They can do this without seeing the car as long as you know what repair is needed. Have them give you the estimate in writing or try an online quote service such as RepairPal to get estimates. While the cost of the parts is not likely to be much different -- if it is, ask why -- labor rates can vary from shop to shop and you can possibly save some money by choosing a different mechanic.

Once you have these three numbers, you are better equipped to make a smart financial decision. If the repair cost greatly exceeds your car's value, it is probably best to replace your old car. From a financial perspective, it's wisest to replace the car with a newer, but used car to avoid the huge depreciation hit that happens when you buy a brand new car. It's also a good idea to sell your old car in a private-party sale to get the largest amount for your car. Just be sure to fully disclose the repair that needs to be completed.

With repairs that are roughly equal to the value of your used car or less, it makes better financial sense to make the repair versus buy a new car, since even the most expensive repairs would most likely only equal about a year of car payments on a new car.

Today, most new cars are built to last 200,000 miles or more, with a few more expensive items often needing repair at the 100,000- to 120,000-mile mark. Once your car is paid off, put aside an amount that equals about 20 percent of what your car payment was each month for repairs. This money can be used for any necessary repairs, and any excess will make a nice down payment for your next car when you're ready to buy one.

Ask the adviser

If you have a car question, e-mail it to us at Driving for Dollars. Read more Driving for Dollars columns and Bankrate auto stories.
 

Bankrate's content, including the guidance of its advice-and-expert columns and this Web site, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this Web site is governed by Bankrate's Terms of Use.

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