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Nerd Wallet: Should you fix up or break up with your car?

Two auto technicians look up into a wheel well of a car at the Fat City German Car service shop in Seattle. (Associated Press)
Two auto technicians look up into a wheel well of a car at the Fat City German Car service shop in Seattle. (Associated Press)
Philip Reed

You’re looking at a $1,200 repair estimate for your ailing car when an ad catches your eye: a brand new set of wheels for a mere $450 a month.

At first, dumping your old car might seem like a no-brainer – and you can’t help picturing how good you would look in that new car. But automotive experts say you’ll almost always come out ahead – at least financially – by fixing old faithful. There are, however, other important considerations when deciding whether it’s time to say farewell.

Costs of buying new

“Even though the repair cost might hurt, you really have to think about buying a new car as a tremendously more expensive proposition,” said Jim Manelis, head of direct lending for Chase Auto Finance.

At the very least, for a reliable used car, expect to spend a minimum of $2,000, plus tax and registration fees, said Mark Holthoff, editor at Klipnik.com, a community website for used-car enthusiasts. Depending on the severity of your car’s problems, “you can buy a lot of repairs for that kind of money,” Holthoff said.

Of course, there does come a point when it isn’t worth pouring money into a beater.

Where’s the breaking point?

“Start with the scale of the repair,” Manelis said. “Is it a $1,200 fix or is it a $5,000 fix?” Then, look up the current value of your car using an online pricing guide like Kelley Blue Book.

When repair costs start to exceed the vehicle’s value or one year’s worth of monthly payments on a replacement, it’s time to break up with your car, according to automotive site Edmunds and Consumer Reports, the product review site. As an example, say you’ve already spent $1,500 on repairs and now need a new engine for $3,500, and instead you could get a new or more reliable used car for $400 a month ($4,800 a year).

Beyond repair costs, Consumer Reports says to factor into your decision the savings from a new car with better fuel efficiency and the new car’s loss in value over time. Manelis also suggests thinking about your current car after repairs. Once it’s fixed up, what will it be worth and how long will it continue to run reliably?

To help answer the question of fixing a car or buying a new one, do a cost-per-mile comparison with the “Fix-it or Trade-it” calculator created by the Automatic Transmission Rebuilders Association.

However, Ron Montoya, senior consumer advice editor at Edmunds, said there’s another equally important consideration: peace of mind. “If breakdowns become frequent and you feel unsafe on the road, that’s the time to replace it.”

Deciding what to do

To make the best decision for your situation, consider the pros and cons of both options.

Fixing your car

Faster than shopping for and buying a new vehicle.

No change in insurance costs.

The car’s history is known.

You won’t waste time and money advertising and selling your car.

But your repaired car might soon need more repairs.

Buying a newer car

Purchase can include warranties and sometimes maintenance.

Recent cars have advanced safety features.

Younger cars are more reliable.

You’ll stop wasting time schlepping to the repair garage.

But a new car loan is a long-term financial commitment.

If you decide to fix up

“It’s imperative to have a mechanic that you trust” before you move forward with any repairs, Holthoff said. For example, the service department at a dealership might be more interested in frightening you with repair bills to get you to buy a new car.

Once the car is purring again, Holthoff said, continue driving it long enough to make up for the cost of the repairs. Later, if you decide to sell, you can do so with confidence once the car proves itself reliable again, and you’ve reaped the benefit of the repairs.

If you decide to break up

Even if you decide to part ways with your car, you’ll have to get it running again or sell it as-is for less money. If you can, make the repairs, then repay yourself after you sell the car.

“Honesty is the best policy,” Manelis said about selling a car with issues. Get an estimate for repairs and show that to a prospective buyer, then tell them you’re willing to reduce the price of the car by the amount to fix it.

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