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Your car requires regular investments to keep it running. At some point, however, you will question whether it’s wise to keep putting money into an old set of wheels. Should you pay for a major fix, or would it make more sense to put that cash toward a new vehicle?
To determine the answer, find out how much the repair will cost, and compare that figure to how much your car is worth as well as how much you would need to spend to drive off the lot with a replacement. Looking at all these numbers can help you see more clearly whether making more repairs is a losing investment.
Benefits of repair vs. replacement
Fixing a car or finding a new one both come with big financial implications. As you crunch the numbers of a repair bill or a new auto loan, consider the benefits of either move.
Benefits of repairing your car
- You can avoid paying record-high prices. Matt Degen, senior editor at Kelley Blue Book, suggests that it may be wise to hold off on buying a new car if the repair is only a couple hundred dollars. “With the prices of new cars right now, you’re looking at a monthly payment of $600 or $700.”
- You’ll have one bill instead of a new set of monthly responsibilities. If you can cover the repair and avoid getting locked into a new auto loan, you can keep your monthly budget in good shape. “Even if you had a high repair bill of a few thousand dollars, that would only be enough for a down payment on a new car,” says Ronald Montoya, senior consumer advice editor at Edmunds. “Then, you’d still have to contend with the monthly payments for another five to six years or so.”
- You can keep your insurance costs in check. Since a used car tends to be cheaper to replace, an insurance policy for your old car will likely be more affordable than covering a brand new one.
Benefits of replacing your car
- You can stop worrying about every noise your old car makes. The obvious benefit of a new car is the ability to sleep at night without worrying about dealing with another repair next week. New cars come with warranties that usually cover issues for the first three years or 36,000 miles, and some parts of the vehicle may have extended coverage up to 100,000 miles.
- You might be able to save in other areas. There are some issues that can’t be repaired — such as your car’s gas mileage — something to keep in mind in a time when the price of a gallon of gas is topping $5 in some markets. “If you’re driving something that is draining your wallet,” Degen says, “it might be time to consider a hybrid or electric model.”
Buying new will cost big right now
Like the cost of many other expenses that have been impacted by inflation, the price-tag of new cars has been skyrocketing. According to Kelley Blue Book, the average price of a car in May 2022 was $47,148, which was 13.5 percent — or $5,613 — higher than one year earlier. In fact, May’s average prices were the second highest on record, Kelley Blue Book reported.
For all of 2022 thus far, dealers have been selling new vehicles well over the manufacturer’s sticker price. The good news is the price increases are showing signs of slowing down and may even decline in the coming months if you can hold off on buying a car.
How to tell if it’s time to replace your car
In some cases, there isn’t much debate over replacing versus repairing. If any of these signals apply to your situation, it’s probably time to look for a new vehicle.
The numbers don’t add up
“If you have a car worth $5,000 and you’re looking at a repair for $4,000, it’s probably time to start looking for a new car,” Degen says.
For a car that you still owe a balance on, you may want to look into selling it before you end up upside down on the loan.
The issues are causing major headaches in your daily life
Montoya points out that if the car’s issues are creating hiccups in your daily routine — making your kids late to school or you late to work — you probably need to consider a replacement. This is especially true when said hiccups end up causing financial strain.
You have a serious safety concern
If the car can’t pass a state smog inspection test, you’re going to need to address a major issue. And if the car presents any kind of danger, start browsing.
“You can’t put a price tag on safety,” Degen says. “If your car presents a threat to you or other drivers, it’s time for a new one.”
3 tips to make your car last longer
Are you trying to squeeze some extra life out of your current car? Rather than rush to the dealer to buy a new one, there are a few simple steps to follow to feel good when you start up your current engine.
- Follow the regular service schedule. Think of your car the same way you think of your body — it helps to get regular checkups to identify potential issues before they become huge problems. Do the same with your car. Get regular oil changes, replace the air filters and flush the fluids.
- Pay attention to alerts. Sure, that check engine light might seem like an annoyance, but it’s trying to tell you something. When your car’s system issues a warning, don’t delay — go get it checked out by an expert.
- Give it a new shine. Cosmetic clean-up can do a lot. Degen points out that paying for a good detail of your old car can make a significant difference. “It really does something for you psychologically,” he says. “Just getting into a car that looks clean and smells clean can make you think twice about the immediate need for a new one.”
The bottom line
Cars don’t last forever. If you’ve exhausted every repair to keep your vehicle running, it may be time to start shopping. But before you do, there is some good news: You might be able to get a good chunk of cash to help cover part of your replacement.
“Even older used cars with higher mileage are still getting record trade-in value,” Degen says. “So, that old jalopy that you have might be worth a lot more than you think it is.”
Look at your car’s current value and compare it with an estimate for the repair bill. Seeing those two numbers next to each other should give you a good idea whether it makes more financial sense to repair or replace it.