Every car has a point of diminishing returns. What you do from the day you drive your car off the showroom floor and whether you think of your vehicle as an investment or as an expense affects the decisions you make about replacing it.
You should not say, “Well, I don’t want to put that much money into my car.” If you’ve maintained the car well, you should expect to get 200,000 to 400,000 miles from it. When you buy a vehicle, you have to understand that how you maintain it today is going to determine its condition tomorrow. With proper servicing, your point of diminishing returns is going to be a lot farther down the road than if you neglect it.
We have seen vehicles with as few as 75,000 miles need an engine (between $5,000 and $10,000) simply because the oil was not changed properly.
It is always better to maintain a car correctly from the beginning so that the point of diminishing returns is much farther out than it otherwise would be.
Let’s say you have a six or seven-year-old vehicle. Perhaps it needs a timing belt, or has blown a head gasket. It is going to cost $1,500 to $2,500 to repair a vehicle you have been driving for six to seven years. You are just not sure you want to pay that much to get it fixed, so you consider buying a new car. Here’s a calculation that may help you decide.
Larry Burkett was a well-known financial advisor who started Crown Financial Ministries. He would tell you that the cheapest car you will ever own is the one in your driveway. What he means is that by having the car maintained and having everything in good working order, you will spend less money than purchasing a newer vehicle.
When we talk about making a major repair on a car, a way you can try to crunch the numbers is to ask yourself, “What’s it going to cost me over the next year?” Let’s say there is $3,000 worth of work that needs to be done on your vehicle and you have decided you are not going to repair it. Instead, you are going to go buy a used vehicle.
Even if you bought an inexpensive one, around $10,000, there’s still the down payment, then the calculated monthly payments if you finance. Of course, depending on the state, you might also have to pay sales tax on that vehicle. In Arizona, you will pay sales tax if you buy from a used car dealer. The vehicle licensing tax will typically increase due to the car being of higher value. Plus, you’ll need to figure an almost immediate depreciation, as well. Your insurance will increase because, if you finance the car, you’ll have to have full coverage insurance, not to mention it is typically more valuable than the one you are replacing. Calculate your total cost over the next 12 months for that used car and compare that to the cost of making repairs on the one in your driveway.
If you apply this same principle to buying a brand new car, these dollar figures are going to go up exponentially. Therefore, it almost always makes more sense to fix your existing car than to buy a new one.
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