Should You Keep Your Old Car?
By the editors of Kiplinger's Personal Finance | Updated January 2015
If you really want to really save money on a new car, don't sell your old one.
Here's the single most reliable way to save money on cars: Keep your clunker and drive it till it drops.
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Unfortunately, at some point the statute of limitations runs out on this particular money-saving tip. The more the car is in the shop, and the wider the oil slick grows on your usual parking spot, the more you may think seriously about replacing the old chariot with something, well, nicer. Meanwhile, the money you save by not buying a new car tends to be eaten up by the growing cost of keeping the old one on the road.
The question is: Where's the tipping point? How long does it take for the higher cost of purchasing a new car to be justified by the growing cost of maintaining the old one?
Longer than you think. The actual numbers are less important than the overriding message: Those loan payments stack the deck against a new car. You could encounter much higher repair costs than assumed and still come out ahead by keeping the old one. In the absence of a gigantic repair bill -- you need a new engine, for example -- an old car is almost always cheaper to own than a new one. You can close the gap a bit with a couple of strategies if you decide to purchase a new car.
Pay cash. This will reduce your total expense by eliminating the interest on the loan. but in order to make a fair comparison you'd also have to take into account what else you might have done with that money and the interest you might have earned if you hadn't spent
it on a car.
Pay a lower interest rate. A lower rate helps. But even if you eliminate all the interest by scoring a 0% rate on a new purchase, the old car would still be cheaper to own than the new one.
Buy a used car. The problem is that, unless it is a certified used vehicle, a used car doesn't come with a new-car warranty, so you take on the same risks of unanticipated high repair bills that you already have with the car you’ve got. "Certified used" or "certified pre-owned" used cars are often two- or three-year-old previously leased cars. They’re offered by local dealers and feature warranties that extend beyond the initial "when new" coverage.
A certified vehicle has a warranty that is backed by the original vehicle manufacturer. Thirty-five makers have certified pre-owned programs. Terms differ, but a true certified pre-owned program will include at least a 100-point inspection of the car. Most programs:
* include only vehicles under five years old;
* have mileage limits under 100,000;
* use only vehicles that have had no major body work from prior accidents;
* "refurbish" the vehicle after a multistep inspection (110 to 300+ inspection points); and
* provide an extension of the new-car warranty.
Certified pre-owned cars are usually more expensive than other used cars. But the benefits may outweigh the cost—for many buyers, the peace of mind alone is enough to justify the extra money.
But let's face it: When all is said and done, most of us don't base decisions on a detailed accounting of the costs. Comfort, style, image, safety, convenience and reliability -- these are the forces motivating the vast majority of Americans who decide to buy a new car. So be it. The important thing is to choose the right car and get to the best possible deal .Source: m.kiplinger.com