Your Aging Car: Repair or Replace?

All frugal drivers will eventually reach this somewhat unenviable milestone. Old Faithful, the automobile you’ve babied and maintained for the past 100,000 miles or more, now requires expensive repairs just to keep it moving.

Here’s the question: is it worth it to funnel more money into your aging ride, or is it time to use that money to purchase a newer car? This is a difficult decision with many factors to consider. Hopefully fixing your car will give you several more safe years on the road, but this repair might just be the tip of the iceberg among many other impending issues.

When you have to decide whether it’s worth it to pay to keep your older vehicle running, there is no guarantee you’ll choose the best option financially. Ask yourself these key questions to help you decide whether to repair or replace your older car.

Do you have an old car constantly in need of repair? Do you wonder if you should use that money to buy a newer, better car? Read this post to find out all the factors involved. There are a few important things to consider before you decide to repair or replace your old car.

How Safe and Reliable is the Car?

Safety is a key concern for all drivers. If you’re driving a much-older car (over two decades old), chances are you’re spending a fair amount of money on repairs and maintenance.

Auto safety standards have come a long way in the past 20 years, so the older your vehicle, the more likely you may need to consider an upgrade. Keeping you and your family safe is a high priority.

Even if the safety standards are up to par, reliability can be a big issue with older cars. Is your vehicle spending more time in the shop than in your driveway? In that case, it may be time to find a newer car and save yourself the hassle and expense of frequent repairs.

How Much will this Repair Cost?

Before you agree to any work done on your car, get an estimate in writing. That will help you decide several things—how you will pay for the repair, how much more time you will need to drive the car to make the repair worthwhile, and how much car that same repair money would be able to buy if you instead decide to start over with a new car.

How Much is the Car Worth?

This part of the equation is not nearly as simple as it sounds. For auto insurance companies, it’s straightforward subtraction: the car’s value minus the cost of repairs. If that number is 0 or negative, they total the car.

For the rest of us, however, the car’s value also encompasses the idea of what it is worth to you to be free of a car payment, to not have to take public transportation to work, and how much you love the car. (Don’t laugh! I have known many responsible adults, myself included, who were head-over-heels in love with their cars.)

It’s also a good idea to check Kelley Blue Book or Edmunds to learn the value of your car. Be sure to truthfully represent your car’s history when you fill out the information, including mileage, maintenance, and any accident history. That will result in the most accurate possible valuation.

The car’s value is a highly subjective measurement when it includes these metrics, so it is important to sit down and decide ahead of time how much you can afford to put into repairs.

Related: 19 Easy Ways to Save Money on Your Auto Insurance Policy

How Much Do You Owe?

You may still owe some money on the car. Of course, if you’ve owned your vehicle for a decade or more, you won’t have a loan balance remaining. But if your car is still in the repayment period, you want to find out exactly what your loan balance is.

Simply contact the bank or auto loan company to ask what your full payoff amount would be today. Then you can compare that figure to the estimates on repairs to weigh your options.

How Long is the Car Likely to Last?

To figure out the best car decision for you, determine how much longer your car is likely to last. Thanks to the internet, this is a pretty easy question to answer. With a few words in a search bar, you can do a great deal of research on when your make, model, and year of car typically becomes a burden.

If you have a repair estimate in hand, combine that info with what you can learn about your car’s usual lifespan. Chances are, someone else out there has encountered a similar problem with a comparable car. Go onto the car’s online forum to find out some real-customer information on their experience with the vehicle. Other customers can help you find out how much more drive time you’ll get if you go ahead and repair your car.

A good rule of thumb is to only spend about $1,000 per year on further service and maintenance. This is almost guaranteed to be lower than you’d have to spend on a newer car payment.

Unfortunately, with these kinds of money decisions, you won’t really know for certain if you’re making the best choice. The best you can do is to gather solid information to help you decide, along with saving for repairs and/or a new car as well.

Read More:How to Buy a New Car and Not Get Screwed

Alternative: Dump the Car Payment and Rent Instead

We do it with our housing. Why not transportation? Have you considered renting a car occasionally instead of buying?

This is what Tomi Grover does.

I met Tomi at an online entrepreneur’s networking function last weekend. She confidently told a group of us that she doesn’t own a car. Instead, she rents a car only when she needs it.

Knowing Tomi lived in the sprawling suburbs of the Dallas / Fort Worth Metroplex, where everyone needs a car, I thought this was impressive.

We’ve all heard of people near urban centers making use of car share/rental services like ZipCar and Car2Go. But those services have yet to reach the burbs.

Renting Occasionally vs Buying a Car Outright

Instead of buying a car, which would come with insurance and maintenance costs – not to mention a car loan or large cash outlay – Tomi has decided to rent.

Tomi rents mostly from Enterprise, who has a location just two miles from her home. Enterprise will “pick you up”, which in Tomi’s case, gives them a leg up on the competition.

Many people are taking Enterprise up on this offer. I spoke with a representative and they said roughly half of the customers who rent from their “neighborhood” rental locations use the “pick me up” service.

Enterprise also has weekend rates as low as $9.99 per day. This is limited to 100 miles per day, but Tomi says this is often more than enough for her weekend speaking gigs.

Joining the Enterprise rewards program, Enterprise Plus, has also been a good way to lower rental prices and occasionally qualify for free rentals and upgrades, says Tomi.

I’m certainly inspired by Tomi’s story. It made me reflect on my own situation. Maybe an outside-the-box vehicle solution would work best for you!

When You Need to Buy a Newer Car

If renting isn’t a viable option, and fixing your car doesn’t seem worth the expense, then you’ll want to buy a newer car.

Here is where you need to be careful—you need to keep the cost of a new car reasonable, or you’ll lose any benefit you get from dumping the old car. Car prices range widely, but you’ll probably spend at least several thousand for a decent used vehicle.

Once you decide to go with a newer car to replace your old, beat-up one, think carefully about what you can spend.

Understand the Car Loan Debt Trap

When you roll the balance due on your old car loan into a new one, you’re in a risky cycle. Sometimes it’s inevitable, like if your car is totaled through no fault of your own and doesn’t give you enough money back for a new car.

A car is an asset, but unlike a home which tends to increase in value, a car loses value the minute you drive it off the lot! This is the reason some people find themselves “upside down” on a car loan—they may need to sell a car before they’ve owned it long enough to utilize its value. Then you owe more than the car is worth.

Some of us get mired in car debt because, well, cars are expensive and you just don’t always have the money to buy a car outright. Plus, automakers are adept at marketing the image of a stylish (and expensive!) car.

Lenders also offer really long loan periods on vehicles, sometimes up to 7 or 8 years. Being in debt for that long makes it rather unlikely that you’ll even drive the car as long as the loan period.

While some people keep their cars for a decade or more, others may get bored with a car after 3 or 4 years. The quicker you rush to trade in a vehicle for a newer model, the more money you lose.

Related: How to Budget for Your Unexpected Expenses

Escape the Debt Cycle

To help you get in a better car habit, work toward buying your car with cash so you can escape the debt cycle. If you have a car that needs serious repairs now, this may not be possible, but eventually your goal can be to own your car debt-free.

One important step is to keep any car you buy for at least as long as the loan period. Try to keep it longer if possible! This will help remind you to choose a dependable car (and possibly a shorter loan period when purchasing).

If you’re in a situation where you still owe money on your car, see if you can refinance the debt through a local bank or credit union. Local institutions often give lower interest rates than dealerships. Saving 2% or more on interest each month could help you pay down the balance faster, with more money going towards principal rather than interest.

Another tip is to throw any “extra” money you have towards your car loan. Focus on getting that debt paid down to free up your future income. To make even more extra money try selling items or starting a side hustle.

Sell Items

A strategy for bringing in some extra money is to sell unwanted items online, at yard sales, or at consignment stores.

Most of us have more stuff than we need or even want. Chances are, if you haven’t decluttered in a while, you’ve got things lurking in your house or garage that could fetch a price.

Try to focus first on high-priced items like furniture, electronics, or jewelry. Perhaps you’ve even got brand-new items still in the box that you received as gifts. Aim to sell those to make the most money possible. Lower-value things like books or clothing might be worth selling as well; every little bit helps!

Start a Side Hustle

Obviously, I like the side hustle idea for making more money. You can start your own small business, take on extra shifts at your full-time job, or take on freelance projects or assignments.

Tons of people make a few hundred to a few thousand dollars a month doing extra work through gigs and side businesses. These are terrific options because you can put in as much additional work time as you want.

When you’re working to escape the cycle of car loan debt, a secondary source of income is a smart choice. Make some extra money that you can put directly towards paying off the balance of your car loan, bringing you closer to owning it free and clear.

Read More: 18 Side Hustle Ideas: Find Your Perfect Side Hustle

How to Save for a Car and Pay Cash

Once your loan is paid off, keep driving the car as long as you can and keep making the same payments—to yourself. Since you’re used to sending in a car payment monthly, just divert those funds into a savings account earmarked for your next vehicle purchase!

You know you’ll need to replace your vehicle eventually, so the wise choice is to save up now. Then you’ll be able to pay cash for the next one. It may not be a new car, but you will have escaped the cycle of the car loan trap!

Save Faster with A High-Interest Savings Account

Gone are the days when you had to stuff your cash under the mattress or take it to a bank for 0.01% interest. Now, you have options that actually pay you just for saving money!

The CIT Bank Money Market Account offers a high yield on your savings, which helps you to reach your savings goals faster. There are no fees to open a CIT Savings Builder account, and no maintenance fees either. You’ll earn a solid interest rate from day one of opening up your account.

To earn the upper rate of 1.30% APY with CIT Bank, you either need a minimum balance of $25,000 or a minimum monthly deposit of $100.

For a lot of savers, maintaining a $25,000 balance in a savings account is a big challenge. But a $100 deposit each month isn’t that hard to manage (especially if you start a new side hustle).

Whether you’re working to pay off your car or save to buy a newer one in cash, a good rate on your savings account will help you reach those goals much faster.

Why would you leave your savings to earn next to nothing when you could get a decent rate of return? Learn more about the CIT Money Market Account.

Have you escaped the auto loan debt cycle? Have you decided to save for a car and pay cash? What’s your opinion on car loans and paying cash?

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About Philip Taylor, CPA

Philip Taylor, aka "PT", is a CPA, blogger, podcaster, husband, and father of three. PT is also the founder and CEO of the personal finance industry conference and trade show, FinCon.

He created Part-Time Money® back in 2007 to share his advice on money, hold himself accountable (while paying off over $75k in debt), and to meet others passionate about moving toward financial independence.

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  1. Jenna, Adaptu Community Manager says

    I just spent $1,500 earlier this year repairing my car. I think that will be the last major repairs I will do on this car. If something comes up I believe I’ll get a new car in the next 5-10 years.

  2. Emily Guy Birken says

    @JR, you’re absolutely right about 100k miles being doable these days. A friend was asking my husband (an automotive engineer) for advice about buying a commuter car, since she didn’t know how she could get a decent used car with low mileage for the amount of money she had to spend. My husband told her that he’d rather buy a car that was over 100,000 miles that had been well taken care of than buy a car with low mileage that had not been maintained.

    For me, I always think about the classic cars in Cuba and how they’re kept running year after year. It would be great if more of us knew how to fix things ourselves so we could keep cars going and going.

  3. I don’t think that 100,000 miles is really as big of a problem anymore. It all depends on what type of car you have and how you drive but most reliable brands/models will sail over 100k with no problems. Even after that point the repairs are not really that much compared to the cost of a newer vehicle. Recently for example we had the timing belt and water pump replaced on my wife’s car and the total cost was a measly $500.

  4. I repair it,i if I think I can get more than X months from the repair. X being the repair divided by $100. Just my little rule. It seems to work for me.

    • Philip Taylor says

      That’s a nice rule of thumb, Ginger. So, in the example in the comment just above yours, the $2,000 repair would need to get 20 months to be worth it. Therefore, at 18 months, that repair has almost reached break-even. Nice way to think about it.

  5. cashflowmantra says

    That can be a tough decision at times. I don’t have a really good plan for doing so other than if I think the problem is isolated, I will go ahead and repair it. I had my transmission rebuilt for $2,000 in my mini-van. That was 18 months and 50,000 miles ago, so it turned out to be a good decision.

  6. We just went through this process. We had an old vehicle that needed repairs. We just put $1500 repair into the vehicle because we hoped it would extend the life of the vehicle. Not long after repairs were done, we discovered the vehicle would need about $1200 more in repairs. We were balancing what the smartest, best financial decision was. In the end, we decided to go with the vehicle. The old vehicle wasn’t worth the price to keep repairing. We considered the fact that it wouldn’t last us very much longer, even with repairs. Also, interest rates are very good right now in our area and other parts of the country so it was a combination of things. Even though we didn’t plan on a new vehicle now, it ended up being the right choice.

    • Agh, that’s a tough one to swallow. I probably would have doubled down on the old car as I’m a glutton for punishment. Rates (especially at credit unions) are very tempting these days.

  7. earthling says

    also factor in sales tax, depreciation (and if financed, interest) plus any increase in registration and insurance for the replacement vehicle.

    you’re going to replace the vehicle in any event … either all at once as in replace or piecewise as in repair. the primary factors for me are whether the vehicle is servicable and whether its repair frequency interferes with my ability to earn income.

    • Great additional factors to consider. And nice point about loss of income. We only have so many days off to have repairs done.