Should I keep it, fix it or trade it in?
The real question should be, "Will my old car cost me more a month to drive (in fuel, maintenance and insurance) than another newer or better car?".
Think of big maintenance bills simply as a car rental fee. What would my car be worth a month to drive if I could just rent it? Would it be worth $200 or $600?
I tell everyone that ANY car is worth $200 a month to drive or $2400 a year for the privilege of having the car at your disposal. Other cars and trucks are worth more. A three year old Toyota may be worth $300 a month, a new Suburban can be worth $400 a month and a new Mercedes may be worth $500 or more. But basically, any car is at least worth $200 or $300 a month to drive.
Almost always, you can have a new engine installed in your old car for under the tax and license fees of a new car. So freshening up an old car, that has been somewhat trouble free and has a decent interior and exterior will be cheaper in the long run that buying a new one. On the other hand, if you simply want a new car, then get one and don't try to rationalize it.
Here's how I look at this issue. If I had an older car with a bad transmission and the cost to have the transmission rebuilt was $1,800, I would ask myself, can I get another 9 months out of this car and not have anything else major happen? ($1,800 divided by $200 a month = 9 months of use to pay for the transmission) If I get 9 months of trouble free driving then all I have done is pay $200 a month for the car and that money paid for the transmission. No matter what you drive that 9 months, you still have pretty much the same fuel and insurance costs so those costs can't be figured into this equation.
When an old car owner gets into trouble is when one major repair after the other happens and they never get the first one paid for in "use" before they have to pay another one. So 6 months after you spent $1,800 for a new transmission and before you get to use the car for 9 months to benefit from the miles you bought when you paid for the transmission overhaul, the rack and pinion goes bad and it costs $800 to replace it and that will add another 4 months you need to get before the cost of the repairs are paid in "use". But before the 13 months are up (9+4=13), something else major happens and you never get ahead. That's when it's time to bail out and get rid of that car.
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