The car-buying world has two camps: those who keep a car until it falls apart and those who think a new car will change their lives.

To the first group, a round of applause. Nothing short of shoe leather is cheaper than keeping a car until it crumbles into a pile of rust. Most cars can be nursed to 200,000 miles without endangering your life; in fact, one in eight trade-ins has more than 180,000 miles, according to the experts at Trade-In Quality Index.

To the second group, hearty thanks, because the millions of new cars they buy every year instantly become used cars soon available at a big discount to those in Camp 1. Unfortunately, a new car will change their lives in ways they never saw coming at the dealership.

A typical new car is about $32,000, according to, about $460 a month for five years after 20 percent down. That’s $5,520 a year just on payments. But a new car needs better insurance, too.

The average cost of full coverage auto insurance on a 2014 model, according to data gathered for by Quadrant Information Services, is $1,520 a year – and about $900 of that goes to comprehensive and collision coverage, required for any new car you finance.  That’s $75 a month.

All told, that’s $535 a month to scratch your new-car itch.

Let’s deal with the rationalizations first:

My car is too small, or too old:  Why buy a gas-sucking pickup because you visit the lumberyard twice a year, or a $40,000 sport-utility because you take the kids skiing for a week at Easter? Even at $200 a weekend, renting is far cheaper than a car payment. Or you can swap cars with a friend, returning it gassed up and clean.

Those repairs add up: Even a new transmission or engine is less expensive than all but the cheapest used cars. A $1,500 engine rebuild that keeps your 1999 Escort on the road still makes good financial sense if you continue to drive the car for just a few months. Frankly, if you can't afford repairs, it's unlikely you can afford a monthly payment.

I'm nervous driving an older car. You might simply spend $50 on a AAA membership and carry a cell phone. Even new cars aren't immune to mechanical failure. Consider enrolling in a car-sharing service, like ZipCar, for those times when your car is laid up. And remind yourself that every month that rolls by without a car payment gives you the financial flexibility to cope with life’s other uncertainties.

The repair costs more than the car is worth. It's at this point, however, that all but the flintiest drivers begin to think about upgrading, which brings us to our next question:

Am I ready for a newer car?
Step 1 is to write yourself a check to yourself in the amount you think you can afford every month. Put aside a car payment every month for three months.

To pass the time, call your bank, to find out what kind of rates they charge people with your credit history; shop for auto insurance, to compare auto insurance quotes on a model you think you'd like to buy; and visit the local DMV website, to see what registration and licensing would cost.

Once three months have passed, ask yourself:

  • How much did it hurt? If you skimped at all on other bills or shorted the amount of the payment, you're not ready.
  • Would I have enough left over to pay for insurance and licensing fees each year?
  • Would I pay this much every month for the car that's in my driveway already? Sooner or later, you'll feel about the next car just the way you do about your old clunker – and you still may be making payments on it.
  • Would I rather have the cash? Our typical car and insurance payment, $535, adds up to more than $1,600 in just three short months. Perhaps you'd prefer to get a tan in Mexico.
  • Could I continue to save for another year and simply pay cash? Eight grand would buy any of hundreds of reliable used models. Save for two years and you're in new-car territory, if your old car will fetch a few thousand.

If the craving hasn't passed in three months, you begin the shopping process with a few payments in the bank and a better idea of the costs involved.

This article Keep Your Clunker or Buy a New Car? originally appeared on

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