Stop Paying Too Much for Insurance

Mechanic's Clipboard

Cars are expensive, but they're also sensitive commodities. Although we try to keep them running for a long time, cars will eventually wear out. This reality can impact a vehicle's maintenance needs. As cars age, the costs and risks associated with vehicle maintenance tend to increase.

So, if you have an older vehicle, what should you do to keep your costs in check? It depends. Sometimes, it will make sense to replace an older car with a newer model. In other situations, it might make sense to hang on to an older vehicle. There's really no set answer to help you determine which choice is right for you.

How Cars Age

Your new car won't stay new forever. Over time and repeated usage, parts of the vehicle will wear out. You can help slow the effects of age on the vehicle by having regular maintenance and by driving safely. But your vehicle will still age.

As cars age, they lose a lot of their value. This is a major reason why used cars tend to be more affordable than new ones. The loss in value over time is called depreciation. It can impact your decision between buying (or leasing) a new car or maintaining your old one.

When to Buy a New Car

At some point in your vehicle's lifespan, you will likely ask yourself if it makes sense to trade it in and buy a new vehicle. Let's look at how your car's value can affect your decision to repair or trade the vehicle.

The typical new car loses about 22 percent of its value in the first year of ownership, according to Edmunds. As your car ages, it will continue to lose value. Over time, your older car will be worth only a fraction of its original value. And it will eventually require more frequent maintenance.

At a certain point, your vehicle's maintenance needs might leave you upside down. That means you're paying more each month (on average) in repairs on your existing vehicle than you would in monthly payments for a new car. In this situation, it will likely make sense to trade in your vehicle for a new one.

Let's look at an example. Say you have a nine-year-old vehicle that is only worth a couple thousand dollars. One day, you begin experiencing engine trouble. After running diagnostic tests, your mechanic tells you to replace the engine. Should you do it?

Here's what you should consider. Standard engine replacement costs range between $2,700 and $5,000. If your vehicle is only worth about $2,000, you'll be paying more than the full value of your car just to have the engine replaced. So, it makes more sense to buy a new vehicle in this situation.

It's also important to consider this dilemma from a safety perspective. If you keep driving an older car with continuous problems, you're putting yourself in danger. For example, if your car breaks down on the road and causes an accident, you could face the costs of repairing the vehicle and covering damage and liability risks to other drivers tangled up in the wreck. You don't want your old vehicle to be the reason your auto insurer labels you at-fault for an accident.

The Case for Maintenance

If you buy a new vehicle, it won't erase all your insurance risks. New car ownership comes with its own set of dangers. So, there are times when it makes more sense for drivers to maintain their existing vehicles.

Regular care and maintenance can often keep a car in great working order. Your vehicle's manufacturer usually recommends when your vehicle should receive maintenance. If you have the car serviced at regular intervals, you can often extend its lifespan.

Sometimes, buying a new car is not the best financial decision. Many people agree to finance their vehicles with lenders or dealerships. They then pay the value of the car off over time. If you cannot afford the full or cost of a new vehicle, you may wind up assuming debt you cannot repay. This could hurt your credit rating and cripple you financially.

Furthermore, buying a new vehicle may lead to other increased costs. For example, car insurers often base insurance rates in part on the car's value. New vehicle often have a higher value than older ones, and this can lead to higher insurance costs. Therefore, when you buy a new car, you often assume additional costs beyond the loan.

It often makes sense to drive a car until you realistically cannot afford the cost of maintenance. However, you must determine when you reach this point. As a guideline, look at the value of your car and your ongoing costs. Then, decide if it's worth it to trade in the vehicle and buy or lease a new one.

If you have questions about how insurance plays into this decision, Auto Insurance Discounters has answers. Contact us to learn more.

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