Should You Repair or Replace Your Car?

Whatever the case may be, you may be thinking about taking the plunge and upgrading to a newer vehicle. However, the price tag of a new (or new to you) car may give you pause. How do you know when it’s time to get a new car versus keeping your current vehicle? 

Several factors go into making an informed decision, including your car's condition, the price of insurance and the cost of repairs.

When repairing a car makes sense

While unexpectedly stalling or having a dashboard warning light come on can be inconvenient, these repairs don't necessarily mean it's time to trade in your car. It can be well worth the cost (and hassle) to repair your vehicle in the following situations: 

You own your car outright

If you own your car free and clear, you should have a lot more breathing room in your budget than if you still have payments on an outstanding loan. 

According to Experian's 2024 State of the Automotive Finance Market Report, 80% of new cars are financed, and the average monthly payment on a new car is $742 per month. If you finance a car, you also have to include the interest you’ll be paying into your calculations. Depending on your interest rate and loan term, you could end up paying thousands more than the price of the car because of interest charges.

You have to make minor to middling repairs

All cars require regular maintenance. Things like replacing brake pads, oil changes, getting a new battery and changing the spark plugs are normal tasks. Even moderately serious repairs, like replacing the timing belt or water pump, are common challenges for older cars. 

Even if you have a moderately expensive repair, keep in mind that its cost is a one-time expense. Once those repairs are made, your car should run well again. Over the long run, provided there aren’t other major failures, it may be cheaper to fix your car than to finance a replacement model.

As long as the car repairs are intermittent and your car is generally reliable, it can be worthwhile to keep your existing vehicle. 

Your car is in good shape

Today's cars can run longer than cars from previous decades. Vehicles that are well-maintained can last for 200,000 or even 300,000 miles. If your car is in good shape, you've kept up with its maintenance and it doesn't have any major issues, it likely has plenty of life left in it.

When replacing your car is a good idea

There will come a time, though, when it's not realistic to hang on to your old car, or when you simply prefer not to do so. It may be time to replace your current car if you find yourself facing one of the following scenarios: 

A very expensive repair is needed

If your car needs a major fix, like a new engine or transmission, to get back on the road, the repair bill could be in the thousands. If it's an older car with high mileage, putting that kind of money into it may not be worth it. In this case, it might be more cost-effective to consider a replacement vehicle.

One commonly recommended formula to keep in mind is that repairs shouldn't exceed 50% of the car's current value. 

For example, say you own an older sedan. If the value of the car is $6,000 and it needs a new transmission that costs $3,500, moving forward with the repairs likely doesn’t make sense. 

Your car lacks safety features you want

Modern cars have more advanced safety features than older vehicles. Features like side-impact and frontal airbags, blind-spot monitoring, adaptive cruise control and rearview cameras can help prevent accidents and protect you and your loved ones. 

If you have an older vehicle that lacks those features, the peace of mind a newer car provides can be worth the investment, especially if kids or other loved ones are frequent passengers. 

You can't count on your car

If you often deal with vehicle breakdowns or your car is in the shop regularly, dollars and cents aren't the only consideration. The time and hassle of taking your car to the mechanic and needing to rent or borrow a car can be frustrating. If you need a car you can rely on to drive your kids or commute to work and your current car isn’t meeting those needs, it may be time for a newer car.

Buying new vs. used

If you've decided the time has come to retire your current vehicle, the next decision is whether to buy a used or new model. In recent years, the car market has been tough on buyers, with new and used car prices considerably elevated over what they were before the pandemic. 

The case for buying a new car 

If you're sick of dealing with an unreliable car, or tired of its outdated features, a brand-new car may be the better option for you. You'll get a vehicle with the latest features, and the car will be backed by the manufacturer's full warranty. New cars often have better financing deals, including incentives. 

However, new cars can have steep price tags, with an average price of around $50,000. 

The case for buying a used car

If you're looking for more value, a used car may be a better choice due to depreciation, which is most steep when cars are new. It might be more cost-effective for you to get a lightly used car with a value that is much less than a new vehicle. And, if the car is just a few years old, you may still be covered under the manufacturer's warranty. 

But even used cars aren’t as cheap as they were. On average, they cost about $25,000.

Other factors to consider

In addition to the car's sticker price and potentially costly repairs, keep the following factors in mind when you calculate the total cost of car ownership: 

Car payments

If you need to take out a car loan to buy a vehicle, consider what you can realistically afford. A budget that includes how much money you have coming in each month and your monthly expenses will help you to decide how much you can allocate to a car payment. Also, keep in mind that you'll likely need a down payment to buy a new car. Your trade-in may count toward that amount, so it’s a good idea to research your current vehicle’s trade-in value before going car shopping.

Insurance costs

In general, older cars are cheaper to insure than newer ones since they usually have lower values. In addition, if you finance a car, you'll have to carry both collision and comprehensive coverage, since the lender will require all of these coverages in order to protect their interest in the vehicle.

Maintenance

If your current car needs a lot of maintenance and you want your next vehicle to spend less time in the shop and more time on the road, look for a new or used car that is known for reliability. The J.D. Power Vehicle Dependability Study is a great starting point as you begin your search. This study evaluates cars' dependability based on car maintenance needs and driver experience. Lower maintenance costs will help keep your total cost of ownership down over the car’s lifespan.

Fuel

Newer vehicles tend to be more fuel-efficient than older cars. If you have an older gas-guzzler, the gas savings you’ll realize if you switch to a newer car or electric vehicle can help offset the cost of a car payment.

Should I repair or replace my car? 

There's no one-size-fits-all answer for anyone considering whether or not to buy a new car. What makes the most sense depends on your financial situation, your vehicle's condition and your comfort level with your current vehicle.

If your car needs minor repairs and otherwise runs well, keeping your vehicle may be the better financial decision. But if the cost and inconvenience of frequent repairs has gotten out of hand, it may be worth taking the plunge to buy a new vehicle. If you decide to upgrade to a new car — as opposed to a new-to-you used vehicle — do your homework before heading to the dealership and learn how to get the best price on a new car.