The Math Breakdown
A car lets you commute to work, drop off the kids at school, and pick up groceries. However, owning one can be costly. After years of loan payments, it feels good to know you don’t have to keep paying for a car. But over time, your car wears out. From oil changes to a new battery, these individual costs can add up quickly. So, how do you know whether to keep your car and pay for ongoing repairs or buy a new one? In this article, I’ll explain when it makes more sense to buy a new car instead of spending the money on repairs.
Cost Comparison: Old Car vs. New Car
Here’s a quick overview of how much it would cost to keep an old car with $2,500/year in repairs versus the payments, depreciation, insurance, and taxes on a newer vehicle.
| Factors | Keep Paid-Off Car | Buy New Car |
| Annual Repairs | $2,500 | $400 to $1,200. Minimal costs with new parts and warranty coverage. |
| Monthly payment | $0 | $750 on average |
| Annual Depreciation | Minimal and stable. | 20% to 30% in the first year. 10% in the following years. |
| Auto Insurance | Lower premiums because depreciation lowers its value. | Higher premiums because replacement costs are higher. |
| Sales Tax | $0 (already paid) | High, one-time tax |
| Registration | Low recurring fee | Initial registration fee |
The Math Breakdown
When you’ve paid off your car and repair bills keep adding up, it can feel expensive. However, before you decide to switch to a new car, let’s compare these repair costs with the full cost of owning a newer car.
For example, let’s say your existing car is fully paid off and your mechanic has quoted you $2,500 a year in maintenance and repairs. Divided by 12 months, that’s about $208 a month.
Now, let’s say you’re looking to buy a $35,000 car with a $7,000 down payment and a five-year loan at 6%. Assuming a sales tax of 8.5%, and title & registration fees are $450. Your monthly payment would be $541.32 (or approximately $6,500 a year).
Let’s take this a step further to look at two more calculations.
Total cost of ownership (TCO):
Depreciation (10% a year): $3,500 x 5 = $17,500
Total loan interest: $4,479.11
Insurance: $2,200 x 5 = $11,000
Maintenance and repairs: $1,000 x 5 = $5,000
Fuel: $2,500 x 5 = $12,500
Sales Tax (8.5%): $2,975
Title and registration: $450
Total: $53,904.11
Therefore, within a five-year period, the total cost of ownership will be $53,904.11.
Five-year annual cash outflow:
| Expense | Year 1 | Years 2–5 (per year) |
| Down payment | $7,000.00 | $0 |
| Loan payments ($541.32 × 12) | $6,495.84 | $6,495.84 |
| Insurance | $2,200.00 | $2,200.00 |
| Maintenance and repairs | $1,000.00 | $1,000.00 |
| Fuel | $2,500.00 | $2,500.00 |
| Sales tax | $2,975.00 | $0 |
| Title and registration | $450.00 | $0 |
| Total cash outflow | $22,620.84 | $12,195.84 |
Five-year total cash outflow:
$7,000 down payment + $32,479.11 loan payment + $11,000 insurance + $5,000 maintenance and repairs + $12,500 fuel + $2,975 sales tax + title and registration $450=$71,404.11
Note: The $32,479.11 total loan payments and the $541.32 rounded monthly payments differ by a few cents when multiplied. Also, this scenario is for illustrative purposes, and your numbers will be unique. You may have an older car that could need an extensive repair down the road. Or a newer car may potentially have better fuel efficiency or lower insurance premiums. The key takeaway is to compare the total cost of replacing your car with the cost of keeping it. When you run the numbers, you may find that spending $2,500 may be a smarter choice than buying a new one.
Use our Car Financial Decision Calculator below to use your specific numbers and calculate whether you should keep your car or buy a new one. To use the calculator:
- Enter information about your current paid-off car
- Enter the numbers for your new car purchase, including price, down payment, trade-in-allowance, fees and the loan financing terms
- The calculator will determine which is the better option and provide a breakdown of the costs of each
Compare your current repair costs against the full financial reality of acquiring a new vehicle.
1. Existing Paid-Off Vehicle
2. New Vehicle Financing & Costs
Annual Financial Outflow Comparison
| Financial Factor | Keep Paid-Off Car | Buy New Car |
|---|---|---|
| Financed Loan Amount | $0 | $28,000.00 |
| Monthly Payment (Excl. Tax/Fees) | $0.00 / mo | $541.32 / mo |
| Annual Loan Payments | $0.00 | $6,495.82 |
| Annual Maintenance & Repairs | $2,500.00 | $400.00 |
| Annual Insurance | $1,800.00 | $2,200.00 |
| Annual Depreciation Loss | Minimal / Stable | $3,500.00 |
| One-Time Upfront Costs (Tax + Fees) | $0.00 | $3,425.00 |
| Total Year 1 Financial Impact | $4,345.00 | $12,595.82 |
Keep in mind that the vehicle brand, model, type (electric, hybrid, or gas), and age can affect your actual annual repair costs. To get a better idea of maintenance costs for your specific car brand and model, check out CarEdge’s car maintenance calculator.
You can continue using your car if it’s still reliable. It’s also worth keeping for longer if the repairs are occasional rather than constant. Be sure to inspect your car to check how the main components are functioning. If it has rust or is compromising your safety, it’s worth switching to a new car. Ultimately, it makes sense to let go of your old car and buy a new one when annual repairs exceed the total annual cost of a new car.
How To Extend The Life Of Your Car
In the United States, the average lifespan of a car is about 16.58 years. So, if you still have time to decide whether to repair or trade in your car, you can take proactive steps to extend its lifespan and prevent costly repairs. Or perhaps the new car you want isn’t available yet, and you still need to drive your current vehicle for the foreseeable future.
First, follow the vehicle’s maintenance schedule, such as changing the air filter, rotating the tires, and checking the coolant system. You may want to procrastinate, but keep it well maintained so small issues don’t grow into bigger, costlier problems. This will keep you safe on the road and make your car more reliable.
Shop around and find a dependable, affordable independent mechanic, since dealerships tend to be more expensive. When you build a good relationship with a local repair shop, they can get to know your car and give you advance notice if it needs a major repair.
When We Replaced Our Old Paid-Off Car
My husband and I drove a Toyota Matrix for over a decade. It was a nice compact car, and we even drove across Canada with it. However, when we had a child, we felt like we needed more legroom and trunk space. We reviewed our annual repair costs. We saw from the maintenance schedule that costs were going up each year. So, it made financial sense to spend the money on buying a new car instead.
After doing some research, we decided to upgrade to a Toyota RAV4 Hybrid. The hybrid option worked well for us, since we could fill up on gas and rely on the electric battery. We traded in our old car at the dealership, which helped cover the cost of the new one. Overall, we’re pretty satisfied with this SUV, and we hope to keep driving it for many years.
FAQ
Is car insurance cheaper when you have a used car?
Possibly, but not always. Generally, used cars cost less to insure because they’re worth less. Still, premiums also depend on factors like your location, car model, coverage type, deductible, and driving history.
Are local mechanics cheaper than dealerships?
Oftentimes they can be. Independent repair shops usually have lower overhead and labor costs than dealerships. Keep in mind that you may still want to go to a dealership for recalls or repairs that require special equipment or parts. It’s wise to get quotes from both service providers before you decide where to have your maintenance and repairs done.
When should you stop spending money on an old car?
A general rule is that when repair costs exceed the cost of buying and maintaining a new car, it’s time to switch. Another factor is when your vehicle’s safety and reliability are compromised. You may also base it on your lifestyle and how you’ll use the new car to make it more convenient for you and your family.
Our articles provide information purely for educational purposes and do not constitute financial, tax or investment advice. You should always consult with professionals like licensed financial advisors or accountants before making any decisions. We aim to provide up-to-date and accurate information, but we make no guarantees regarding the accuracy or completeness of any content. All our examples are provided for illustrative purposes and may not reflect your personal results. We are not liable for any losses or damages arising from your reliance on the information provided.
Sources:- https://www.edmunds.com/car-maintenance/fix-up-or-trade-up.html
- https://www.consumerreports.org/cars/car-repair/used-car-prices-surge-consider-fixing-car-you-already-own-a8533244943/
- https://www.carx.com/blog/fixing-your-old-car-vs-buying-a-new-one/
- https://www.consumeraffairs.com/automotive/average-car-maintenance-costs.html
- https://www.lendingtree.com/auto/debt-statistics/
- https://www.experian.com/blogs/ask-experian/how-much-do-cars-depreciate-per-year/
- https://caredge.com/maintenance
- https://www.thecarconnection.com/car-loans/finance-guides/when-should-you-pay-tax-title-and-license-fees-on-a-car-loan/
- https://www.edmunds.com/car-buying/what-fees-should-you-pay.html
- https://www.calculator.net/auto-loan-calculator.html?
- https://autorecyclingworld.com/what-is-the-lifespan-of-a-vehicle-in-the-usa/
