Got an old car that is giving you problems? Scared that your junker is going to leave you stranded? Well, then you might be struggling with the question of when to let go of the old car and get a new one. It is a question I often see people struggle with, and one that people seem to make decision based on emotion or to justify their desire for a newer car.
Deciding that your current set of wheels is more hassle than it is worth isn’t an easy decision. I am not even sure that there is a correct answer, just like most personal finance questions it is a very personal choice. But let’s look at the top few reason people ditch their old cars two quickly.
- The biggest mistake is to quickly ditch a car at the first major repair. If the car is in reasonable shape, it will almost always be cheaper to fix the car. From the outside it also seems that they are using the repair bill to justify our underlying desire to drive a better car. Evaluating our materialistic side and keeping it in check is a big key to making a wise decision.
- We need to dispel our irrational fear of the car leaving us stranded. I have had it happen a few times, and it is not that big of deal. Today in the age of cell phones, you won’t be sitting helpless for hours upon end. You will be inconvenienced for an hour or two, but it isn’t the end of the world. There are personal factors like criticality of your job or income on the car that do make being stranded a lot worse.
- People look at the future payments rather than the total cost of the situation. Paying $2000 a year in repair bills and a little hassle is still cheaper than getting a five year loan shiny new or used car. A $15,000 loan at 7% interest for 4 years will cost you almost $1000 in interest and $3300 in payments just in the first year.
- The last big issue is lack of preparation. If we know our car is nearing the end of it’s life, it is extremely helpful to add a new car item to a monthly budget. If you can afford a $400 a month car payment, start saving that amount and you will be able to buy a $5,000 car for cash in a year.
If you don’t think a $5,000 car will last, think again. My Japanese made Nissan Sentra was 7 years old and had 50,000 miles on it when I bought it for $5,500. 6 years later I am still driving it without ever having faced a major repair.
Sometimes we need to let go of our cars, but often we sacrifice some financial success and prematurely rush into a new car purchase.