Category: Financial Planning

Should I Repair or Just Replace My Old Car?

Should I Repair or Just Replace My Old Car?

Nowadays, owning a car is not a luxury but a necessity. But with time, wear and tear is inevitable for even the best-kept vehicle.  And, sooner or later, the decision must be made whether to repair or replace the good old car.

Here are 10 points to be taken care of which helps to make the choice of keeping the old car or replacing it:

When repairs or maintenance costs are more than the car is worth. It is time to get rid of the old car and get a new one when it costs more on repairs or continual maintenance than the old car is actually worth. However if it is just a one big repair in a year which will keep the car running for some time, then it makes sense to keep the old car.

Probable future repairs.  It is better to get the car checked to spot looming problems and get advice on how serious it is. The more the repair estimates or forecasts climb, the closer one may be on deciding on a new car.

Safety. The best-maintained (old) cars tend to wear out given the potential risks of having a breakdown while driving. New cars today come equipped with a lot of standard safety equipments like advanced airbags, side airbags, better handling and brakes and optional active safety technology too. The old car may not have these safety features as it ages and may be then it is time to look at a new car as a replacement.

Fuel efficiency and mileage issues. The older the car, the less fuel-efficient it will be. Since it is lacking the engineering advances of newer advanced engines the car will continue to go downhill or require more and more extensive and expensive repairs like a new engine, transmission, or both.

Awareness about the worth of the old car. When deciding to go ahead and pay for repairs on old car, one should find out what it is worth it . A good rule of thumb is to employ the so-called “50-percent rule.” When repairs cost 50 percent of what the car is worth, it is high time to replace it.

Cost of a new car. One should be aware of how much the new car will cost and need to figure out how much money he/she needs to pay for it. The proceeds from the sale or trade-in of the old car may serve as a down payment to lower the amount needed to finance the new car. The payments for the next few months, say 60 months should be compared with the anticipated annual cost in repairs of the current car. Another rule of thumb is to consider replacing the car if yearly repair bills are more than 10 percent of the price of the new car one desires.

A point to remember is the cost of a new car is not the EMI alone. The long list consists of depreciation, taxes, higher insurance premiums, loan interest costs and more. Even if one is a business owner and can avail of depreciation benefits, the numbers still do not justify an upgrade to an expensive car.

Factor in insurance costs. One needs to calculate and find out the difference in annual insurance costs for the old car compared to a brand-new one. Sports and luxury cars cost more to insure than family cars. Insurance costs may be a factor to consider while repairing or replacing an old car.

Rebates and incentives. When the incentives offered by auto companies are huge it is definitely financially viable to replace a repair-prone older car with a new one. However, if  the old car has been properly maintained foregoing the decision to buy a new car is the right choice.

Lifestyle changes.  Lifestyle changes like increase or decrease in family size , longer or shorter commutes to work, the number of hours spent in the car etc should be taken care of while deciding on a new car.

When one had just enough of the old car.  A person may want something more appropriate for work purpose/business or just have yearned for a new car for the past few years and kept the old one for as long as he/she could. In this case, if the financial picture makes sense one should go for the new car.

In the end, it is a good thing to maintain the car well. Not only will it last a longer period and give one reliable service, but it will fetch a better resale value too !!

When is the best time to buy a car

  1. When one  is  financially prepared: Buying a car and servicing the EMIs can be quite taxing. Therefore, it is necessary to be financially prepared before buying a new car.
  2. During festival time: In India car manufacturers and dealers offer lucrative discounts and offers during the festival seasons like Diwali, Dhanteras and Navratras . In addition to reduction in the price of the car, car dealers also offer freebies and other exciting offers during the festive season. Further, banks also offer a lower interest rate or waive off processing and other fees on car loans during the festival season. Hence, it is a good idea to buy a car during the festive season.

  3. When it is time to change the old car: Many car dealers offer car exchange programmes under which they take the old car and give discounts on the new car. It usually happens when the car dealer needs to push inventory and increase sales towards the end of the calender year

  4. During month end: During the month end, many car dealer offer discounts and offers on certain car models and variants to meet their sales targets. However, if during a month, the demand for cars is high, dealers may not offer discounts during the month-end.

  5. During year end: Usually car companies offer big discounts in December to clear their car inventory before they launch new models in January.

Debalina Roy Chowdhury

Dilzer Consultants