Purchasing a car is another of life’s big expenses. The average new car cost over $30k in 2018 according to Kelly Blue Book. Now, I think we all know that the cost of a new vehicle greatly depends on the type you get and the features on the “must have” list. But no matter the price point, purchasing a car is a big decision and commitment. It only makes sense to drive the car as long as possible to get the most value for your money. However, there does come a time when it is more cost effective to buy another car.
The topic of buying a new car comes to mind today because a coworker of mine has been telling me stories about all the car repairs and associated costs for her vehicle that has 290,000 miles on it. That is not a typo internet friends, I really did say 290k miles.
In all honesty, it is not up to me to tell anyone how to spend their money, but as a though experiment it is interesting to look at when it makes more sense to buy another car.
Given the average price of a car and average interest rates, a car payment can be anywhere from 350-500 dollars per month. The price is going to depend on if you buy new or preowned. With many companies selling certified preowned cars, there are a lot of good deals to be had.
Let’s take my coworker as an example. In the 8 months I have known her she told me about that she spent at least $3,000 on repairing the car and it still has problems and overheats easily. Additionally, the car recently failed a safety inspection so more money needs to be poured into the car.
When I did a quick internet search the same car with comparable miles was valued at only $2,000. Therefore, in these 8 months she has already spent more on the car than the book value. Add in the safety issues, it might just be time to purchase a new car, in theory. Seriously, what price do you put on safety?
Back the numbers, if we look at a somewhat average car payment of $400 per month, if the cost of repairs exceeds $4,800 per year it might be time to buy a new car. In the case of my coworker, the newest batch of repairs will put her very close to this number and the year is not over yet.
The most interesting thing about the whole story is that if you ask the coworker what she has on her budget for transportation cost or car costs she will tell you emphatically that she has no car payment, it is paid for. She does not set aside money for maintenance costs so each time something comes up it is always a surprise, an unexpected hit to her monthly budget, and always a stress. If you get real about what it really cost to keep the car on the road it might be less stressful to just budget for the monthly payment.
In my case, I have not had a car payment in 6 years but I do set aside money for regular maintenance so I can make the car last as long as possible. I also think it is a good idea to set aside a bit each month so that when the time comes for a newer car, I can put a chunk down and reduce the time I have to make car payments.
The conclusion to this thought experiment in my opinion is, if your car is costing your more in repairs than a car payment it makes more sense to get a newer, safer car.