Deciding whether to put more money into an aging car or to replace it with a new or used vehicle is rarely a simple decision. Plus skyrocketing vehicle prices and economic uncertainty are making the decision process even tougher.
Signs it is time to replace your car
To help you decide if it is time to replace your vehicle, look for these signs:
- The kids would rather walk miles to their friend’s house than ride in the car.
- Your oil bill is higher than your gas bill.
- The mechanic names a repair bay after you.
- Your employer politely asks you to park next door.
- The sound of the engine causes tornado sirens to blare.
If none of these apply to you, congratulations! Your car might still be street legal, but there are other things to consider. All joking aside, making the final call can be difficult. Here’s a few helpful ideas:
Making an informed decision
Determine your risk threshold. No one wants to live in constant fear of being stranded or being in an accident because something in the car gave out. Reliability needs to be considered for every car, but especially if the typical route is remote, dangerous or unpredictable. It is even more important if you live in an extreme climate that is either very hot or very cold.
Take newer car costs into account. While the idea of a newer, shinier car sounds nice, make sure you are counting all the costs – especially if you need to add a car payment. Beyond the monthly principal and interest, keep in mind that insurance and annual registrations will likely be higher, too.
Spend some time with the numbers
While a new, shiny car is fun, all too often it can create future financial hardship. So also consider the long-term financial impact of your decision. This includes:
Used versus new car. Used cars typically give you the best price value, but limited supply is making used cars more expensive.
Financing a vehicle has pitfalls. If replacing your car will require financing, be careful. Interest rates are going up and highly-leveraged loans can quickly put you into more debt than the car is worth. This often happens if your car is damaged in an accident.
Cars are unpredictable, but taking an analytical approach and making the best decision with the facts that you have will pay off more times than not.
— By Nancy J. Ekrem, CPA
DME CPA Group PC
Certified Public Accountants & Business Consultants