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I am in a bit of confusion on what I should do. If this is not the right place for such a question, I apologize and I will gladly kick myself out - just let me know.

I have a Honda Accord EX 2000 for about three years with 181K miles on it. I was planning on selling the car - the Kelly Blue Book price was around $3500 but due to the body damage it has, it is about $2500 but I'm thinking I'll get maybe $1500 after all the bargaining process. Today, I went to a mechanic who evaluated the condition of the car and said that it would take roughly $650 to get the car into a very stable state where I can use it for another two years. The main problems found were:

  • Replace rear brake pads
  • Replace right upper control arm
  • Replace valve cover gaskets
  • Replace power steering pump
  • Replace left side axle seal
  • Wheel alignment

Along a parallel line, I was looking to buy a new Honda Accord 2013 model. I have been sanctioned a loan of either $15K @2.79% APR for five years or $25K @3.75% APR for six years. The monthly payment would come to around $350-$450 with either financing.

The catch is this: I have a long road-trip coming in a month where I will have to drive roughly 8000 miles in three months (cross-country trip). Therefore, if I have to go on this trip, I should either get the car repaired @ $650 or sell this car at about $1500 and buy a new car. I am a bit hesitant in putting 8000 miles on a new car in 1-3 months but other than that, I don't really have a problem.

What do you recommend? Should I just go with a new car or should I invest $650, extend my current car's life by 1-2 years and then sell it off? Any advice would be highly appreciated.

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5 Answers

up vote 4 down vote accepted

The nice thing about Hondas is that most of them retain their value relatively well. If $650 gets yours into good mechanical shape and you drive it and maintain it well for another one or two years you could probably still sell it for $1500 easily. So it seems that if you take that route you are netting yourself some money by going so long without a car payment.

$400 a month isn't bad either though for a new model. But, whether you drive it 8000 miles or not it's going to depreciate very quickly for the first couple of years you own it. Whether you buy a new car now or a new car in two years there's really no way around it. It all depends on when you want that new car smell.

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If it was my car, I'd just fix it and carry on. Buying a new car is very rarely a way to save money. What buying new does is get you a little more peace of mind (probably more than one really should have given how many early failures I've seen on new cars). Ultimately it's going to come down to what you're comfortable with and how much you want to pay to get comfortable...

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Replace "rarely" with "never" and I'd agree. :-) I agree too that the peace-of-mind is overrated; I think you can get more peace-of-mind spending less than 10% of what you'd spend on a new car if you just pay a good mechanic to inspect your old car really well and keep up with any emerging problems before they become big problems. –  R.. Apr 9 '13 at 16:51
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Short answer fix the car you have. Put the payment you were going to make ($400) a month in a savings account. If anything major happens to the car you are driving you have the money to fix it or replace it.

While the car may be less reliable than a new car, a Honda with 181K miles is still a safe bet. And if you follow my plan above you have the money in savings if anything goes wrong.

Just to be up front with any bias I might have. I don't borrow money to buy cars, I did it once about 20 years ago and they kept sending my a bill every month, I didn't like it so now I only buy cars with cash.

A car is an expense, never an investment. There are exceptions if you are dealing with classics that are garage kept and not daily drivers, but that's not what your question is about.

Depreciation Infographic: How Fast Does My New Car Lose Value?

Source:Depreciation Infographic: How Fast Does My New Car Lose Value?

A lot of people say the sweet spot is buying a car that's 2 years old because someone else payed for the 30% - 40% deprecation for the first two years.

Let's look at your situation more closely. You are considering buying a 2013 Honda Accord. KBB for my area says the invoice is $23,307. A 2011 Honda Accord cost $22,038 (invoice) and is currently worth (kbb) $17,746 (30K miles).

For this example we are going to say you get out the door paying $1500 over invoice this includes doc fees, delivery, dealer markup etc.

2011 Accord sold for new $23538 and is currently worth $17,746 for a two year loss of $5792 or 25%. Using this information we will assume that the 2013 Accord you will pay $24,807 and will be worth $18605 in two years. You lost $6202 dollars in two years.

If you are willing to lose $6000 to drive a new car then that's an option. I'd rather save the money a buy a less expensive car for cash.

Here is a video with more info

Even more information here

EDIT

Just thought about this, if you buy the new car in my example in two years you will have spent $6000 on the car and still owe the bank a little over $17,000.

If you keep your current car and save the $400 a month you'll have $9600 in the bank at then end of two years. Even if you spent $1000 on car repairs to your current car you still have $8600 in the bank

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+1 This was very insightful information and useful in advancing my understanding of the trade-offs. Thank you so much for your time. –  Legend Apr 9 '13 at 19:24
    
@Legend just added an edit to my answer, the last paragraph says it all :) –  Larry Apr 10 '13 at 2:26
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In terms of doing the math, you also need to consider insurance. If you're buying a new car with a loan, you're going to have to have full coverage insurance on it, and you're going to pay a lot for that. If you have an old used car, you're free to have just liability, or with the much-lower value on the vehicle, full coverage is much more affordable. Even if the payment is only $350, you might easily be paying $500 a month once you add insurance (depending a lot on where you live). –  R.. Apr 10 '13 at 2:54
    
@R.. Excellent point. Insurance will certainly be higher on a new car. –  Larry Apr 10 '13 at 12:45
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I got a good deal on a 6/7 year old Honda £6000 with 21,000 on the clock FSH from a dealership (just for the piece of mind when spending that much money at once). Due the way Honda's hold their value I should be able to sell it in 1/2 years for around £5000 if I don't put much on the clock and service it. Thought I would just give my little input as an example of getting a reasonable deal without losing much. –  CodeBlend Apr 24 '13 at 14:18
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At least in the UK there is not VAT on used cars meaning that a new car loses 20% of it's value as soon as your new cars tyres touch the road.

As for fixing up the old car, well it's the cheapest option and like @hillsons said, it means you don't have monthly payments but will the car be reliable... difficult to tell.

The latest finance deals on new cars are tempting I can see but there is also finance deals for used cars from certain dealers and these can come with equally decent finance rates, so that would be my advice. Go for a 1-2 year old car with a few miles on the clock but a lot more money in your pocket.

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I would definitely fix it, but if you want to save some money, you could skip some of those repairs or do them yourself. My opinions on them:

  1. Brake pads. Let a professional do it unless you're comfortable working on cars. Brakes are important for safety and you don't want to screw it up.

  2. Upper control arm. Front or rear? What's wrong with it? My guess would be worn out bushings or ball joint. If it's not very bad you might could put off doing this. If you want to do it yourself, you definitely could, but it's a bit ugly, and you could end up with nasty problems like bolts breaking off or damaging a ball joint boot. If it really needs to be done, I'd let a professional do it.

  3. Valve cover gaskets. Replacing them on a Honda is so easy anybody can do it. Unless you have a bad oil leak though it's also not really necessary.

  4. Power steering pump. I'm a bit surprised this is bad on such a new vehicle, and even more surprised you could get it replaced within that $650 budget. I'd ask more about what's wrong.

  5. Axle seal. Not sure which seal they're talking about, but this is probably something you want to leave to a professional, if it needs to be done at all.

  6. Wheel alignment. This is also something easy to do yourself if you know how to perform a binary-search, but it takes a good bit of time/trial-and-error to do it that way.

Overall, I'm really surprised at the $650 estimate (it sounds very low for all that work, especially if it's including parts), but at the same time, I'm surprised some of those things already need service on a 13-year-old car. I would think the mechanic was trying to rip you off with unnecessary services if the quoted price weren't so low.

In any case, yes, keep the car. If it's borderline whether you can afford the service, do some of the stuff yourself, or get the important stuff done first and then space out the rest as you can afford it.

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At 13 years old, I can see all those repair being necessary. Many cars may not need that much attention, but I've definitely seen ones of that age that needed that plus more. My un-scientific opinion is that Honda and Toyota reached peak quality in the '90s. The stuff from both of them 2000 and newer just seems to need more repairs. –  Brian Knoblauch Apr 9 '13 at 17:08
    
+1 Thank you. To give you a bit of context, I first got a quote from Firestone - they told me it would take $1600 to fix these problems (break-down was $700 for the parts and the rest for labor and tax). I went back to my mechanic to see if he could fix anything at a lower cost. He told me that because I'm a student he would not charge me the labor costs and that he could get everything done in one full day. As for the upper control arm, they said that the ball joint was breaking off. As for the power steering pump, my mechanic said, he did not feel there was a problem so –  Legend Apr 9 '13 at 19:21
    
he said he will hold off doing this until he does more tests. I have scheduled an appointment with him tomorrow to see what all things need to be changed in the end. I'll post here. Thanks once again! –  Legend Apr 9 '13 at 19:23
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