Repairs vs. Replacement: When Fixing a Car Stops Making Sense
Most cars eventually reach a point where they become more expensive to operate than they are worth. The timing can vary considerably, of course. Some cars depreciate more rapidly than others, while some simply don’t need as many repairs. But the older your car gets, the closer it gets to that line in the sand where replacement might be a better option.
Here’s how to tell when fixing your car no longer makes financial sense.
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Is the Car Reliable, or Is It Just One Problem After Another?
A repair bill by itself doesn’t automatically mean it’s time to replace a car. If your car has a reputation for “running forever,” for example, it might be worth it to sink a bit more into its repair and upkeep in exchange for a longer useful life.
If you think a $2,000 repair will help your car last another five years, for example, that might be a better financial move than taking on a new $650 monthly car payment.
But if your car tends to be in the shop regularly, the math changes. If you’re constantly stranded on the side of the road, forced to skip out on work, or paying thousands of dollars every year for maintenance and basic upkeep, replacement could make more sense.
Are Your Repair Costs More Than 50% of Your Car’s Value?
That’s a common benchmark to help determine when it’s time to replace instead of repair.
For example, a $1,200 repair on a car worth $8,000 may be fine, but a $4,000 repair on a car worth $5,500 is a different conversation.
That doesn’t mean you should automatically get a new car when your repair bill creeps above that 50% mark. But it does mean you should stop thinking emotionally and start thinking financially. If this is likely to be your last big repair for a while, it might be worth it. But if other dominos start falling in rapid succession, it’s likely time to get out.
Avoid the Sunk Cost Fallacy
When faced with yet another repair bill, many drivers fall into the trap of thinking that they should just stick with their vehicle because they’ve “already put so much money into it.” That’s the psychological phenomenon known as the “sunk cost fallacy.”
While past repairs can help keep your vehicle on the road, a new transmission doesn’t suddenly turn a 180,000-mile car into a low-mileage vehicle.
If you’re regularly spending several thousand dollars per year just to keep the car functional, you’re already spending as much as you would on a new vehicle – except you still own an aging vehicle with declining reliability.
That’s usually the point where replacement becomes the right call.
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Assess Your Repair History
Typically, cars that are on their last legs have a series of major failures.
Take a look at how much you’ve spent on your vehicle over the past 12 months, and include the following costs:
Repairs
Towing
Rental cars
Emergency maintenance
Missed work or transportation costs.
If those costs are starting to escalate every year, it’s worth considering if the next major failure is the sign to move on to a new vehicle.
Don’t Overlook the Hidden Costs of Older Vehicles
Newer cars will always have more bells and whistles than older vehicles. But it’s the hidden bonuses that a newer car can provide that might tip the scales toward replacement.
A more modern car getting 30 miles per gallon (mpg), for example, could save you thousands of dollars per year in fuel over an older model getting just 18 mpg.
Safety is another concern.
Modern vehicles typically come with enhanced safety features, such as blind-spot monitoring, backup cameras and improved crash protection.
If your car is both more expensive and unsafe, the scales tilt toward getting a new vehicle.
The Bottom Line
On the surface, it might seem like driving a car until it completely dies makes the most financial sense.
But if you’re paying thousands of dollars per year just to keep it on the road, if you can’t sleep at night because you’re worried about safety, and if your gas consumption is off the charts, all of that financial and emotional stress might be telling you that it’s time to buy a new vehicle.
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This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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