Unfortunately, if you’re one of those Americans, you may find yourself facing a difficult choice if you have a vehicle that does end up requiring expensive repairs. Let’s say, for example, that Samantha has a car she owes $13,000 on, and it’s worth about the amount she owes.
Unfortunately, the vehicle needs a new engine, which she can’t afford, as it costs $9,000.
The good news for Samantha is, unlike close to 30% of Americans turning in their vehicles, she’s not underwater on her vehicle (which means owing more than it’s worth). But since it’s worth the amount of her loan, she can’t sell it at a profit and walk away either.
She’s facing an impossible choice: fund repairs she can’t afford that cost more than half the car’s value, or buy a new car, which could be an even bigger financial burden.
When does it pay to make a costly repair?
The first thing Samantha must decide is whether the repairs are even worth paying for. And the answer may not be what you’d expect.
“If a car is worth $13,000 and needs a $9,000 engine repair, don’t make the decision based on those two numbers alone,” Alan “Ollie” Gelfand, automotive repair expert and founder of German Car Depot in South Florida, told Moneywise. “Look at the condition of the rest of the car and its maintenance history. Is the mileage low? Is the transmission good? How about the suspension and electronics? Does the replacement engine come with a warranty?”
Gelfand explained that if the car is in excellent condition and buying a dependable used car would cost the same or more, it may be worth making the investment to keep it running. “But if the car also needs a transmission, has neglected suspension, is rusty, or will require other costly repairs soon, then the $9,000 engine repair may only be the beginning,” he warned.
Samantha should also consider why the repairs are necessary and what they’ll involve, as that could affect the likelihood that she’ll need to make further fixes.
“If the prior engine failed due to overheating or insufficient lubrication, additional repairs may be needed, including possibly replacing head gaskets,” Luke Oswald, an automotive specialist at Wheels Away, told Moneywise. “It’s also essential to know if the replacement engine is new, has been rebuilt or refurbished, or is several years old.”
