As the driver of one very old Honda who is now commuting almost 1.5 hours a day because of a new job, thoughts of getting a new car have crept into my head. After all, a new car will be more comfortable, with more up-to-date features, and will be more resilient to the more than 300 miles of driving I do a week. But, driving an old car usually makes economic sense. Older cars cost less to insure, and they are more likely to be paid off.
After asking myself a series of questions, I've decided that keeping my old car is the most prudent course of action. If you are considering buying a new car, these questions can help you as well.
How to Decide If You Need a New Car
Is the car reasonably safe and reliable? An old car won't have the latest and greatest safety features, but it should be a generally safe and reliable model. Don't settle for a vehicle that can't safely transport you from point A to point B. My trusty Honda runs, and runs quite well for a car of its age (14) and mileage (227K). As long as I maintain it properly and it doesn't get into an accident (knock on wood), it should run for at least a few more years. It's got a few dings and scratches here and there, but on the whole I think it looks perfectly neat and presentable.
Is your old car paid off? How long have you had it paid off? The longer you drive a car that's been paid off, the longer you can divert the money you would've spent on car payments into something else -- say, a retirement fund, or savings for a big vacation. My car is paid off -- thank you, Dad, for gifting me this car after college graduation. The freedom from car payments does wonders for my month-to-month cash flow.
How many repairs does your old car require per year? Old cars have higher repairs, but that doesn't necessarily make them a bad deal. Because my car has reached senior status, I am very careful to do all scheduled maintenance and to make any repairs quickly (my mechanic must love me). Fortunately, so far the repairs have been manageable and reasonable in cost. I spend around $1,000-$1,500 a year in repairs, or around $100 a month.
Are you really sick of your old car? Or can you drive it for another year or two? The shiny new car smell will cost you. I am definitely not sick of the car, in fact, I have an emotional attachment to my car. It's true! I never named it or anything, but it's the car I grew up with. And it's been very good to me, so far. I would like to drive it for at least three more years.
How much money have you saved for your new car? Some personal finance experts advocate paying cash for a car. That might not be feasible for many people, but it's a good idea to have a big down payment so that you can minimize the length of your loan.
Relevant Links:
How to buy a used car [Squawk Fox]
New or used car? [You have more than you think]
Why I bought a new car [My Next Buck]