Should you buy a new car, a used car or keep fixing the old one?

There is no one right answer. If you are independently wealthy and can spend as much as you want. Buy whatever you want, whenever you want, as much as you want. And by all means, trade that car in every few weeks or years so the rest of us can buy your car and not have to buy a new car or really old used one. 

The truth though is that less than 6% of car buyers keep their cars for less than 5 years now.  So much for that new car smell every few years. 

And just one other fact. It's not the wealthy people who buy new cars all the time. That's the fastest way to lose money, not keep it.

Here's what AutoMD.com, a site that rates car-repair services, found in its self-serving poll:

Drivers Keep Vehicles for Over 10 Years
Over 10 years - 78%
8 - 10 years - 15%
6 – 7 years - 4%
3 – 5 years - 3%

So for the majority of us, the 97% who can’t afford to keep a car less than 8 years, the real answer is do the math. Then use your head, not your heart. 

Math is unemotional. Numbers look like this (1,2,3,4,5) You should never buy a car based only on this :) or one day real soon you will look like this :(.

How long do you usually keep a car? 

The less time you keep a car the more likely you should only buy used cars. Cars depreciate on average 50% in the first 3 years.  By Year 5 they have lost another 12% on average . Even the cars companies that say they hold their resale value don’t do more than a few percent better.

So lets take a $20,000 car. 

After 3 years it can be bought for about $10,000 where the average car has 45k miles on the odometer. 

At the end of year 5 you would have 75k Miles on it and could sell it for about $7,600. 

The original owner paid $0.45 a mile and the second owner paid $0.08 a mile. The second owner probably had to buy a set of tires and change the transmission fluid and maybe even a battery but they still got one heck of a deal. And of course this is depreciation alone. The original owner paid more in sales tax, insurance and if you live in a State like Arizona you paid a lot more each year for license plates as well.

The $20,000 dollar car had $1,600 in taxes, $500 in license fees and probably an extra $200 a year for insurance. That’s an extra $2,700 dollars for the 3 years you owned the car. If you buy a $40,000 car just double the numbers. 

Now lets see how much in depreciation alone it costs to keep a car 8 years. $20,000 car. 8 years @ 15k miles a year = 120k miles. 

If it’s a basic Honda Civic you could  probably sell it for  $7,000 but lets go on the safe side.  If you kept that car in good shape I doubt that you couldn’t get at least $4,000 for it on a bad day. You’ve kept up on all the maintenance and haven’t beat it to death. $16,000/120,000 = .14 cents a mile it cost you to own that car.  

A car that you picked out, know the history on since day one and has served you faithfully and could even be yours if you want for the next 4 or more years.

Until now we have just covered buying new or used. How about fixing the old car?

You will hit a point where it cost’s more to fix your old car than it’s worth. That might not be the point where you stop fixing it though. Many people will tell you that when you have a repair that is costlier than what your car is worth that you should unload that car. 

I disagree. I have a 2002 Chevy Astro Van with 275,000 miles on it. The value is now between $400 on the days (very few) it’s not running and $3500 on the days it is. To find a suitable replacement is almost $10,000 and most of those have 80k miles on them or more. For that much money I can probably keep my Astro running for 10 more years. I do a lot of the work myself and it’s not my primary car. The only problem is my wife wont take it long distances anymore. O.K., neither will I. In the last 3 years it has broken down twice. That’s why we have AAA Plus. 100 Mile tow radius to wherever you want your car taken. That would usually be my garage. 

So have you decided what you are going to do? You might want to read the next couple posts and see what I have done. In my years have I have bought both new and used cars. I even keep fixing one with over 250k miles.