Should you keep the clunker or buy a new car?
Cars that were turned in through the Cash for Clunkers federal program bear identifying marks at Aadlen Brothers Auto Wrecking junkyard on August 7, 2009 in Sun Valley, California. Credit: Getty/David McNew
Q: Should I keep my clunker, or buy a new car?
A. Keep the clunker if it's paid for (or nearly paid for), and service and repairs are costing you less than new-car payments. For example, the average cost to replace a cylinder head assembly is $1,800, according to CarMD, a vehicle-repair information site. That's equal to four typical car payments. Also, because some repairs are elective, you can wait until you have the money to do them.
Buy a new car if you anticipate having to make expensive repairs that would cost close to what the vehicle is worth. For example, a failed transmission, which can cost more than $3,000 to repair, is usually a deal-breaker. Also, if the car has been unreliable from the start and is in the shop a lot, it's probably time to say goodbye. A new-car warranty will be a salve to your soul if you've been dealing with persistent breakdowns. Plus, more manufacturers are now offering free maintenance when you buy a new car. The best programs are from luxury makes, such as Volvo (coverage for five years or 60,000 miles) and BMW (four years or 50,000 miles), and even include wiper blades and brake pads. Mainstream brands, such as Volkswagen (three years or 36,000 miles) and Toyota (two years or 25,000 miles), don't cover the wear-and-tear items, but all four of these automakers offer roadside assistance.
Q: Should I buy or lease a new car?
A. Buy the car if you plan to pay cash or keep the vehicle well beyond the time the loan is paid off. You will save money over leasing -- as long as you don't trade in your car when it's only a couple of years old. (Used-car values will be elevated for some time, just in case you do get the itch to move on.) Also, buying probably makes more sense than leasing if you put a lot of miles on your vehicle.
Lease the car if you trade in every few years and tend to have a car payment all the time. Because you're paying only for the depreciation over the term of the lease, monthly lease payments are lower than loan payments and you may be able to afford a more expensive car. If you match the lease term to the new-car warranty, repairs will be included for the life of your lease. And if you change your mind before the lease is up, you can probably find someone to take over the lease by using LeaseTrader.com or Swapalease.com.
(c) Kiplinger's Personal Finance
