Should It Stay, Or Should It Go?

By Tawny McCray

January 22, 2010 5 min read

Deciding whether to keep that old clunker you've been driving around for years or buy a new car is a huge decision. There are many factors to consider, including repair costs, size, safety, gas mileage and insurance.

Automobile writer Jerry Edgerton wrote in a Home & Family Finance Resource Center article that older cars can be costlier than new cars because they tend to get lower gas mileage and may need major repairs involving the engine or transmission.

"If trouble signals like blue smoke from the tailpipe or a slipping transmission seem to be signaling repairs ahead that could cost as much as the car is worth, don't wait. Sell it or trade it as soon as you can," he wrote. "Another sell-it-quick signal is if rust spots have just started appearing on the body but are not yet too bad."

He added that older cars also may not have enough safety equipment, such as rear-seat air bags.

Edgerton wrote that before you decide to upgrade to a new car, consider what you would need to put in its place. He said that if a family decides to replace a second car with limited use -- one that they drive to run errands and the like -- they could look for a relatively inexpensive replacement, such as a slightly newer model of the car they have.

"Let's say you're driving a 10-year-old Dodge Caravan minivan," he wrote in the article, published in 2008. "You could move up to a seven-year-old 2001 Dodge Caravan for about $4,350 buying from a private seller."

Edgerton wrote that if you have a 2- or 3-year-old car that you would like to trade for a new car, you should go over the finances carefully and factor in not only loan payments but also insurance and gasoline costs. He said that though a new car with better gas mileage could cut gas bills, the cost to insure that new car likely would go up.

Edgerton said that if you're considering getting rid of your car and still have more to pay on it, you should find out the payoff number on your car loan. Then go to the used-car section on Kelley Blue Book's Web site (http://www.kbb.com) and find out what your car would be worth if you were to trade or sell it. If you still owe more on the loan than the car is worth, consider driving it a while longer. He quoted Jack Nerad, executive editorial director and market analyst for Kelley Blue Book, as saying, "People who keep their car until after the loan is paid off and thus get to drive for a year or two payment-free find that it is a good way to take a financial breather."

Joel Berry wrote an article on the blog Get Rich Slowly about why he chose to keep his then-13-year-old car, a 1995 Geo Prizm. He said that even though he could afford to get a new car, he actually saved money by keeping his old one. He said he paid $250 a month for the Prizm and paid it off in 1999.

"Over nine years, I've gone 108 months without making a payment," Berry wrote. "At $250 a month, that's a savings of $27,000."

Berry wrote that in the time he's had the car, he's spent less than $2,000 in repairs; that's excluding the costs of oil changes and tires because he figured those to be normal wear and tear, necessary costs for any car.

Berry said in the 2008 article that he planned on keeping the Prizm for another four years and in that time will put $300 a month away to use for future car repairs and a down payment on a new car. Assuming his Prizm will need more repairs as time goes on, he calculated that even if he has to pay $1,000 a year in repairs -- for a total of $4,000 in the four years -- he should have $10,400 set aside for his down payment.

In the end, when deciding whether to get rid of your old car, it's important to do your research, weigh all the pros and cons and make a decision based on what financially makes sense for you.

Edgerton concluded: "If the cost and hassle of repairs on your old car are mounting, you have little choice but to replace it. But if you just feel that you would like a change, remember that every day you drive that old car probably is a day you're saving money vs. what a replacement would be costing you in overall expenses."

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