Yes! You can save $60,000 or even more. If you regularly buy or replace your vehicle every 5-7 years this article will have you reconsidering that practice. In this article we will show you that regularly maintaining your vehicle and extending your ownership of the vehicle can save you a amount of money.
 |
| Save $60,00 or more |
The Math Myth
At some point, almost every car owner will be faced with repair bills. And as the bills start to add up to a large proportion of a car's value, many owners start to figure that their car has officially kicked the bucket. But thinking that way is actually a costly mistake.This way of thinking confuses a car's potential monetary value with its actual value.
At a basic level, a car's value --any car's value --is its ability to provide transportation. Or stated another way the cost of transportation. An older car and new car can both do that. The question drivers whose cars are on life support should be asking is: How can I get the transportation a car provides at the lowest cost? Once you take a car's potential monetary value out of the equation, the math becomes clear.
For instance let's say you have a 2000 Toyota Corolla in fair condition with 100,000 miles on it. According to “the Blue Book”, it has a trade-about $1,000. Then let's say you need to have the head gaskets replaced. A repair can cost you anywhere from $861 to $1,135 --about the value of the car. Faced with this, most people would opt to get a new car. After all, $1,000 worth of work is a lot to spend on a car that's worth only $1,000. But, you shouldn't act so quickly, because while it would take about $1,000 to keep that old Corolla on the road, buying yourself a new Toyota Corolla costs about $24,000. Now the math isn't so clear, is it?
The Real Math
Here's the math any car owner should consider when deciding if their older car has shuffled off the mortal coil: Compare the cost of the old car over a year to the cost of a new car over the same time frame. If your car is more than five years old, you should be budgeting about $1000 for maintenance each year. You're also probably looking at owning the car free and clear --which means no more monthly loan payments. Let’s look again at the Corolla situation. If you spend $1,000 a year on the old Corolla and it is still reliable. Now let's compare that to a new car.
For this analysis we used the online ‘build your vehicle’ tool at WWW.Toyota.ca for a 2014 Toyota Corolla. The value of the car was $23,115 plus PDI, fees and taxes for a total of $24,900. Financing at 1.9% creates a monthly payment of $500 for 60 months, for an annual outlay of $6,000. In other words, for the cost of owning a new car for one year, you could operate a paid-off car for five years, keeping it well maintained, and still have money left over for gas. Your savings would be roughly $5000 per year.
OK... I’ll Lease
Yes! Leasing is less expensive than buying. For that same Toyota Corolla the lease cost would be $384 per month or $4603 annually, so $1400 less per year than buying but after the lease you have to start all over again because you haven’t purchased the vehicle. Plus it is still $3600 more expensive than keeping the existing vehicle and religiously maintaining it.
The figure below shows the dramatic transportation cost saving you can enjoy by keeping and maintaining your vehicle. In fact the Toyota Corolla example used in this article would save you $60,000 in comparison to buying a new car every 5 years over 15 years, and over $32000 in comparison to leasing every 4 years.What could you do with an extra $60,000?
Other Factors to Consider
Of course, there are other things you should think about. If your older car is consistently unreliable and causes you to miss work, show up late, or repeatedly leaves you stranded along dark highways, it might be time for a new one. Also, there are some problems that are incredibly difficult and expensive to fix, pushing the cost of the old car above the cost of a new one. If your car has had a number of major issues, and your mechanic sees more coming down the pike, it might be time to start thinking about a new ride. But of course if you have been maintaining your vehicle all along then this wouldn’t be happening, right?
There are also some people who like getting a new car, and don't mind that they are spending more to do so. There's even the argument that getting older cars off the road in favour of newer, more fuel-efficient and less polluting models benefits all of us.
Still, when deciding if your car is finally dead, the one factor you shouldn't be looking at is the ratio between repair costs and the car's sale value. Instead, do a hard comparison of your old cars' cost to operate and what a new car would cost you over a year before you decide it's time to pull the plug.
Editor's Comments: This article was written in 2014 so while the analysis would be the same using today's values all the numbers would be correspondingly higher.
Posts
0 Comments