It is a question most vehicle owners ask when facing a significant car repair. If you keep your vehicle long enough, even if you maintain it perfectly, the day is bound to come. You will need to replace or rebuild your engine, get a new transmission, replace a clutch, or make another similar repair. It is going to be expensive. So, you will have to consider whether it is a better investment to pay for the repair or replace your vehicle.
You might be surprised to find out that the answer depends on more than the cost of the repairs you need. Several factors should impact your decision. To understand them, you need to talk to your mechanic. Ask them to assess other repairs you may need soon. Armed with that information, you can better understand short- and long-term costs.
Short Term Costs
The short-term costs for a repair can seem very expensive. It is easy for a significant repair to cost several thousand dollars. That is easily a few car payments, which can tempt people to start thinking about a new car.
You should also include related costs. Will you need to rent a car? Have you completed other significant repairs? How long will this repair last? Does your mechanic think you will need other maintenance in the next year? All of these factors help determine your short-term costs.
Short-term costs for purchasing a car include the down payment plus TT&L. Often, the short-term costs are much lower than the short-term costs of repair. That is especially true if you lease a car instead of purchasing it.
Long Term Costs
In the long term, buying a car is almost always more expensive than any major repair. However, you are getting a new vehicle. So, its long-term costs may be spread out over a greater period.
Plus, you must consider the ongoing costs of repairs. What will continued repairs cost? Will you need to rent a car? Could an unreliable vehicle have other financial expenses, like missed job opportunities?
If you are getting a new car, you look at more than the payment. Will your insurance costs increase? What about the gas prices? Are you considering a domestic electric or plug-in hybrid electric vehicle? If so, will you get tax credits that can benefit you?
Under Warranty
First, we need to consider newer cars currently under warranty. Ideally, when you get a new vehicle, it is trouble-free. If you have problems, they should be minor, and the dealership should fix them. What happens when that is not the case?
Many people think that lemon laws protect them. However, lemon laws only apply if your car repeatedly has the same problem. According to the law, a vehicle with various issues is not a lemon. So, you do not have recourse under those laws.
While your vehicle is under warranty, you may not think much about the cost of repairs. That is even more so if your dealership provides loaner vehicles. However, it is something you should consider.
If you have a newer vehicle that needs repairs, you may want to cut your losses. Selling it while still under warranty lets you get it fixed for free. Then, you can get its maximum trade-in value. That way, you are not stuck with a low-quality vehicle after the end of the warranty.
Auto Accidents
If you have been in an accident, the insurance company will assess the damage to your car. The insurance company will pay for repairs if the repairs cost less than a set percentage of the car’s fair market value. If your insurance company is responsible, they will pay for repairs minus the amount of your deductible. If the other party’s insurance is responsible, they will cover the total cost of the repairs.
You do not have to complete repairs if you do not owe money on your car. Instead of getting the car repaired, you can choose to take the repairs’ cash value. You could apply that amount to a new car instead. That is rarely a better financial decision than repairing your vehicle. That is because if an insurance company pays for repairs, the repairs are substantially less than the vehicle’s fair market value.
If the repairs cost more than a percentage of the car’s fair market value, they will total it. Totaling means that they declare the car a total loss. It impacts the vehicle’s title. The insurance company essentially purchases the car from you. After paying off any liens against the vehicle, you get the balance of its fair market value. Then, you can buy another car.
However, if you want to keep the vehicle, you can purchase the totaled vehicle from the insurance company. Then, you can use the settlement amount to complete repairs on your car. Since many insurance companies offer generous amounts for repairs to your vehicle, that may be a more affordable option than buying a new vehicle. However, you want to have your car examined by a trustworthy body shop. If there is frame damage, you may experience problems even if the vehicle is meticulously rebuilt.
Reliability
It can be frustrating to deal with a car that needs repairs. Sure, you have the expense. However, you also have concerns about reliability. Even if you get a repair, do you trust your aging vehicle to get you where you need to go?
You might think that the reliability question is the end of the conversation. It is not. Not everyone needs a car that is ready for a cross-country trek. Many people need cars to run errands in a small area. Many households have multiple vehicles. So, when you look at reliability, you also have to look at your needs.
How important is it for you to have a reliable car? To answer this question, think about where you travel. What are you doing? Do you usually have passengers? How old are the passengers? What types of roads do you drive on? Breaking down by yourself on a side street a few miles from your home is very different from breaking down with small kids in the car on a busy freeway.
How inconvenient will it be for you to deal with future repairs? Repairs are never convenient, but there are degrees of inconvenience. Do you have another way to get to work, school, or other commitments? Can you afford a rental or rideshare? What are the consequences of being late or missing something?
Lots of factors go into determining importance and inconvenience. For example, walking a mile in Houston in the spring is annoying. Having to walk a mile in Houston in the middle of the day in August can be dangerous. So, think of all of those factors.
Reliable Estimate
Before you panic about repair costs, you should get an estimate. That may seem obvious. However, many people are convinced they need a significant repair when the fix is minor. Even if it is a major repair, you may not know the cost unless you recently had the same repair on the same make and model vehicle. You need to have a reliable estimate as the foundation of your decision.
Reasons to Repair
Repairing your car is usually cheaper in the long run than replacing your vehicle. The average pay for a new car is $700. The average payment for a used car is $525. If you drive a larger vehicle like an SUV or a truck, your monthly payment can easily be close to $1000.
When you look at those numbers, even expensive repairs look affordable. A significant repair like replacing your transmission could cost up to $5000. That seems like a lot. However, it is less than a year’s worth of car payments.
Newer cars usually mean higher insurance premiums. You might think of this as a negligible amount. However, you can expect your insurance to increase by 10% or more if you buy a newer vehicle. You also have to pay costs for TT&L. Make sure to include those figures in your financial considerations.
You might like your car. One of our clients received a sports car from her parents in high school. It was her dream car. It remains her dream car. She has not found another car she likes better, so as long as we can keep the vehicle in safe working condition, she will always opt for repairs.
Finally, buying a new car is inconvenient. The car-buying process is tedious. Few dealerships seem to respect your time. Plus, with the chip shortage impacting inventory, many dealerships are adding “fair market adjustments” to dealer MSRPs. For some vehicles, dealerships are asking as much as $10,000 over the vehicle’s MSRP. It is a terrible time to buy a new car.
Reasons to Replace
The number one reason to replace your car is peace of mind. New vehicles should not, and usually do not, have mechanical problems. If you have had a breakdown somewhere, especially dangerous or inconvenient, you might crave that reliability. While a good mechanic can probably make your vehicle reliable, peace of mind has value.
Plus, if you have a new vehicle, it is under warranty. If it does have issues, you do not have to worry about paying for it. While your car payments may be higher, they are predictable. You should not have any associated repair costs. You can even get used vehicles with extended warranties. Sometimes the warranties for certified used cars are even better than those for new cars. That makes your costs for vehicle ownership predictable every month.
You may get cool new features in your car. Auto manufacturers have improved mileage in their vehicles. They are also offering hybrids, plug-in hybrids, and electric vehicles. Most newer cars provide Apple CarPlay and Android Auto. They also have standard safety features that most older cars lack.
Right now is a great time to sell your used vehicle. Because there is a shortage of used cars, you can get top dollar for your trade. That is true, even if your trade-in needs repair. That is a dramatic change from previous times when a car needing a repair would have tanked your trade-in value.
Finally, new cars are fantastic. They have that fresh car smell. They are clean and crisp. The exteriors are free from dents and dings and daily wear. You get all of the newest gadgets. Today’s entry-model vehicles have more features than top-of-the-line vehicles from just a few years ago.
When Not to Repair
We have given you general reasons to repair or replace. Now, we need to talk about when repairs are a terrible idea. At some point, you will hit the spot when you are throwing money away to repair an aging vehicle.
Consumer Reports suggests that if the cost of the repair is greater than 50% of the car’s value or if the repair will cost more than a year’s worth of car payments, you should replace the car instead. We think that is a good starting point for the discussion. However, it is just a starting point. You should discuss the vehicle with a mechanic. If you have an expensive repair, but the rest of the car is in good shape or has already been replaced or repaired, these numbers may not apply.
For example, one of our clients purchased a used car for their teen for several thousand less than the fair market value because it needed repairs. They were able to handle some DIY repairs and had us address a few more complex repairs. The total cost of their repairs and upgrades was more than half what they paid for the car. However, combined with what they spent on the car, it was just over the fair market value for the vehicle, and the car was in much better shape than most cars its age. So, use the Consumer Reports’ guideline as a starting point.
Something that is not flexible is safety. Can your mechanic make your vehicle safe to drive? Can you afford those repairs? If the answer is no, it is time to replace the car.
Are car repairs causing you problems? Breakdowns are never convenient. However, suppose your vehicle is breaking down enough to make you unreliable. In that case, you either need to complete all potential repairs or buy a new car. Once a vehicle gets to the age where it is breaking down on a monthly or weekly basis, doing all of the work to keep it from breaking down may be very expensive. However, it does not have to be. Older vehicles often have problems because of relatively inexpensive parts. Hoses and belts are made of rubber and degrade over time. They can cause breakdowns. You could give your car new life by replacing all your degradable parts.
Consult Your Mechanic
That is why it is so important to have a mechanic you can trust. When you have an honest mechanic, you can rely on their answers. They can tell you what your repair will cost and what repairs or replacements you need to make soon. They will also give you an honest opinion about when it is time to replace your car.
