Buy a New Car or Keep the Old One
Classical financial advice is to run your existing car to the ground as cars keep you poor. However, what about all the repair costs and the stress about the car being broken when you need it the most?
It would be nice to upgrade your ride and have the security of a new car. So, what do you do? Should you buy a new car or keep the old one? The answer depends on you. A new vehicle will be more expensive, but how much is your peace of mind worth to you?
A New Car Is Expensive, But the Old One Is Not Free Either
A new car costs a lot due to losing value immediately as you drive off the lot. Maintaining your current car is not free either.
In both cases, there are common operating and maintenance costs like fuel, insurance, parking, and tolls to consider. Both cars also suffer from depreciation (the loss of value over time). Your current vehicle would have experienced more depreciation because it is older.
There is a financial case for buying a new car, even with the high price tag. Cars are becoming more fuel-efficient with each model year, meaning less money is spent to keep the tank full. Thanks to the warranty, you may not have to pay for repairs to your vehicle for several years. Sometimes a new car can even cost less to insure due to all the safety technologies and thus smaller liability.
The Cost of a New Vehicle vs. the Cost of Repairs
Generally, repairing a car is less expensive than purchasing a new one. If the cost of repairs exceeds half of the car’s worth, it may be better to buy a new one. It can be difficult to gauge the predictability of an old car. Breakdowns can frequently happen and without warning on different parts of the vehicle.
It can cost time, money, or both whether you take the car to a mechanic or do the repairs yourself. DIY is not free. You still have to pay for parts; you will need the tools and the garage. You will be spending your most valuable resource (time) on these repairs. Instead, you could have used the time to increase your salary potential and cash flow. DIY repair of your car won’t make you wealthy!
Safety and Peace of Mind
An unreliable car is not a safe car. An older car can break down in potentially dangerous locations, like train tracks or along a highway. It might break down when you must get to work or pick up your kids.
A newer car is less likely to fail randomly. Not worrying about auto malfunctions is enough to give you peace of mind.
Real-Life Example (Keeping the Old Jeep Wrangler vs. Buying a New Grand Cherokee)
Here is a case study of the three considerations. It works through the cost of a new car (Grand Cherokee) against keeping your current one (an old Jeep Wrangler). The calculations include the three most common purchase options: leasing, financing, or paying upfront with cash.
You can follow along with the calculations in the video by downloading a PDF version of this worksheet:
You should also check out our Used vs. New Car Financial Calculator. Fill out the information, and the results will appear at the bottom of the page. The calculator will help you get a better estimate of the costs for each option.
So, should you buy a new car or keep the old one? You need to make your choice based on your priorities. What you should understand is that keeping an old car may not really make you wealthy and sometimes the extra cost of the new car is worth it in your peace of mind.