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Keeping your clunker might be cheaper

With incentives on new cars at all-time highs and dealers desperate to move inventory, it is an excellent time to buy a new car. But what if you could eke out another 50,000 miles on your old car and save a lot of cash?

We asked Vincentric, an automotive-research firm, to compare the cost of several new vehicles with their five-year-old counterparts. We assumed that the used vehicles were paid off and the new vehicles were paid for with a five-year, 6.6 percent loan and 15 percent down. Based on total ownership costs over five years -- including insurance, fuel, repairs and depreciation -- the results are firmly in favor of hanging on to your old car.

For example, a new Chevrolet Malibu will cost $33,064 over five years, or $7,343 more than the $25,721 it would cost you to maintain a 2004 model that's paid off. Likewise, a new Honda CR-V has a five-year ownership cost of $33,520, versus $24,597 for the five-year-old model. That's a savings of $8,923 if you keep the old vehicle. The biggest new-vehicle expense is depreciation. Maintenance and repairs are the biggest hits for older vehicles.

Spooked by worries over the economy and unemployment, many people are taking the value route -- keeping their cars longer and paying for repairs. The average length of vehicle ownership increased to four and a half years in 2008, up from four years in 2002, reports R.L. Polk, an automotive-information firm. And according to Sageworks, a private-company data provider, auto-repair shops' sales rose 2 percent in 2008.

What's more, says Philip Reed, of Edmunds.com, a car-loan payment is a set amount, whereas holding on to your old car "provides an element of flexibility. Fixing up your clunker is a variable cost per month, and some repairs will be elective."

The maintenance section of Edmunds.com has estimates for all service visits, so you can get an idea of typical expenses. One deal-breaker for your old car, says Reed, is a failed transmission -- which can cost up to $3,000 to rebuild or replace. Other tipping points: The vehicle has been unreliable from the get-go or it looks as if you'll be making multiple repairs every month.

Uncle Sam's incentives might also help persuade you to junk the clunker. You can write off state and local sales taxes and excise taxes on new cars, light trucks, motor homes and motorcycles bought from Feb. 17 through the end of 2009. Plus, the so-called "cash for clunkers" bill would allow consumers to turn in their gas-guzzling cars and trucks for vouchers worth up to $4,500 toward more fuel-efficient vehicles.

Jessica L. Anderson is an associate editor at Kiplinger's Personal Finance magazine. Send your questions and comments to moneypower@kiplinger.com

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