Should You Repair Your Car or Buy a New One?
Things to Consider
Similar to being asked whether someone should buy or rent a house, I received another question: “Should you repair your car or buy a new one?”
My 2005 Honda Civic just reached 100,000 miles and I have my car scheduled for a thorough inspection soon. I’m sure there will be repairs required, but until the diagnostic check is complete, I won’t know how much I would need to spend to keep my 19-year-old car running.
Coincidentally, a client of mine asked: “My car is a 2009 Honda CRV with around 120,000 miles. It runs fine, but it needed a lot of expensive repairs, i.e., complete front and rear suspension and differential rebuild, fix AC/heater, new battery, regular oil change, etc. The total cost is $7,000.
“A newer used car would be at least $22,000.
“I decided to repair it instead of getting a newer one. What would you have done?”
I told him that I would first estimate how long the $7k of repairs will last before facing another major repair. Of course, this is guesswork, but I would make the best educated guess that I could.
So, let’s say my guess is 12 months. The $7k outlay will translate to $583 per month. Let’s call this number the car’s life extension cost.
If I were to buy a newer used car instead of repairing the old one, what is the monthly depreciation cost before potentially spending on a major repair similar to the one I am facing? Again, I’ll have to make an educated guess.
If my guess would be that the newer car costing $22k would be good for no major repairs for 4.5 years, the monthly depreciation cost of the newer car would translate to $407 per month. If the monthly depreciation cost is less than the life extension cost of the old car’s repairs, just like in this example, I’d easily buy a newer car.
Of course, if for example the repairs on the old car would last me 24 months ($292) and the monthly depreciation cost of the newer car is $407, then I would repair the old car.
If both numbers were close, I’d then include transaction and insurance cost estimates to get a more precise picture. If it was still close, I’d probably upgrade the car, so I’ll have a nicer car to drive.
Other Questions to Consider
- Does the new (or newer used) car have warranties?
2. How do the technologies of the newer car compare to the old car? Even if the cost of the newer car is higher, it could be a better value depending on the features and safety profile of the new car.
Conclusion
Everyone’s car circumstances and financial picture are different. Additionally, everyone’s emotional or psychological tendencies are different. For me, a car is simply a vehicle that gets me from point A to point B. For many others, a car means so much more. In the end, you know your situation better, and there are pros and cons for each choice. As long as you’ve done the math and research, I’m confident you’ll make the right decision.
Hopefully, this has been helpful. If you know anyone who will have a major car repair soon, please share this post with them.
While I’m not a car expert, I live and breathe stock investing every day, so if you’re interested in a thorough portfolio “diagnostic” review, please contact us.
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Earl Yaokasin, CFA, is an investment manager who runs WealthArch Investment Services in Pasadena, CA. He is a fiduciary with over twenty years of experience, and whose entire personal portfolio is managed by the firm in the same investments as the company’s clients. His firm focuses on value investing, similar to Warren Buffet’s successful approach, and disciplined strategies designed to create growth with downside protection, enabling clients to move steadily towards their life goals and aspirations with confidence.