Reader Brenden says:
I looked around the site and didn’t see any handy guide for a situation that I, and I’m sure many others, are in. We have an older car that still runs, but occasionally needs work. At what point do you begin experiencing diminishing returns on your investment? I know there is no hard and fast rule but there has to be reasonable guide lines when it comes down to how much to put into an old car before its just not worth it anymore. I don’t meant to make a request (especially since Consumerist helped me out before) but I think an article on this might not go unappreciated.
Brenden,
Essentially, what you have here is a math problem. There are several factors that you’ll want to consider when making your calculations.
1) How much money have you been pouring in to the car? Grab all of your receipts and total them up. Then ask yourself this question: “What is the current state of my car?” If you’ve just fixed it up and it’s going to be running great for some time, you might want to keep it for awhile. If you’re barely keeping up as one thing after another breaks… it might be time to say goodbye. If you’re unsure about this part of the process, call your mechanic or a trusted friend who knows something about cars. Ask if parts for your car are getting expensive, and if it is going to be worth maintaining.
2) Do you own this car? Your relationship with your car depends a lot on whether or not you actually own it. Everyone’s situation is going to be different. What is the actual value of your car? Can you get anything for it if you sell it? If you’re not used to paying a car payment, are you going to want to start? Run the numbers and see what this car means to you financially.
3) Does this car get good gas mileage, and what does it cost to insure? Calculate the operating expenses of your car. A newer car may save you money on gas, or it may not. It’s probably going to cost more to insure. Once you know what your current car costs you, you can compare it to the numbers for your potential new(er) cars.
Now that you have an idea of what your car is actually costing you, you can start comparing it to what a different car might cost. You might find that your old car is very cost effective, despite the repairs. Or you might not. Generally speaking, however, a car you own is better than a car your bank owns. Personally, we enjoy buying slightly used cars (that we can afford) with cash. Good luck!
Anything we missed? Share your tips for Brenden in the comments.
(Photo: The Joy Of The Mundane )
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@robotrousers & friendlynerd: fwiw, i dropped a rebuilt transmission into a 1982 buick electra estate wagon (that’s right baby – wood grain FTW!) –> [aswoa.com]
the repairs cost me about $700 & about 2 months later some jack-off in a blazer hit me head-on turning into a gas station. at first, his insurance co. offered me ~$1,500 for the car – when i produced evidence that i just had the transmission rebuilt, they cut me a check for $2,500.
so, keep that in mind if you get in a wreck (esp. if you have a lot of custom mods that aren’t covered in the value of the vehicle).
@thomas_callahan: excellent point–i thought about a new car until i considered potentially higher insurance costs.
that said, i’ve had two vw jettas, each of which i’d owned for 11 years. the ’97 i have now has had in its life:
new tires
brakes
minimum tune-ups
it’s a five-speed, and while i have read that newer jettas don’t compare (depends upon who’s writing, of course), i would consider another. will likely drive it into the ground. solid, reliable car. good luck!
I have a very simple rule: If the costs per month add up to at least half of what a new car payment would be, then it’s time to consider trading. If they add up to the full cost of a monthly payment, why aren’t you in a new car already?
It’s simple and quick.
Seems to me it _never_ makes sense to buy a new car. The $5-$8K price range seems about the best, financially speaking. You can get just about anything your heart desires… looking on craigslist here, I see a ’98 V12 BMW 750i for $7K (hahah, that’ll be cheap to maintain!) and a ’97 Camry for $6K.
Cars in that price range probably have ~100K-150K on ‘em, which means the drive trains will last a lot longer. That’s close enough to the bottom of the depreciation curve that you’re not going to lose your shirt. Sure, you’ll be shoveling large amounts of money at it from time to time, but that’s nothing compared to $4K a year in payments for a new car.
@TechnoDestructo: You could adjust it for fuel prices. (I drive a hybrid, but I know not everyone understands just how crappy their mileage is compared to how good it could be, so I didn’t even want to get into it.)
This is what prompted the theory: I bought a slightly used Civic LX in college for like $11,000. I was paying, I think something like $214 a month for it, or about $2,500 a year.
A friend of mine bought a car for $600. And the proceeded to have problems with it, and all told sunk about $2,000 into it in the first year he had it.
On a one-year basis, we paid the same amount for our cars. My Civic was 2 years old with 10,000 miles, his car was 20 years old with 100,000 miles on it. I’m not sure exactly how much longer he had it or how much more money he sunk into it. I do know that it was eventually scrapped, and I think he got $50 bucks for it if I recall correctly.
When I sold my Civic 2 years later, I got $8,000 for it. In the two years I had it I spent $5,000 on payments. But I actually only lost about $3,600 for it, since I sold it for only $3k less than I’d paid for it. My friend, with the P.O.S. also spent about the same. I had a reliable car. He had a P.O.S.
Our friend had a hand me down BMW 5 series. A free car, right? But it needed $5,000 worth of work that year.
To me the math is clear, especially when you start talking about resale value at the end of a car’s life. All cars cost a certain amount to drive. And often you can be driving a newer more reliable car for the same money.
The $600 car cost at least $2600. Let’s say it lasted another year and then died, and he got $50 for it. Total cost over 2 years: $2550.
The BMW 5 Series was free, but cost $5,000 to fix. Total cost over 2 years: $5000.
My $11,000 Civic was sold two years later for $8,000. Total cost over 2 years: $3000 plus interest (about $3600.)
Now, someone’s going to point out that you could sell the BMW for hopefully at least $5000. True, but it was a free car.
At the end of the day, the math is so much more complex than most people think. But the easiest way to do it is to do what DeeJayQueue said to do.
@stevejust: The problem is it really varies between car to car.
In my example I paid $2,000 cash for a car that I kept for 2.5 years and maybe put $500 worth of repairs (including 3 new tires) into it. I also got 28mpg with it.
If I could be guaranteed a life like that out of another used I’d sell the Elantra tomorrow and buy a $2,000 car tomorrow!
I forgot to mention my brother-in-law bought it off of me for $500 and it’s still running after he fixed it up.
Another question should have been “Is it worth replacing/Has it broken down?” because I’ve seen people who’ve bought C-Classes and whatnot, replacing their Infiniti just because the Infiniti was “behind a generation.” It’s a bad idea, then you’ll just find yourself buying a new car every year. People should just finnance their car buy leasing it for a year, then you can get a new car every year without actually buying it.
my 95 subaru impreza is on its last leg. at 290,000 miles, its served its time. it still runs but there’s always something that needs to be fixed. i’m running into the dilemma where i don’t want a car payment but feel there is no choice. i’m not buying someone else’s problem so i’m not buying a used car.
@pigeonpenelope: 13 Years is pretty good for a car. Considering you drove it about 7,000 miles a year more than norm (Norm usually drives his car about 15K) I’d say it’s a good run.
Honestly, I can’t think of a worse investment than a car….I mean, what other major purchase costs $20,000+ and then 10 years later is worth almost nothing?
Essentially, though..if repairs to your current car add up to a significant amount for what you’d pay for a new one…maybe it’s time to think about ditching the old clunker.
If you’re fuel bill is now equal to some large percentage of a car payment…also maybe time to consider something else. If you can save $150 a month in fuel bills and apply that to your car payment instead of giving it to the oil companies..that’s also worth something.
If you meet both criteria..constant repairs AND huge fuel bills…definitely time to do something.
On the other hand, if I were lucky enough to own a used car that only costs $500 a year in repairs, I’d drive it until it fell apart or began to require multiple major repairs.
Another thing to consider….if you have a used car and you need repairs…at least with repairs, you might be able to do-it-yourself, put off a repair for a couple of weeks, have your cousin Vinnie do it…or whatever. If you buy a new car, you’re locked into a definite payment every month and if you can’t come up with the $$$, you’re really screwed. Banks don’t have much of a sense of humor about missed payments.
Consumer Reports and other such places can be your friend — have a look at the problems your current/desired car make/model/year tends to encounter. For example, my beloved 280zx (bought gently used from a guy who wanted a big stake for Vegas) only ever needed a water pump replaced in the 4 years I drove it, as well as brake pads (hilly driving). However, that year got the big black CR black eye for rust, so I watched the car carefully. Fixed the first blossom; figured it was a foregone conclusion there would be more shortly thereafter and gave it a good wax and tune-up and sold to a college kid who was happy to have it.
Your insurance agent’s office should be more than happy to give you projected premiums for several different cars when you are in the early stages of research; you might be surprised what a variance you’ll find among seemingly similar cars. And taking a higher deductible can help ease the bite of insurance on a new or newer car.
@thomas_callahan:
yes! exactly! i’ve had an isuzu amigo for the past 14 years. i’ve had a few major repairs–new clutch, brakes, alternator, etc. typical of stuff to be replaced on a vehicle with 175K miles on it. (i’m not counting having to replace the dash wiring after squirrels gnawed. that falls into the “freak accident” category.)
sure, the total cost of these repairs exceeds the value of the car which is only about $1200 or so but it’s still been cheaper than new car payments and increased insurance.
i was totally planning on driving it into the ground and only stopped driving it because my m.i.l. gave me her old car, a 2002 ford. since i have no car payment with that, either, i plan on driving that one until it gives out. seeing as it only has 16K miles, that should be a while.