Your car has been in the shop more than in your driveway lately. And you have another big repair on the horizon. You’re sick of sinking money into it, but you’re not sure what to do next.
Do you keep throwing cash into it and hope it doesn’t break down again? Or do you sell it and use that money toward another ride? It’s a big decision.
The first step in solving a dilemma like this is to do a little math. Don’t worry! We’ll walk you through it step by step. Your calculations will point you in the right direction and help take the stress out of your decision-making!
And the best part? After you decide what to do, we’ll show you how to save money for the repair or your next car. Check it out, and then get back to your life—and all the places it takes you.
Should I Repair or Replace My Car?
Before we get into the numbers, it’s important to remember there’s always a spectrum when it comes to car repairs. Meaning the math can only show you so much—like whether you’re leaning more toward a repair or replacement. Other factors, such as repair frequency and what you owe on your car, come into play as well. Keep these in mind as you’re running your numbers.
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Okay, time to get started. First, estimate the value of your car (without repairs). Sites like Kelley Blue Book or Edmunds are good examples of resources that can help you with your estimation.* Just for argument’s sake, let’s say it’s $5,000. And your estimated repair is $1,000. We’ll say for this example that the repair will bring the value of your car up to $6,000. That may not be the case in every situation, depending on the overall condition of your car and the type of repair. Your mechanic should be able to give you an idea of how much value your repair will add to your car.
So in this example, if you had to sell your car immediately after the repair, you’d still recoup the money you just put into it. In this case, you’re probably leaning more toward a repair. Now, if this is your commuter car and you’re getting to work late once a week thanks to a breakdown, it might be time to evaluate what these repairs are really costing you—in terms of headaches.
On the other hand, if that initial mechanic bill was closer to $2,000, and the value of the car increased to only $6,000 with the repair, you’re likely leaning toward selling the car and putting that money toward another car with your $7,000. That way, you’re essentially getting a better car for the same money.
Owe more on your car than it’s worth? Here’s what to do about your upside-down car.
If You Want the Fix: 6 Steps to Pay for Car Repairs
Decided to go ahead with the repair? Your next issue is paying for it—because it’s probably going to cost a not-so-nice chunk of change. But what if you don’t have the cash on hand to pay the bill? That’s okay. Here are six steps to finding the money you need to fund your repair:
Step 1: Shop around.
Don’t accept the first quote you’re handed. Get the initial diagnosis from a trusted dealership or a larger mechanic shop, but don’t assume their price is the price. The majority of your cost is probably not parts, but labor. And it’s almost always higher at larger, more established shops.
To find a reliable mechanic for a lower price, ask a few friends where they go for trustworthy work. Then call around to find the best price. While you’re on the phone, ask about any current discounts and specials they might offer too.
Step 2: What can you do yourself?
Maybe you need new brakes, but you also need to replace the door handle that came off this morning.Why not get the brakes fixed at the shop, and find an after-market replacement for your door handle online? Then watch a YouTube video and fix it yourself. Just be sure to follow the directions very carefully.
Step 3: What can wait?
If the estimated repair is still out of your comfort zone, ask the mechanic what needs to be fixed now and what can wait a few months. Don’t skip important safety features like brakes, tires and timing belts. But you can live without automatic windows for a while.
Step 4: Make a budget.
Let’s say you’ve lowered the repair price as much as possible. Now it’s time to find the cash to pay your bill. We recommend making a zero-based budget before you start overturning your couch cushions in search of loose change. You can make a budget in about 10 minutes with our favorite budget app, EveryDollar. It’s free, and it’s a way less labor-intensive than digging through your sofa.
Step 5: Move your money.
If you’re still coming up short, no problem. Simply dial your budget back in nonessential areas like restaurants, haircuts and new clothes. You can also divert your savings temporarily. And as a very last resort, you can use your emergency fund for absolutely necessary repairs. Just restock it as soon as possible.
Step 6: Budget for future repairs.
Ensure this issue doesn’t happen to you again by creating a line item in your budget for future car repairs and maintenance. That way, the money will be there waiting for you when you need it—and you will.
If You Want a Replacement: Should You Lease, Buy New, or Buy Used?
Let’s say you’ve decided it’s not worth it to repair your current car. You’re ready for something else. While it’s tempting to want your next car to be new and under warranty (read: no repairs!), the last thing you want to do is head to the nearest new car dealership. Here’s why:
The depreciation on a new vehicle is jaw-dropping. A $20,000 car will be worth about $8,000 in five years. That’s a 60% decrease! Even after just one year, the car could go down in value as much as 25%. So unless you have a net worth over $1 million, don’t buy new—ever. Let someone else absorb the depreciation.
A lease is simply the most expensive way to operate a car. Every month, your lease payment goes to cover the car’s depreciation plus the dealer’s profit. At the end of the lease, you have zero equity in the car, but you do have the option to buy it. That may or may not be a good deal since the purchase price is set at the beginning of the lease and isn’t based on the actual value of the car at the end of the lease. Then there are the fees—a fee you’ll pay if you exceed a certain number of miles or have excessive wear and tear on the car, a fee you’ll pay if you decide not to buy the car when your lease is up, and a fee you’ll pay if you do decide to buy it. All that adds up to a good deal for the dealer—not for you.
Your best bet is to buy an affordable, used car with the money you have saved (combined with the cash from the sale of your current car). That way you own the car, rather than it owning you. Used car doesn’t mean crap car; it just means you’re smart enough to let someone else pay for that initial drop in value. Buying used is the only way to go.
Find out how to get the best deal on a car you love! Download our free Car Guide today!
How to Pay for a Car in Cash
Don’t go into debt for a car. It’s just not worth it. That will only give you more grief down the road. Remember, all cars need repairs and maintenance eventually. With a loan, you’ll have a monthly car payment and repair bills on top of that.
Don't go into debt for a car. It’s just not worth it.
So how exactly do you live without a car payment and still get the car of your dreams? The key is in your approach to saving money. Here’s a strategy we love:
1. Save Your Car Payment.
Go ahead and buy the car you can afford with the cash you have on hand—let’s say it’s $5,000. That can get you around for at least 10 months or so. Then take $500—the average monthly payment on a new car—and save it every month.
2. Sell Your Car and Combine Your Savings.
After 10 months of doing that, you’ll have built your car-buying budget back up to $5,000. Add that to the cash you get from the sale of your current car (let’s say $4,000), and you have $9,000 for a new ride. That’s a major upgrade in car in just 10 months—without owing the bank a dime!
3. Keep Saving and Upgrading.
But the fun doesn’t have to end there. If you keep consistently putting the same amount of money away, 10 months later you’ll have another $5,000 to put toward a car. You could probably sell that $9,000 vehicle for a little less than you paid 10 months before—meaning you’d likely have around $13,000 to pay for a car, just 20 months after this whole process started.
The bottom line is this: There’s a lot you could do with an extra $500 a month!
The less money you’re spending on your car, the more money you have to put toward more important things, like your kids’ college fund, your retirement, and paying back those old student loans. It’s okay to own a nice car—just don’t let your car own you.
In fact, don't let any of your stuff—or even your money—own you. You're the one in charge here! Yes—you. If you want to learn how to take control of your money for good, give Ramsey+ a test-drive. You'll get all the tools and all the teachings you need to make your money work for you, instead of the other way around. And right now, you can try Ramsey+ in a free trial. Boom.
*Kelley Blue Book and Edmunds are not in any way affiliated with the publisher of this content. The site links provided are for reference only and not an endorsement of any product or service. No warranty or representation is made regarding these third party sites or services.