Reader Question: Low Car Payment vs. High Repair Cost?

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Here’s the latest reader question, along with my reply! 

Kelley asks: My local dealer has some leftover 2018 model year (new) Fiat 500s that have been heavily discounted; I could buy one of these for less than $200/month. I am tempted because I recently spent several times that on a major repair my 2007 Honda had to have done.

Do you think I should snap up the deal on the “new” 2018?

My reply: The first thing that pops to mind here is the devil you know – vs.the one you don’t. If you buy the new car, you won’t have to worry about repair costs – even if the car needs a repair. It will be covered – tires to roof – for several years/many miles to come.

But, you will have a guaranteed monthly payment to make for the next however many years.

Your Honda may not cost you anything for the next several years (beyond gas and oil, etc.)

So, it’s a bet, basically. A sure thing – vs. a maybe.

The maybe might cost you more than the sure thing. Or, less.

What is the overall condition of the Honda? If it is generally in good shape, the odds are decent it won’t give you major trouble for some time to come – and the longer it doesn’t, the more you bank.

Put another way: Each month you don’t make a new car payment is money you have on hand to spend on repairs – if they are needed. If they are not needed, then you will have money for other things. Or just have the money.

With the new car, it is certain you won’t have the money.

It is also certain you will pay for the loss of value – depreciation – which the new car will suffer; that cost should be factored into your decision, too.

And then there are the intangibles: Do you just want a new car? Nothing wrong with that, especially if you can comfortably afford the car.

Let us know what you end up doing!

. . .

Got a question about cars – or anything else? Click on the “ask Eric” link and send ’em in!

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5 COMMENTS

  1. Personally id go for the new car. $200 per month is pretty affordable and the warranty is peace of mind. Plus a lot can go wrong with older cars. Im financing a more expensive car and its a relief. Nice car, can enjoy my weekend and calculate my budget accurately. If I had more time and less money id drive older cheaper cars.

    • Hi Anon,

      A $200 per month car payment? Not likely – unless you have a principle around $14,000 and zero interest financing (for six years). If you need something more than a subcompact entry-level car like a Mitsubishi Mirage or Nissan Versa – the only new cars in the $14k-$15k range – you’ll have a principle closer to $25,000 (at least) and your monthly payment – even assuming 0 percent financing (good luck) will be much higher than $200. Even assuming $200, one must factor in the taxes and insurance and so on that are always higher with a new car.

      The average new car payment is currently over $500.

      Split the difference and call it $300. Plus the associated taxes and insurance – which will raise it to closer to $500/month in terms of what you are actually paying for the whole thing. Very hard to justify vs. spending say $1,500 once to get a timing belt/100k service done, which will leave you with a car that is likely to run just as reliable for another 100k as the new car will for its first 100k.

      There are many valid reasons for buying a new car – including just because you want to. But as a purely financial question, it is not likely to save you money!

  2. I’d buy a new car but it would NOT be a Fiat. If you are having other people do the repairs and not yourself then buy a new car unless you are comfortable doing repairs on the accord. Stay away from Fiat they have major reliability problems. Toyota for long term reliability.

  3. It depends on what else (if anything) is wrong with your current car. Everyone has their breaking point, and my personality is more apt to put up with a singular large failure, rather than nickel-and-diming me. So, if you don’t think you are going to get nickel and dimed, then consider paying the high cost to get your car fixed. However, a large repair cost, combined with more repairs in the short term, is hard to put up with. Howwwwwever, even if that were to happen, the end result would be a car that has been gone over bumper to bumper. Then after “punching thru” like that, you’re very likely good to go for a good period of time (say 24 mos) Eric has even written essays opining that “the average car payment pays for a whole lot of fixin!”

    Other factors come into play in favor of fixing: 1) Do you have any alternate ways to get to work: a spare car/motorcycle, car pool/rideshare, bus, telecommute, etc, 2) Do you have facilities and abilities to fix minor things yourself? If these two items are favorable to you, then that supports fixing. But yes, paying shop rates for all car repairs with no decent way to get into work does support the “fixed cost” approach of a car payment with no maintenance expenditures.

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