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Should I Repair or Replace My Car?

Your car isn’t working, so a call to your service center is in order. It is the second or third time this year you’ve been without your ride, presenting a major inconvenience to you, your family as well as to others. The writing is clearly on the wall: you need to replace your car. But it isn’t always as easy as that. Sometimes you need to weigh the cost of making repairs with the practicality of buying a new or used vehicle.

The Cost of Repairs

Before you look forward to buying a replacement vehicle you need to look back at what your current car costs. These fixed costs should include your registration, insurance, taxes, fuel costs, maintenance and repairs.

Review your repair records for the past year. If you spent between $1,500 and $2,500 on your car, then you’re paying upwards of $200 per month to keep your car running. That’s a bundle of money, but it may still be much cheaper to manage than making car payments that could set you back by $300 or more each month.

Add your maintenance and repair costs to your fixed costs to determine precisely what you are spending on your car each year. If you use your vehicle as your daily driver, then it is likely you will be adding thousands of dollars on top of your maintenance and repair costs. This figure becomes your annual cost of maintaining your car.

What Your Car is Worth

Now that you have a decent grip on the cost of keeping your car, you need to determine what it is worth. There are several places you can visit online to estimate your car’s value, though it will vary depending on your decision to sell it or trade it in.

For instance, if you own a midsize sedan from a manufacturer such as Dodge or Chevrolet and have driven it about 150,000 miles over 10 years, you may find that a dealer would credit you somewhere between $1,500 and $2,000 for a trade. Or, you could sell it yourself and possibly receive an additional $500 or $750. This is a general example, but it will give you the current value of your car.

Reviewing the Difference

In our example here, you may have determined that you are spending more than $4,000 per year to operate and maintain your vehicle. But your ride is worth perhaps half that.

Essentially, you are pouring money into a car that clearly is costing you more than it is worth. That’s a tipping point (or measurement) you can use to determine when it is the right time to shop for something else. In other words, if your maintenance, repairs and operating costs exceed your car’s value, it is time to buy a new one.

Your Credit and Financial Picture

Clearly, the best time to buy a new car or a late model used car is when you have the financial resources to afford one. Here, you need to establish a monthly budget to determine how much in car payments you can afford. Using your car as a trade in, adding additional down payment money and shopping for a car within your budget will help you realize your goal.

When shopping for a car, lenders will review your credit history. You should know your credit score before you begin shopping, a three-digit number you can obtain by visiting MyFico.com. The higher your score the greater are your chances for receiving loan approval and at a favorable interest rate. For example, Experian, one of the three credit reporting bureaus, says that a score above 700 reflects good credit management.

If you have a particular car in mind, estimate what it will cost you to buy that car. For example, a new compact car that you purchase for $18,500 represents your cost. Next, subtract both the money you would receive for trading your car in or selling it on your own ($2,000) and a down payment ($500) and that leaves you with needing to finance $16,000 for a new car loan.

A $16,000 car loan at a 5 percent interest rate would cost you approximately $302 per month for five years. If that is above your budget, then you need to put more money down or opt for a longer loan. You might also need to consider another vehicle, such as a certified pre-owned (CPO) car. Also, call your insurance agent to obtain a quote for your auto insurance. Notably, the higher cost of insurance may be offset by its improved fuel economy. Certainly, if you buy a new car your maintenance and repair costs are usually covered under warranty for the first two or three years of ownership.

Making Your Decision

So far, we have reviewed the practical reasons for replacing a car. It is certainly true that not every purchase decision is practical. For some car shoppers buying a new or late model used car is based entirely on want, not need.

There are a number of reasons why people want to buy another car. For instance, if your vehicle is older, you might want the new car technologies available today, including GPS, blind spot warning systems and surround sound audio systems. Also, comparable newer cars achieve superior fuel mileage and emit fewer emissions. Then there is the look and feel of a new car, which provides a level of satisfaction not found elsewhere. Maybe it is time to get rid of that aged SUV and trade it in for the sexy, sport coupe you always wanted.

Adding It Up

We have examined the parameters that determine whether replacing your current car with a newer vehicle makes sense. There is much to ruminate here, and that consideration will be built largely on your ability to afford another car or support maintaining your present ride.

There is one final factor to keep in mind: the inconvenience and cost of having your car in the shop. For some people, the wages lost from missing work must also be considered. And too many absences from work might also put your job in jeopardy.

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