This week Eric finished repairs to a 1998 F150. He replaced a starter, flywheel and clutch. Plus they got all of the fluids flushed bringing the maintenance up to date. They decided to keep the good old F150 rather than spend all the extra money on a new vehicle with items like more expensive plates, insurance, and deprecation.

We have seen people make the decision to trade a vehicle forgetting about all of the other expenses. Before trading ask yourself, am I ready for a new car?

Keep Your Old Clunker or Buy a New Car?

It may clang and bang, but your despised old car may be the best bargain around. Here are the facts on keeping the bucket-o’ bolts running and knowing when it’s really time to upgrade.

Let’s divide the car-buying universe into two camps: those who keep a car until it drops, and those who think a new car will change their lives.
To the first, a round of applause. There’s nothing short of taking the bus that’s cheaper than keeping a car until it crumbles into a pile of rust. Any car can be maintained to 200,000 miles without endangering your life and even a new engine is cheaper than all but the cheapest used cars.

To the second, another round of applause, because the 16 million or so new cars they buy every year instantly become used cars; and are soon available at a considerable discount to those in Camp 1. And a moment of silence, because a new car will change their lives in ways they never foresaw on the dealers’ lot.
If you’re in the drive-until-the-muffler-is-dragging wannabe, read on. We’ll look at ways to keep your car on the road longer and realistically weigh the costs of trading.

I’d Love to Keep My Old Car, BUT….

“It no longer fits my life.” You may have taken up gardening in a big way but still own a Corvette. You may feel nervous about taking your 98 Ford on a trip to Colorado. Your little Accord may be a tight squeeze when family comes to town. The answer to all: Rent. Why buy a gas-sucking pickup because you visit Home Depot twice a year or a $40,000 sport-utility because you take the kids skiing for a week at Easter? Even at $100 a weekend, renting is far cheaper than a car payment. Plus you get to drive the very latest without worrying about insurance, license tags, maintenance or depreciation. Or try swapping cars with a friend, return it gassed-up and clean (with the oil changed too), if the loan was more than a day or two. You want to be able to ask again next year.

“Those repair bills are really adding up.” Then do the math. Does the cost of repairs exceed the cost of a new car? A typical new car is $30,000, about $350 a month for five years after 20% down. A rebuilt transmission might run $3,000, a huge outlay in one chunk, but far less than the $4,200 a year you’d spend on new-car payments alone. If you can’t afford repairs twice a year, it’s unlikely you can afford a new car payment every month. In any case, anybody with a car older than three years should be tucking aside $50 a month for repairs and maintenance. With any luck, you’ll never use most of it and you’ll have a tidy sum to blow on your next car.

“I’m nervous about driving an older car.” Maybe little things are beginning to go: a new thermostat one month, a starter the next. You might simply spend $50 on an AAA membership and carry a cell phone, reminding yourself that even new cars aren’t immune to mechanical failure. The upside of frequent breakdowns is that you’ll get to know mechanics quite well. Find one you like. Flatter him. Pay your bills on time. And the next time he fixes your car, ask him to take a few minutes to see what else will need repair soon.

“The repair costs more than the car is worth.” A $2000 engine rebuild that keeps your 98 Toyota on the road still makes good financial sense. It’s at this point, however, that all but the flintiest drivers begin to think about upgrading. This brings us to our next question.

“Am I ready for a new car?” Your first step is to do nothing except write a check to yourself in the amount you’re thinking you can afford every month. Put aside a car payment every month for three months (long enough for at least one of life’s little emergencies to crop up).

To pass the time, make three phone calls:
1) the bank to find out what kind of rates they charge on loans to people with your credit history
2) your insurance company to ask the rates for comprehensive insurance on a model you think you’d like to buy
3) the local DMV to see what registration fees cost and licensing would cost

At the end of three months, ask yourself these questions:
1) How much did it hurt? If you skimped at all on other bills or shorted the amount of the payment, you are not ready.
2) What would I have left over to pay for insurance and licensing fees each year?
3) Would I pay this much every month for the car that’s in my driveway already?

Sooner or later, every new car becomes an old car, and you’ll feel about the next car just the way you do about your old clunker.

Would I rather have the cash? A typical car payment of, $350, adds up to more $1000 in just three short months. Perhaps you’d prefer to get a tan in Mexico and limp along with ol’ Betsy another year. Could I continue to save for another year and simply pay cash? Five grand would buy any of hundreds of reliable used models. Save for two years and you’re in new-car territory, if your old car will fetch a few thousand.
If the craving for a shinier car hasn’t passed in three months, at least you begin the shopping process with a few months worth of car payments and a more realistic idea of the hit your wallet will take.