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There is yet another consideration. When cars get old - say, 15 years old - unless they're rare or collectible, their private-party resale value tends towards the negligibly low. The value varies only slightly with their mechanical condition. An ill-maintained jalopy might be $2000, and a cream-puff $2700. The implication is that a dying old car could be replaced with a similar car from Craigslist, but in much better shape. The "new" car could of course be a complete disaster, if there are hidden problems; or it could be a major savings.
I'm reasonably mechanically inclined, but lazy. Generally I can diagnose problems, but allow them to fester. The consequence is that even preventative-maintenance on old cars, such as the typical timing-belt/water-pump swap every 60K miles, isn't necessarily justified. It might be more cost-effective to neglect maintenance on a cheap old car, watch it die, and then replace it with a similar cheap old car where the previous owner did the timing-belt job. You just need to have enough mechanical-knowledge to smell a lemon.
So the choice isn't limited to keeping one's old car vs. buying new. The additional choice is going through a string of cheap old cars, replacing them as they fail, instead of doing extensive maintenance.
All this talk of car payments. If you keep your car long enough, you can save up the entire amount to buy another car brand new, all cash.
Why would someone invest say $20K cash in an investment guaranteed to lose money?
I would rather finance for the lowest rate I possibly could, and leave the rest of the cash invested in something earning north of what I am paying in interest.......
I used to shake my head when I had clients back in the day with $10K in credit card bills at 18% and would be asking me about investments......how about you kill the investment losing 18% per year first......
If you have an aging car (say over 10 to 15 years old) and the risk of high repair bills is increasing. At what piont would you trade it in, instead of continue keeping it?
I traded my 10 year old car in when we had a baby and I knew I couldn't tolerate being stranded on the side of the road.
I also have a very long commute and again cannot tolerate being stranded on the side of the road.
If your tolerances and circumstances are different, then you might could keep the car longer.
All this talk of car payments. If you keep your car long enough, you can save up the entire amount to buy another car brand new, all cash.
Hm.
Ok.
Take a 30k car. Bought in 2002.
So, for 10 years, averaging the cost with repairs, tires, etc...probably around $3500 a year.
That's assuming cash paid or zero percent interest.
Averages out to cost of ownership being about 300 bucks a month.
Let's look at a lease. You can get a new car every 3 years. No repairs, likely no new tires ever, and there are a ton of cars you can get for about 300 bucks a month.
Soooooooooo...hmmmm...new car with less hassle and pain and uncertainty every couple of years or some deluded mindset that you're saving thousands and thousands of dollars?
I'm not advocating car payments or even leasing for everyone, but you have to keep a bought car a looooong time to actually save any money.
All this talk of car payments. If you keep your car long enough, you can save up the entire amount to buy another car brand new, all cash.
That might be a bad idea. Many car dealers offer low financing, like 1.9%. If you have $20,000, it's better to put it in stocks earning even the modest 7% return than paying it all for a car while you can get a much lower financing rate.
Hm.
Ok.
Take a 30k car. Bought in 2002.
So, for 10 years, averaging the cost with repairs, tires, etc...probably around $3500 a year.
That's assuming cash paid or zero percent interest.
Averages out to cost of ownership being about 300 bucks a month.
Let's look at a lease. You can get a new car every 3 years. No repairs, likely no new tires ever, and there are a ton of cars you can get for about 300 bucks a month.
Soooooooooo...hmmmm...new car with less hassle and pain and uncertainty every couple of years or some deluded mindset that you're saving thousands and thousands of dollars?
I'm not advocating car payments or even leasing for everyone, but you have to keep a bought car a looooong time to actually save any money.
Your problem is you bought a $30K car. If you bought a $22K Accord or Camry, your monthly payment would be around $250 for five years, and additional 10 to 15 years car payment FREE.
Your problem is you bought a $30K car. If you bought a $22K Accord or Camry, your monthly payment would be around $250 for five years, and additional 10 to 15 years car payment FREE.
Why single out the Accord or Camry? You can do the same with any kind of car.
If you have an aging car (say over 10 to 15 years old) and the risk of high repair bills is increasing. At what piont would you trade it in, instead of continue keeping it?
This is my thinking:
Multiply you potential car payment by 12 (months). If your yearly repairs do not exceed that amount with your old car you are saving money.
Example: The last car payment I had was $500/mo which is $6000/yr. My annual repairs have yet to exceed that amount. The car used in this example is 20yrs old.
If you have an aging car (say over 10 to 15 years old) and the risk of high repair bills is increasing. At what piont would you trade it in, instead of continue keeping it?
When either (a) a single repair would cost more than the car would be worth after the repair, or (b) The car has developed a habit of requiring frequent repairs costing more than 15-20 cents per mile on average.
In either case, you spend less over the long run by replacing the car than by repairing it.
Last edited by ncole1; 03-06-2013 at 07:40 PM..
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You can do the same with any kind of car.
