Buying & Leasing a Car

Should You Keep Your Old Car?

If you really want to really save money on a new car, don't sell your old one.

Here's the single most reliable way to save money on cars: Keep your clunker and drive it till it drops.

A decently cared-for vehicle should still be running long after the odometer has clocked 100,000 miles. Keep driving it and you save money not only because you don't have to make payments on a new car, but also because insurance premiums are lower, and in some states, so are registration fees and personal-property taxes.

See Our Special Report: Car Rankings

Unfortunately, at some point the statute of limitations runs out on this particular money-saving tip. The more the car is in the shop, and the wider the oil slick grows on your usual parking spot, the more you may think seriously about replacing the old chariot with something, well, nicer. Meanwhile, the money you save by not buying a new car tends to be eaten up by the growing cost of keeping the old one on the road.

The question is: Where's the tipping point? How long does it take for the higher cost of purchasing a new car to be justified by the growing cost of maintaining the old one?

Longer than you think. The actual numbers are less important than the overriding message: Those loan payments stack the deck against a new car. You could encounter much higher repair costs than assumed and still come out ahead by keeping the old one. In the absence of a gigantic repair bill -- you need a new engine, for example -- an old car is almost always cheaper to own than a new one. You can close the gap a bit with a couple of strategies if you decide to purchase a new car.

Pay cash. This will reduce your total expense by eliminating the interest on the loan , but in order to make a fair comparison you'd also have to take into account what else you might have done with that money and the interest you might have earned if you hadn't spent it on a car.

Pay a lower interest rate. A lower rate helps. But even if you eliminate all the interest by scoring a 0% rate on a new purchase, the old car would still be cheaper to own than the new one.

Buy a used car. The problem is that, unless it is a certified used vehicle, a used car doesn't come with a new-car warranty, so you take on the same risks of unanticipated high repair bills that you already have with the car you’ve got. "Certified used" or "certified pre-owned" used cars are often two- or three-year-old previously leased cars. They’re offered by local dealers and feature warranties that extend beyond the initial "when new" coverage.

A certified vehicle has a warranty that is backed by the original vehicle manufacturer. Thirty-five makers have certified pre-owned programs. Terms differ, but a true certified pre-owned program will include at least a 100-point inspection of the car. Most programs:

* include only vehicles under five years old;
* have mileage limits under 100,000;
* use only vehicles that have had no major body work from prior accidents;
* "refurbish" the vehicle after a multistep inspection (110 to 300+ inspection points); and
* provide an extension of the new-car warranty.

Certified pre-owned cars are usually more expensive than other used cars. But the benefits may outweigh the cost—for many buyers, the peace of mind alone is enough to justify the extra money.

But let's face it: When all is said and done, most of us don't base decisions on a detailed accounting of the costs. Comfort, style, image, safety, convenience and reliability -- these are the forces motivating the vast majority of Americans who decide to buy a new car. So be it. The important thing is to choose the right car and get to the best possible deal.

Most Popular

You'll Save More on Green Home Improvements Under the Inflation Reduction Act
Tax Breaks

You'll Save More on Green Home Improvements Under the Inflation Reduction Act

Tax credits for energy-efficient home improvements will be extended and expanded by the Inflation Reduction Act.
August 12, 2022
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
The 25 Cheapest U.S. Cities to Live In
places to live

The 25 Cheapest U.S. Cities to Live In

Take a look at our list of American cities with the lowest costs of living. Is one of the cheapest cities in the U.S. right for you?
August 7, 2022

Recommended

EV Tax Credits Are Changing: What’s Ahead
Tax Breaks

EV Tax Credits Are Changing: What’s Ahead

President Biden will soon sign the Inflation Reduction Act—multi-billion-dollar climate, tax, healthcare, and energy legislation that makes key change…
August 15, 2022
Car-Buying in an Inflated Market with Jenni Newman
Buying & Leasing a Car

Car-Buying in an Inflated Market with Jenni Newman

With cars both scarce and expensive these days, what to do if you want – or need – a new ride? Car-buying strategist Jenni Newman of Cars.com shares s…
July 22, 2022
Repo Risk: Beware Illegal Car Repossessions
cars

Repo Risk: Beware Illegal Car Repossessions

Used cars are worth more than ever before. The CFPB warns the hot market may tempt lenders to seize cars when they don’t have a legal right. What can …
June 13, 2022
Gas Prices Around the World
Budgeting

Gas Prices Around the World

You might be feeling pain at the pump, but it could be worse; gas is a lot more expensive in some other countries.
June 7, 2022