There is much more than sticker price to consider, especially if you plan to make payments:
Payments: The average new car owner takes out a four-year loan. Consider an average $20,000 car ($18,000 sticker price), $3000 down and 10% interest. The payments would be $430/month.
Insurance: Yes, your insurance will go up if you buy a new car. If you are replacing the average car on the road today (7 years old, 90,000 miles and no collision insurance) you can expect your insurance payments to double. Approximately $55/month total with a spotless driving record.
License plates: License plates on a new car in Minnesota would be more than $300/year. You’re paying about $45 for plates on a 10 year old car in Minnesota.
Maintenance: Guess what? New car warranties don’t cover maintenance. Oil changes, filters, spark plugs and other maintenance items will still cost you about $350/year (skip this & your warranty is void).
After the warranty: Most new car warranties will expire during the second year of ownership. From then on you will have to pay for anything that goes wrong in addition to routine maintenance (Keep in mind you still have more than 2 years of payments left).
Total extra cost for a new car: About $5800/year in basic costs over your old car plus a $3000 down payment. Total extra cost in the first year of ownership? $8800.
SOME OTHER THINGS TO CONSIDER…
Accidents: If you’re unfortunateenough to get into an accident with your new car you should know that your car will be worth less than you owe on it well into the second year. Insurance pays based on “market value” not replacement cost. For example, if you total your car in the first or second year you could get paid thousands of dollars less than you owe on it.
Used cars: You may think a slightly used car is the answer. Why would someone get rid of a perfectly good, slightly used car? Keep in mind that the reason someone gets rid of a car is usually that it’s been so much trouble they can’t trust it or it’s never been the same since an accident or flood.
Trade in value: If your present car needs so much work that it’s worthless in trade then you will have to come up with a substantial down payment. Usually 15% or about $3000 in the case of our average car.
Extended warranty: Most new cars have extended warranties available. These almost always cover only “major” failures such as engine and transmission overhauls. These failures are very uncommon and coverage can be denied if you can’t prove you’ve performed the proper maintenance at the proper intervals.
WHAT’S WRONG WITH YOUR PRESENT CAR?
Let’s compare costs:
Engines: Engines are expensive to replace but compare the cost of a new engine ($2500 to $3500) to buying a new car ($3000 down + $5800 in payments, added insurance and license plates = $8800 the first year alone).
Transmissions: Same comparison but transmission repairs run from $500 to $2500.
Rust: Not much can be done about rust except panel replacement. Some cars can get so rusty that unrepairable structural weakness can occur. On average however, you can expect to spend $3500 to $6500 to restore a badly rusted body (still substantially less than buying that new car).
Previous accident: Has your car been in a bad accident and just never been the same since? Not much you can do here either. Just keep in mind this is another very popular reason people get rid of slightly used cars.
Lots of little problems: Rule of thumb is sit down and do the math. It will almost always be more cost effective to repair your car than to replace it.
WHEN IS IT TIME TO REPLACE YOUR CAR?
Trust: Do you trust your car? When you get in it to make a long trip, or just go to work, do you wonder if you’re going to make it or not? No matter how much money you put in it? These are emotional thoughts but very valid reasons to get a different car.
Structure: Is the car structurally sound? Did it have a bad accident once? Are there body or frame problems that can’t be repaired? Mechanical problems are repairable but there are some structural problems that can never be made right.
Compatibility: Is this the right vehicle for you? If you have a two-door car with a major problem and you have three or four kids and a dog, you may have found the right time to get that station wagon or van you wish you had.
Safety: If safety is a major concern for you it may help to know that, in general, the new cars are safer than the older ones. Air bags and anti-lock brakes are available in almost all new cars. You should know however these systems are extremely expensive to repair if something was to ever go wrong with them (an A.B.S. pump can cost over $3000 just for the part! A car with two deployed air bags could cost $8500 to put new bags in!).