After my husband and I said our “I do’s,” we walked through a shower of rice and hopped into his black Mini Cooper S. It’s where we shared our first moments alone as a married couple, so when the time came to sell the car, it was a bit difficult. But I think it was one of the best financial moves we ever made – at least, that’s how I feel when our 1998 Audi isn’t in the shop.
I’ve been on both sides of this debate for a while now. I’ve been a poor young professional hovering slightly above bounced checks and ramen noodles who could not handle even the slightest unexpected car repair bill.
I’ve also been the debt-free fanatic who doesn’t care what kind of car I drive, as long as I have no car loans. So which is a better financial move: an old, paid-for car that requires more maintenance, or a more dependable, new, financed model?
The Cost-Effectiveness of Driving an Old Car
The financial wisdom of keeping or purchasing an older model car comes down to one thing: cost. But the costs associated with this decision are numerous.
Not only are there explicit financial considerations, such as monthly payments, maintenance, and gas mileage, but there are also intangibles to consider, such as safety features and professional demands. Underestimating even one of these factors could lead you to making the wrong decision, and ultimately end up costing a bundle.
Repair Costs vs. a Monthly Payment
Whenever monthly used car maintenance expenses exceed an estimated monthly auto payment, it could be time to stop pouring cash into your old set of wheels. You’d likely be better off shopping for a newer vehicle with less wear and tear.
So how do you determine what a car payment would be? According to the National Automobile Dealers Association, the average price of a new car sold in the United States is $28,400. When I plug that into the Yahoo! Monthly Loan Payment Calculator and use the national average interest rate of 5.73%, I’d be paying $927 a month for three years. Expand that to a five-year payment plan and the monthly payment drops to $587 – but I’d end up paying an additional $1,887 in interest fees by paying over five years. Either way, buying a new car is expensive.
However, if you’re spending more to maintain your old car, you will probably want to look at buying new. After all, it’s not likely that maintenance and repair costs are likely to decrease as the car ages.
How Much More Will You Pay for Insurance and Registration?
Car insurance and registration fees are generally higher for a new car. In my case, the annual tax payment on our 1998 Audi is about $85, while the bill for our 2007 Honda Element is four times that amount.
If you have a loan (and most new car owners do), you’re required to carry comprehensive insurance. Older, less expensive vehicles won’t necessarily require as much coverage, and coverage comparable to a new vehicle is often much cheaper.
How Do You Feel About DIY Repairs?
Florida resident Mike Arman is strongly in favor of used vehicles. The 65-year-old has owned around 150 cars, ranging from a Fiat 500 to a Porsche, and only two have been brand new. He says more people might see the value of buying used cars if they could get comfortable taking care of some of the repairs and DIY car maintenance themselves.
Arman explains that while chain car maintenance outlets charge approximately $150 to replace front brake pads, the job can be done for much cheaper. The needed parts are only $20, and often come with a lifetime warranty, which means you receive free pads each time you need a new set.
The job takes only an hour the first time. “You need a pair of gloves, some jack stands, and a willingness to get a little dirty and perhaps sweat a bit,” says Arman. Doing the work yourself saves you around $130. You may even just purchase the parts on your own and take them to a self-employed mechanic to do the work to cut repair costs.
It’s true that all cars will require repairs now and then, but they can mount quickly with an old car. About a year ago, our Audi was in the shop repeatedly and ended up racking up $2,000 in repair bills. We came close to trading the car in for a newer model, but decided to hold onto it. I think that was a good move. In the last year it has not needed any repairs.
Do You Take Your Car in for Regular Maintenance?
A Maine man’s 1990 Honda Accord topped one million miles this fall, a milestone Honda celebrated in October by giving owner Joe LoCicero a new 2012 Honda Accord. It was the first milestone of its kind on record for the Japanese car manufacturer, so they set up MillionMileJoe.com to explain how LoCicero managed to keep his wheels chugging for so long.
According to the website, Joe followed his owner’s manual and maintenance schedule to the letter, checked and switched the car’s fluids regularly, and never allowed his oil to fall below a quart low. He also replaced the fuel pump, both cooling fans, and the radiator twice, though he certainly got a lot of miles for the investment.
Joe LoCicero proves that regular maintenance is a way to add value to your car. It will help you avoid costly repairs and add years of life to your vehicle. But if you tend to procrastinate and skip regular maintenance, driving an old car may not be the best decision for your budget.
How Much Could You Save in Gas?
Is your old car a gas hog? Newer cars may get better mileage, which can save you a lot of money over time.
Check out the gas mileage calculator at MPGomatic.com to compare the mileage of your current car to a newer model vehicle. Just enter the current price of gas, the miles per gallon, and the miles driven to find out which car will save you more at the pump. To really get more distance for your dollar, consider purchasing one of the most fuel efficient cars.
Do You Make More Money By Driving a Nicer Car?
For some professionals – such as lawyers or salesmen – a car can be part of your brand. That means driving a nice-looking vehicle could potentially boost your credibility in the eyes of some clients.
However, personal finance expert SE Day warns consumers that there is no such thing as job security. Day counsels people to never spend more than 22% of their net pay on the cost of a new vehicle. Also, consider that when you finance a vehicle, roughly $17 to $29 per $1,000 of your loan will be added to your monthly payment for finance charges.
Some people use safety as a reason to buy a new vehicle, regardless of cost savings or an added expense. While it’s true that newer vehicles are equipped with additional safety features, many older vehicles have them as well.
For instance, the Federal Motor Vehicle Safety Standards have required dual-front airbags in all models since 1998. But it is important to do your research when buying an older model to ensure you’re getting a car with good safety records.
It may be wise to do some soul-searching before you begin the car hunt. Are you really buying a new car because it’s more reliable, or are you more concerned with what others may think of you? Try to find a model that you know will be more reliable, rather than being concerned with how impressive it looks.
If you’re willing to put in the time and effort to maintain a car, especially if you’re a DIY type, maintaining or buying an older used car is probably the best financial move for you. However, if you find that buying new is the best choice, you’ll want to research the pros and cons of leasing a car vs. buying new. Either way, do your research and you’ll end up with a vehicle that fits your needs and your budget.
Do you drive an older car to save money? How has it held up so far?
(photo credit: Shutterstock)