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I have a high-mileage car on which I'm still making payments. The monthly payments are ok, but the monthly repairs are getting out of hand. Should I take money out of savings to pay off the balance (about $6 k) or try to roll it into an auto loan on a new (inexpensive) car.

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Answers (1)

Answers (1)

Making car decisions can have a big impact on your financial situation, so I'm glad you are reaching out.  

 

I'm sorry that you've had several repair costs come your way, and it can be even tougher to pay both repairs and a loan payment.  Without knowing your full situation it's hard for me to say if you should buy another inexpensive car or payoff the loan, but I'll give you a few things to think about.

 

1. Keep emergency funds in place.  Ideally you want to have 3 months of living expenses in place, but you don't want to take your cash reserve below $1,000.  You know that other unexpected costs will come up, and you want to make sure you have funds available.  You didn't say how much you keep in savings, but keep this in mind if you wind up paying off the old car.

 

2.  I like your thought of buying a used/inexpensive car when that time comes.  The value of your car drops with every year you own it, and as you add miles to it.  You also incur interest cost, if you have a loan on it. So going with a more affordable car can save you in multiple ways.

 

3. Reliability may be worth paying for. Some people don't mind a car they need to work on from time to time, but consider the stress and uncertainty that comes with a fixer-upper.  If your old car needs a ton of work, it may be time to retire it for an inexpensive replacement.

 

If your current car is still in decent shape, I'm leaning towards the "Pay off the loan" option, as long as it doesn't leave your savings completely drained.  If you have no car payment, any small repairs needed may have less sting to them.  Consider if you have a new car loan of $200 per month versus spending the occasional $100 for a repair,  your old car may cost less in the short run.

 

Finally, if you do pay off your car, its important that you "Pay a Payment" to yourself by putting cash in your savings on a monthly basis.  Consider socking it away in a separate savings account or "Car Fund" so you'll be better prepared for buying the next car.

 

Thanks for the question, and good luck.

 

-Matthew