There’s just no way to spin it: auto repair can be a costly endeavor. Repairs can easily work their way up well into four digits. And sometimes that takes the price of the repair above the car’s resale value.
When that happens, it’s natural to consider whether you’d be smarter to simply cut your losses, trade in your old car, and buy a new model. But it turns out, from a strictly financial perspective, that’s usually a terrible idea.
That’s because a car’s resale value is really only important if you’re in the business of buying and selling cars. For the rest of us, a car has just one purpose: to get us from here to there. The value of one car over another is meaningless.
Even worse, replacing that older car to avoid spending a few bucks on a repair will end up costing you a bundle in the long run.
Buying A New Car
Let’s look at a real-world example: John has a 15-year-old car with a book value of about $1800. He just learned he needs a new transmission at a cost of about $3000. So, rather than spend “more than the car’s worth,” he decides to trade his car in on a new one.
He finds a nice new car for about $20,000. Of course, after the additional fees and taxes, that comes to about $24,000. They offer him $1000 for his trade — after all, it needs a transmission! — bringing his total to $23,000.
He puts $3000 down — exactly what the repair would have cost — and gets a zero percent car loan for 60 months to cover the balance.
Which means that, to “save” $3000 on the cost of a repair, he now has a monthly payment of about $340 for the next five years. Even if we forget about the down payment, he’ll pass the repair cost in just nine months. But at least he didn’t spend that $3000 to fix the transmission!
That’s not all: Since his new car is worth more than the old one, his insurance goes up… about $160 more a month than he used to pay. Which means he’s going to spend that $3000 again in additional insurance in just over 18 months.
And let’s not forget the worst part: Five years down the road, after he’s paid off his loan, his car will only be worth about $10,000. He’ll have lost about $14,000 in value over his initial purchase and have spent another $9000 or so on additional insurance, for a total of $23,000… all to save the $3000 it would have cost him for a repair.
“Saving money” must mean something different in John’s neighborhood.
Auto Repair Services
So, before you consider “saving money” because your car “just isn’t worth” the price of the repair, remember: New or old, your car’s only purpose is to get you from here to there. Driving a new car may boost your ego, but it’s no way to save a buck.
Your local Cottman center is here to help you make those important decisions about your car. They’ll be happy to show you what your car needs and help you choose the right strategy for your situation.