by Mike Jones, President and CEO
Is your car getting old? Are you wondering whether it’s time to start the process of buying a new car? Or maybe it’s time to get an extended car warranty to help with the costs of repairs? Every vehicle owner’s situation is different, and there’s no cut-and-dry answer. But there are several factors to consider to help make the choice a little easier.
Your Vehicle’s History
What is the year, make, model, and mileage of your current vehicle? The answer to this plays a significant role in deciding whether it’s the right time to buy a new car. If your vehicle is known for having major issues after a certain mileage or if your model year has quality issues, buying a new car may be a better choice. However, if your car is only 5 years old, under 100,000 miles, and it doesn’t have any known major issues, it is probably smart to keep driving it – especially if you get an extended auto warranty or vehicle protection plan.
Consider the condition of your vehicle and its history of reliability. If your car looks good and you have kept up with maintenance and repairs, then it will likely last you well into the future. Today’s cars can drive more than 200,000 miles when taken care of properly. If you add an extended car warranty or vehicle protection plan to the mix, keeping your current car is an even better choice. Once your monthly maintenance and repair expenses start to go above that of a new car payment, then it might be smart to start shopping for a new car.
The Current Value of Your Vehicle
With the average price of a new vehicle in 2020 sitting at $37,000, more and more people are choosing to keep their vehicles longer than ever before. Even an economy car’s price starts at $15,000. A new vehicle requires a down payment, an ongoing monthly payment, insurance, and registration.
The high cost of buying a new car should give you a reason to consider the value of your current vehicle and see if it would be wise to keep it a bit longer. Practically speaking, it’s nearly always cheaper to keep your current car than to buy a new one, even when faced with a huge repair bill. That expense could be worthwhile as long as your vehicle is otherwise in good condition.
But at what point does a repair become too expensive? That’s when knowing the current value of your vehicle comes into play. Many experts recommend the 50% rule. This rule says that when a needed repair for a vehicle is expected to be 50% or more of the estimated resale value, it’s probably not worth doing and it’s time to shop for a new car.
The Cost of Insurance and Registration
As mentioned above, car insurance and registration fees are normally higher for a new vehicle. Both are based at least partly on the value of a vehicle and new vehicles usually cost more than old vehicles – unless you currently drive a classic car or are planning to downgrade from an older luxury vehicle to a new economy vehicle. Therefore, buying a new car won’t just add a car payment, it will also add additional costs for insurance and registration.
Extended Coverage for Your Vehicle
Buying an extended car warranty or a vehicle protection plan can help make keeping your vehicle longer easier and more affordable. Extended coverage plans generally cover at least part of the costs for specific repairs after the original manufacturer’s warranty is expired. This helps you by avoiding unexpected large repair bills. Even better, many vehicle protection plans include additional features and benefits like roadside assistance, rental car reimbursement, and nationwide breakdown coverage that can help save you stress and money if your vehicle breaks down.
But is keeping your current vehicle and buying extended coverage the right choice, rather than buying a new car? Oftentimes, yes. However, you should consider the following before making that decision.
How Long You Plan to Keep the Vehicle
If your work requires your vehicle to meet certain standards, if you drive a lot for your work, or if your vehicle needs to meet certain aesthetic standards to impress clients and such, then keeping your car as long as possible may not be an option and you may want to consider buying a new car. However, if you prefer to or need to (for budgetary reasons) keep your vehicle for a long time, especially after it’s paid off, then you would want to do whatever possible to keep it in good condition. In this case, an extended warranty or vehicle protection plan could be a smart choice.
Level of Coverage Available
Extended coverage plans come in all shapes and sizes, but how much coverage you get depends on your vehicle and how many miles it has. Coverage levels range from basic powertrain (components listed in the engine, transmission and drive axles) to comprehensive exclusionary coverage similar to the manufacturer’s original warranty. You will need quotes from a few different companies to see if you can get the level of coverage that fits your needs.
The Cost of Extended Coverage Plans
Many factors affect the cost of extended coverage plans – make, model, year, mileage, type of coverage, level of coverage, etc. The amount of coverage available tends to diminish and the cost of coverage tends to increase as your vehicle ages with time and miles. You should get at least a few quotes for different plans from different companies to see the cost and what makes sense for you. If the cost of coverage is considerably less than a new car payment and your vehicle is in good condition, it likely makes sense to keep your car and get extended coverage. If your vehicle is old enough or expensive enough that it makes extended coverage equal to the cost of a new car payment, then it may be time to start the process of buying a new car.
Finally, be sure to check the maximum liability of any plan that you’re considering. All coverage contracts will specify the maximum amount of liability that the provider is responsible for. This is a cumulative number for all claims paid during the term of the coverage. Make sure it is high enough to justify the cost of the coverage. Some contracts base the maximum liability on the actual cash value or ACV of the vehicle. Other contracts specify a fixed maximum amount. For example, an older, higher mileage vehicle may only have a cash value of say $4000. It’s not a good bet to buy a policy or plan that costs $3000 if the contract specifies the maximum payout is based on ACV and the ACV of your vehicle is $4000. A good rule of thumb is that the plan coverage should have a maximum liability of at least 2.5 times what you pay for the policy. So in the example above, look for a policy that has at least $7500 of maximum liability.
Are you still unsure of what to do? Our agents here at autopom! are more than happy to help customers with this decision. We will typically interview the customer to determine their unique needs and then run several quotes from multiple administrators/providers that we represent to give them a choice of options. Ultimately, it is a personal decision to sell and buy new vs. keep and buy coverage, but being armed with good information about the cost, coverage levels, and other factors can help the vehicle owner make an informed decision. autopom! agents are happy to help you find the plan best suited for your vehicle and your budget. Contact us today!