Is it a good time to replace my used car?

Question

We have a 2005 Chevy Impala with 105,000 miles that we purchased in 2011. We have made many repairs such as replacing the transmission, repairing the radiator, heating and AC system, thermostat, belt, rotors and brake pads, alternator, gaskets, and we are now facing an $800 repair for the fuel tank.

The average cost of repair has been about $1470 per year since the beginning of 2015 if I include the pending $800 cost to repair the fuel tank. The transmission disproportionately weighted the average since it cost $2000.

Since we have a good credit rating, at a cost of about $1470 per year for repairs for this car, does it make sense to get rid of this car and either buy or lease a new comparable car? I am asking about this from a cost perspective and ignoring any other advantages that a new car may offer.

We own the Impala in full: no payments.

Answer 1

While ultimately this is a matter of opinion, the major factors in this decision are the cost of what you'll replace it with and how important reliable transportation is to you.

$1470/year is not an incredible sum to keep a car on the road. Any newer car will also have maintenance and repair costs, higher insurance cost (most likely) and either require a significant cash outlay or new monthly car payments.

You've also hit one of the biggest repairs in the transmission, a rebuilt transmission should last at least 30k miles. So barring complete engine failure you could have a few more years of relatively low total cost of ownership. I'd probably have a mechanic inspect it and give you an idea of how much you might have to spend in the near future or how likely the car is to last you a while longer.

Then it's just a matter of deciding if the extra costs of something newer are worth it at this point, or if it makes sense to keep your paid off car kicking along.

Leasing is typically not a great option financially, buying a 2-3 year old used car tends to be the sweet spot, many of which still have time left on the manufacturers warranty which doesn't cover everything typically but can help with the big ticket items.

Answer 2

Here's one option - figure out how much of a car payment you can afford, and start saving that today. Take your repair costs out of that fund. Continue saving until you have enough to and buy a used car with cash.

I would not lease. Leasing is a way to make expensive cars affordable for a short period of time, but you get nothing else in return (it is essentially renting the car).

Answer 3

Cars are certainly a money suck, but sometimes the cost to the individual is well hidden. The most common and costly example of this is the loss of value when one purchases a new car. One can expect to lose about 5k per year (minimum) when one purchases a new car. More would be lost if that purchase is financed. In comparison, 1500/year is "small potatoes".

IMHO it is foolish to buy a new car without significant assets. The growth of those assets counteract the depreciation one experiences when owning a new car. A decent rule of thumb would be a 500K in invested assets to buy a fairly common car like a Corolla or Accord.

IMHO it is also foolish to obtain a loan for a car. Sure some people play the interest arbitrage game where they could pay cash but opt to finance because of a low teaser rate. If you have the full amount in savings and can earn more than the car loan, I guess I am okay with it, but that situation is mostly uncommon.

So how much money do you have to buy a different car? That would really dictate the answer. If you have 10K saved, I would fix your car for the $800, sell it and buy something newer. If you have less, then I would be tempted to keep your current car. Buying something for less may cause you to inherit a different set of problems. You might come across a really good deal for something less and in that case I might purchase that car. However, as a general rule, I would want to move up in quality, save some more, and then repeat the process.

And as others have said, leasing is an even more costly way to own a car then just buying new with a loan. Again it is just a way to disguise the cost of driving something fancy.

You could be normal and just go out and get yourself a car loan and a car. However, remember that normal is broke. Most people do not have money. One of those reasons is the financing of new or nearly new cars.

Answer 4

If all you care about is the math, this is a relatively simple matter to work out.

First, you need to estimate your annual expenditure on your current vehicle, including insurance, fuel and repairs. Let's imagine $500 for insurance, and your $1,470 for repairs. Fuel we'll estimate at 10,000 miles, 22mpg, and $2.87 per gallon, which is $1,304 per year. The total cost is therefore $3,274 per year.

Then, do the same for the replacement vehicle. Let's assume slightly higher insurance ($600), but fewer repairs ($300). Let's say you get a 25mpg vehicle this time, giving a fuel cost of $1,148, and a total cost of $2,048 per year.

The new vehicle should therefore save you around $1,226 per year — however, you have to pay for it!

So estimate how long you think the new vehicle will last. Let's estimate 100,000 miles. So if you do 10,000 miles per year, and the new car has 30,000 miles on the clock, you can guess it will last seven years. If such a vehicle cost $7,000 that's equivalent to $1,000 per year. If you need to borrow to make the purchase, you'll have to add on interest, of course.

In this scenario, spending $1,000 this year to save $1,226 is certainly worthwhile. In fact, if the new vehicle costs up to $8,500 (7 x $1,226), you'll be better off.

There's obviously lots of estimates involved, but that's the nature of trying to predict the future. When I'm buying a new car, I create a spreadsheet with all this data, including on the existing car, before making my decision. It's quite quick to calculate once the spreadsheet is set up.

Answer 5

Call your insurance agent and see what Total Loss Claim would pay out. If the vehicle is worth more than the yearly cost of repairs (in your case $1470) suck it up, pay for the repair, and start saving for a new car.

If your insurance company can't give you a firm number of a Total Loss claim, The Kelly Blue Book value of the vehicle is likely a decent estimate (but no promises).

If it is not worth at least $1470 to the insurance company, then you will need to buy another car. The reason you should buy/lease/finance another car is simple. If you total your current car in an accident on the way home from the repair shop, and the insurance company doesn't settle your claim at $1470 or more, then you are now $1470 - settlement dollars poorer and car-less.

Always make sure yearly repair cost are not close to or more than the value of your car

P.S.

$1470 sounds a bit high for average yearly repairs. Being car-less also cost in either convince (i.e you and your SO have to carpool to and from work), or actual cost of renting a car. Be sure to factor these cost into the $1470 number. Especially if your job requires frequent travel by car, it might be time to buy a more reliable car for that reason alone.

Answer 6

You have two separate questions here: "...get rid of this car and either buy or lease a new comparable car..."

Getting rid of this car would seem to be a definite yes. I find it hard to believe that ANY car, especially one with such low mileage, would require the level of repairs that you've experienced. Other than the normal maintenance items like brake pads, I'd be surprised to encounter one or two significant problems in a decade. Things like replacing transmissions & fuel tanks just shouldn't happen, period. So it seems you have a lemon, and junking it is the best option.

Now as to getting a COMPARABLE new car... Well, other questions here deal with the economics of new cars, so I won't repeat them. But in getting your new vehicle, look at information on reliability. Then get a Honda, Toyota, or perhaps Mazda or Subaru.

Answer 7

Spreading out the cost of a car is a good idea, because most of us don't get paid the cost of a vehicle in a single paycheck. However, paying interest on a depreciating asset isn't a good move from a financial perspective. Leasing generally only makes sense for businesses who can get some tax advantages and smooth out their costs, though a lease is not a good value for the leasee.

The best way to buy a car from where you are today, is to make payments to a car fund now. This fund is your car budget. You save until you can afford the car you need or want. The reason this makes sense is most visible when you do the math.

Car loan scenario:

• Car: 3 year old sedan with low miles in excellent condition
• Cost: $15,000
• Down: $0
• Term: 5 years
• Interest: 5%
• Payment: $283.07
• Total Cost: $16984.11

Car savings scenario:

• Start: $0
• Monthly: $283.07
• Term: 5 years
• Interest: 1%
• Total Value: $17,408.54

There will probably be comments about inflation and in the loan scenario you are driving a nicer car sooner and for longer and you can get more for your current car now, etc. Those points have some validity. You can partially offset inflation with an investment other than a simple savings account. The first 5 years are actually the hardest and least beneficial. The larger value of the savings approach is seen when applied over a lifetime rather than just a 5 year period. Once you complete the first cycle, you're selling a 7-8 year old car and buying a 2-3 year old car every 5 years for about $2500 less each cycle.

What also shouldn't be overlooked is the greatest value of the savings approach: life will happen during the next 5 years. What are the chances that the average individual will face some type of financial reversal, such as a job loss, need a major home repair, suffer a temporary disability or have significant medical expenses in any given 5 year period? If you are saving, you can simply put that on hold until the situation is resolved. Worst case, you can draw on those funds to resolve the crisis. If you are making payments, you will probably have to sell the car or have it repossessed. The car savings insulates you to a degree from financial misfortune, which means you are more financially stable and have greater peace of mind.

Answer 8

You asked in a comment to another answer, "But how do I know that any other used car won't have the same issues I am having now? Meaning, why would it be an advantage to get another used car over the used car I have now?" (Regarding buying used instead of new.)

Let me address those questions in inverse order. The advantage(s) would be in either improved mileage, improved reliability, or improved safety. If you investigate carefully and still don't believe you can achieve any advantages, then continue driving your current car!

To ensure your next car is more reliable than your current one, you must first start by finding an honest and reliable mechanic. The process for doing that has been documented elsewhere on the internet.

Some references are:

• https://www.consumeraffairs.com/news/how-to-tell-if-youre-dealing-with-an-honest-mechanic-041413.html
• https://www.wikihow.com/Find-a-Good-Auto-Mechanic
• https://www.consumerreports.org/car-repair-shops/where-to-go-for-car-maintenance-and-repairs/

I didn't find a reference here on StackExchange; I'll try to find and post that later.

You will have your mechanic inspect any car that you plan to buy. More on that later.

Next, learn how to go about the general task of buying a used car. The consumer expert, Clark Howard, recommends buying cars that are about 2-3 years old. I have had good results using that criterion. (His recent article is short and to the point: https://clark.com/cars/how-to-buy-a-used-car/.) You should read more than one guide or article on how to do this as well.

Plan on using a combination of the advice of your [honest, strongly competent] mechanic and the information you glean from sources such as Consumer Reports, to select the kind of car to purchase. Learn what to look for in terms of ruling out a specific vehicle for purchase. Then, when you've found a car that passes your inspection, and is the right price, have your mechanic inspect it, comprehensively end-to-end.

In the past, I've sometimes had to provide an "earnest deposit" or escrow to convince the seller I was serious about requiring the inspection, and wasn't about to steal their car. (Providing contact information for you and the mechanic helps, too. The seller can independently verify these.)

The inspection generally costs me $70-100. I live in the SE United States; your cost may vary according to your location. You want the mechanic to do more than just "look it over." You want an extensive, detailed inspection that provides the following info: pass/fail (buy/no-buy), safety and drivability issues (if any), apparent quality of past maintenance, upcoming maintenance and anticipated costs. A good, honest and competent mechanic should be able to provide you with all that information, allowing you to make an educated decision.

Generally, you won't take a candidate car to your mechanic unless you're convinced it will pass the inspection. Be willing to walk away from a sale, however, if the inspection indicates anything other than "this is a great car!"

Hope this helps!

Answer 9

As already mentioned, leasing is unwise for the average consumer. Leases are cheap and easy to get into, but over-all more expensive than buying, no matter how you finance the purchase. Leases are good options for businesses because they can write off the total cost of the lease vs depreciate the capital cost. Since this trade-off doesn't exist for a consumer, neither does the benefit - and remember - a lease adds another party to the transaction who is seeking to make a profit - at your expense.

Buying any car, new or used, is a roll of the dice when it comes to unexpected repair costs. While a new car is more expensive to buy, new car warranties shield you to some extent from the cost of unexpected repairs, but unexpected repairs are less likely in newer cars. Older cars can get more expensive to repair for a few reasons:

• More things reach end-of-life and have to be replaced (e.g. water pump, alternator, starter, radiator, A/C compressor/evaporator/condenser), so the cumulative cost of all these things starts to add up.
• Some things like the transmission can go for 200,000 miles, 300,000 miles, or more without repair, or can fail in much less time, but when they go, they are expensive repair items. Same can be said for internals of the engine. Bottom line is that the probability of expensive repairs goes up as the vehicle ages.
• Replacement parts can become scarce for older cars, making them more expensive.

As a sweeping, subjective generalization, I would say that most cars, if properly maintained, will give about 15 years of service before repair costs become un-economic. So as a vehicle approaches that age, I'd be preparing myself financially to replace it. That threshold will depend on the make and model of car, and the life it has lived and, as I said, is highly subjective.

Answer 10

I would like to suggest a different way of looking at your situation. Why do you need a car? In my case (no reliable public transportation during the hours I work), I need a car to get to work and make the money I need to continue living. For that, the car needs to be reliable. If I have to miss work frequently because my car broke down, my car isn't serving its function (letting me make money) and needs to be replaced. Then it only becomes a matter of choosing a new car or a used car based on cost, reliability and features.

You asked:

Since we have a good credit rating, at a cost of about $1470 per year for repairs for this car, does it make sense to get rid of this car and either buy or lease a new comparable car? I am asking about this from a cost perspective and ignoring any other advantages that a new car may offer.

How often has it made you take a day off work? PTO isn't free; it's time you could have used for something else, so I'd charge it at my hourly rate at least and factor that in. I don't have enough information to give you a solid answer, but I hope this tells you what you need to figure it out.

Answer 11

Your question simply has two parts, both of which are easily answered

(1) Buying a new car is so far from the realm of fiscal sanity, that you can just totally dismiss it.

It's not even in the ballpark of reality - forget it.

{Before going even any further, note that the insurance you must have on a new purchased/leased will crush your financial life.}

{On that - it is perhaps best to dismiss any answers on this page which don't mention the insurance issue on car purchases/leasing - one of the primary reasons "new cars are insanity".}

My rough calculation is always that: sure, as an absolute luxury for high earners, it's fine to throw away money on a new car. In short, don't even think of a brand-new car unless your family income is over US$350,000 a year.

(2) Regarding your current car. It's only 13 years old and has no mileage.

With modern technology (and this is incredible) cars as new as yours and with as little mileage as yours, drive exactly the same as a brand new car which just rolled off the assembly line.

{For example, one of our cars is a 15? yr old Toyota minivan which has 250000? miles. I paid a few thousand $ for it. It drives literally exactly the same as a new Sienna just off the assembly line. Exactly the same - literally EXACTLY as reliable, smooth, fast and quiet. The only advantage of me walking in to a dealer and buying a new $50,000 Sienna would be that .. it has been washed. Siennas are perhaps the best-engineered vehicle ever, but this applies to all modern vehicles - we live in amazing times for cars.}

Indeed as a curiosity, an acquaintance bought a recent model Sienna for $25,000 and it happened to need a $1500 repair in the first year. Our one needed a $600 repair in the same year. Recall that my one is utterly, absolutely, perfectly, identical in terms of speed, reliability, quietness, smoothness and luxury crap. Hence, friend threw away $23,000 (could have bought my one for $2000) and (by bad luck) $900 on repairs. Admittedly, friend's one is, or at least was for a few weeks, extremely clean. (The dealers wash used cars before they sell them.) Also, friend happened to scratch the back of his one. My one has a scratch, but it's a smaller scratch.

So for better or worse you can dismiss the idea that another car you buy will be "generally better".

1. Your car drives as-new, the next one you buy will drive as-new, and
2. the cost of repairs is unfortunately down to luck.

It is true that some cars are "just bad luck" and you seem to be forever repairing them.

So, it could be that you are unfortunately spending a bit much each year on the Impala - you're spending say 2000 a year whereas if you have a "good luck" car there's only 500 or 100 a year in repairs.

That will happen. It's random. Unfortunately there is just nothing you can do about that.

Unfortunately too, you suffer the "better the devil you know" factor. If you dump your car and buy another similar car (for say $4000 .. whatever), maybe it will never have a repair, or maybe something will go the first week. Unfortunately, it's impossible to guess.

Purely FWIW as a "car guy guess", I personally would dump this Impala, and buy some new used car (for, say, 4000 - 4500 bucks).

But many, many people would say "800 for a fuel tank, so what? pay it and you have a new fuel tank!"