Is Getting A New Car The Right Choice Financially?

My car is a 10-year-old, 2-door hatch with low mileage and a few scratches. OK, more than a few. Like, zip ties hold part of the grill to the bumper.

Last week, the front passenger seat started flopping forward whenever I hit the brakes. That’s an actual safety hazard, and it means I’ve really got to do something.

But what?

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Get Rid Of It?
Fewer and fewer people, especially young people, are driving cars at all. They’re expensive, and if you live in a city, you hardly need one. You can always rent one by the hour or for a weekend if you do need it. And you skip all the hassles of parking, maintenance, and gas. The Blue Book says I could get about $4,000 if I sold it, which would buy me a bicycle and a ton of Zipcar and taxi rides.

Fix It?
The cheapest thing is to fix it. I’m spending about $2,000 a year to keep it on the road, but it’s still cheaper to fix than replace. On the other hand, that repair bill isn’t going to get any smaller. If anything major breaks on the car, it won’t even be a decent trade-in.

Replace It?
You can get a perfectly fine base-model econo-box for under $15,000. If I wait until September for the year-end clearance, I could be out the door for not too much over ten grand. I’ve got some money saved up, so I’d barely have to finance anything at all.

Or I could get a certified used car with a warranty. A 2011 or 2010 model would be better than my current car, and I might be able to skip a loan entirely. That’s appealing: Nobody wants ANOTHER loan payment, right?

Upgrade?
Then again, that base model looks pretty chintzy. I don’t need alloy wheels, but I’d like a little more than the minimum. And you know, it’s cold up here in Boston in the winter, and I want those butt-warmers. Maybe a moon roof. And definitely a little more zip to the engine. Sure, Consumer Reports says that turbo models are generally less reliable. But you totally need it for a busy highway merge, right? Besides, VROOOM!

I could even go luxe: You can get a barely used (excuse me, “pre-owned”) baby BMW for $25,000. It comes with luxury-car maintenance and insurance costs, but it is a bimmer.

What Would You Do?
How much extra would you pay to go from adequate transportation to sweet ride? Would you borrow it?

The car dealership would say you can keep monthly payments down if you stretch the term of your loan to 5 or even 7 years. If I listen to them, I’ll be paying for my new car long after it’s no longer new. That’s no bargain at all.

From a purely rational perspective, the only reason to borrow money for a car is if you need it to get to work and have absolutely no alternative. Unlike a college education, a new car isn’t going to increase your earning potential. In fact, it’s bound to be worth less money in the future. But if there’s one thing that I’ve learned about personal finance, it’s that nobody is capable of being totally rational about money all of the time.

Personally, I’m hoping to aim somewhere in the middle: something gently used, with a warranty. I’ll skip the navigation and the engine upgrades, but in my book, those seat warmers are worth every penny.

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