A common question in the personal finance debate goes something like this:

Ok, ok. So car payments are bad. I get it. But isn’t driving an older car and paying for repairs all the time even more expensive?

This is a great question. The challenge is that it sounds like you can already hear the answer.

Of course driving an older car is more expensive. Have you seen maintenance prices at mechanic shops lately? I need my car to be reliable. I need to know nothing is going to break, so I’ll pay the monthly payment on a newer car for the peace of mind.

It seems to make so much sense as long as you never do the math – and most people don’t.

Now, believe it or not, this question came up in our house just a few weeks ago.

You may recall that I’m currently driving a 2002 Toyota Highlander. Yes, a 15-year-old car. I’ve been waiting for it to burst into flames on the side of the road for about 3 years now, but the thing just won’t die. But lately it’s started giving us clues that it’s life is running short, so we’re about to embark on our tried and true method for buying our next car with cash.

That’s when my wife asked this legitimate question about whether we would be better off financially just getting a newer car with a car payment to avoid all the maintenance costs?

Maintenance Costs Only Make Sense in Context

In the past, we’ve had some pretty big maintenance bills. Like in the several thousand dollar range. And trust me, those stick in your head especially when you’re putting that kind of money into, say, a 10, 12 or 15-year-old car that isn’t even worth that much. I mean, what kind of idiots mismanage their money like that?

Well, I’ll concede that I often find myself in the idiot category on a lot of things, but not on this one. You see, you can’t judge a car by one maintenance bill. Maintenance is a long term process and has to be viewed in context to see what it’s really costing you. Of course, most people don’t have the patience for this. They’ll have one costly repair on their “old” car and go racing into the closest dealership to gladly fork over tens of thousands more dollars for a soft cushy cup of “peace of mind”.

My wife’s question got me thinking though, but instead of running to a car dealership, I went racing to a spreadsheet. Weird, I know, but that’s how we roll.

What Have These Old Cars Been Costing Us?

As we dive in to see exactly what maintaining these older cars has been costing us, one quick note – we are not going to include regular maintenance costs like oil changes, tires, batteries, etc. because these are all costs you would have even if you bought a brand new vehicle, you would just have a hefty monthly car payment to go along with those costs. Ouch!

So let’s start with my trusty ol’ 2002 Toyota Highlander. We bought it in 2009, a healthy 7 years old already. You might assume this car was getting very acquainted with our mechanic pretty quickly, yes?

Actually, our mechanic didn’t get to meet her in 2009. Or 2010. Or even 2011. The first time we ever took her into the shop was in 2014. That’s right. We drove the car for 5 years without ever paying a dime in maintenance. So much for older cars being a money pit.

Now, to be fair, that first trip to the shop cost $3,261.81. Wowzers! Thank goodness we have our fully funded emergency fund so we could pay cash for this meaty repair. But remember, you can’t judge maintenance costs by a single bill.

Here’s what our maintenance records show for our Highlander.

Date Vehicle Cost
02/04/14 Highlander $3,261.81
04/07/14 Highlander $367.61
09/02/14 Highlander $1,839.40
09/15/14 Highlander $191.50
04/01/16 Highlander $148.79
07/06/17 Highlander $223.72
Total $6,032.83

After those free-wheeling first five years, you’ll see we had the Highlander in the shop several times starting in 2014. That first bill was the largest. The smallest was just $148.79. In fact, 4 of the bills were all less than $400. You should also note that in 2015 we didn’t pay a single dime in maintenance, and that smallest bill, $148.79, was all we spent for the whole year in 2016.

In total, we’ve paid $6,032 in maintenance over the last 8 years, and now we can properly see that first bill of $3,261.81 was over half our entire maintenance cost over the 8 year period. It doesn’t look quite as bad now, but people often see that kind of bill one time and assume they are going to spend that kind of money every time they go to the shop. It’s an emotional trigger that you have to reject because it’s just not true. Again, 4 of the 6 repairs were less than $400.

The better way to look at this is to see that our average maintenance costs for our 2002 Highlander has been just $754.10 a year – or just $62.84 per month!

Now go down and buy a brand new vehicle fresh off the lot with less than 5 miles on the odometer and I guarantee you’ll pay more than $60 a month on average in “regularly scheduled” maintenance on top of your monthly car payment. That’s some expensive peace of mind.

Don’t Forget the Minivan!

But we don’t just own one vehicle. My wife drives a beautiful 2009 Toyota Sienna minivan that we bought in 2015. (Yes, with four kids we are minivan people.) Again we paid cash, so no car payment here. This vehicle was a wonderful 6 years old when we bought it.

Just looking at our Highlander maintenance costs only tells half the story. We have to factor in the Sienna too.

So in the last two years, here’s what we’ve paid in maintenance on our Sienna.

Date Vehicle Cost
03/17/16 Sienna $2,722.37
11/17/16 Sienna $692.45
09/07/17 Sienna $604.63
Total $4,140.95

The first thing you’ll likely notice is that the first repair bill is again the most expensive. When we buy our gently used cars, we typically go heavy on the repairs the first trip to the shop. This sets us up for quality driving for many years to come.

The next thing you might notice is that in just 2 years we’ve already paid 75% of the maintenance costs that we put into the Highlander over 8 years. This isn’t because the Sienna is in worse condition or going to be a maintenance hog. It’s mostly because this is our “family” and “road trip” vehicle, which means we just care more. My Highlander just needs to get me back and forth to work, so if the A/C isn’t ice cold or there’s a funny squeak in the rear quarter panel, I’m not paying money to fix that. But if the Sienna has a slow leak in one of the tires, we’re fixing that asap.

So now you can see that between both vehicles we have spent $10,173.78 in maintenance over the past 8 years. That’s $1,271.72 a year, or $105.98 a month.

Spending $100 a Month Saves Us Money

So how does spending $100 a month on maintenance save us money?

It’s all about investing the difference in what we would have spent in a car payment.

Let’s assume that our alternative was to buy a fancy new car that came with a hefty $500 a month car payment. But we chose the option of paying cash for a used car, then paying on average $105.98 a month for maintenance. To keep the math simple, let’s just round that up to an even $120 per month in maintenance costs.

So instead of having a $500 car payment, we have a $120 monthly maintenance cost, which leaves us $380 every single month that we can do whatever we want with.

Now if we just put our $380 into a cookie jar each month, over the course of 8 years we would end up with $36,480! That’s a pretty healthy cookie jar!

But we didn’t do that. Instead we invested that $380 each month in the stock market. Now the market goes up and down, but over time you get an average return. Let’s assume that over the past 8 years we were able to get an average annual return of just 5% on our money. That alone would turn our $36,480 into $44,105.37. That means we not only saved over $36,000, but we were able to make an additional $7,000 on top of that!

Now we can’t take full ownership of this $44,105.37. Remember, we did pay for maintenance on those older cars to the tune of $10,173.78.

Subtracting that out, you’ll see we still ended up saving $33,931.61.

And that’s exactly how we saved over $30,000 in 8 years by choosing to drive older cars and just paying the maintenance costs.

So if you’re struggling with the pure math between driving that fancy new car with a car payment or driving a reliable older car and just paying maintenance, all signs – including my calculator and our investment portfolio – say older is the way to go.

Our Assumptions

  1. We assumed an average new car payment of $500 per month. If you think a lower car payment solves the problem, remember, i didn’t figure in the interest on that $500 or the depreciation of the car. So getting a car payment as low as $120 a month (if that’s even possible) won’t make you break even. You’ll still be worse off because of those two factors.

  2. We only assumed a single car payment. But we drive two cars! If we factor in two $500 car payments…oh geez…I just got light headed. Just don’t.

  3. We assumed an annual investment return of 5%. We actually received better returns than that, but rather than quibble over “realistic” market returns, we just picked a safe low number. The reality is we made even more money than what we describe here.

  4. Of course all of this is made possible by being able to pay cash for a reliable used car. That’s a huge step by itself. We detail how we’ve been able to do this here.

  5. Obviously, not all used cars are created equal. There are some lemons out there, and that scares a lot of people away. But if you follow our tried and true method for buying a used car, your chances of getting a great car that will last many years go way up.

Do you drive older, gently used cars too? What has been your favorite? Let me know in the comments how that car made you feel knowing you weren’t getting hammered by new-car prices.