Car Repairs – Scrap it, Park it, or Fix it?

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Job loss – prepare by saving or debt reduction?

DFA reader Benedictus asked:

  1. Should I spend another $6,000 to fix a vehicle that is only worth $4,800?
  2. Should we just park the vehicle until we can save enough money to fix it and continue to make $291 monthly car payments and $75 monthly insurance payments until we can save up $6,000 (which would certainly be a year or more)
  3. Should I sell the minivan for parts/needed repair and use that money to buy another older used car with unknown problems and high mileage?
  4. Should I borrow the money to do the repairs, spending more to repair it than the vehicle is even worth, and having to pay both a car note and repair note?
  5. What is the best angle, financially, to deal with this situation?

We have a 2006 Dodge Caravan Minivan with 52,000 miles that we purchased new in 2006. It has a 3-year/36,000 mile warranty. We had the van in the repair shop and found out yesterday that the entire engine will have to be replaced at a cost of +/- $6,000. We owe about $5,800 on the vehicle. Trade-in is around $3,200 and private party value is about $4,800. However, neither of those two figures matters because it would have to be repaired first before we sold it or traded it in. WE DO NOT HAVE $6,000 TO REPAIR THE VEHICLE. My husband just recently had to take a second job delivering pizza just to make ends meet and we just started working on re-building an emergency fund after our previous $15,000+ emergency fund was depleted from him being out of work for 5 months before he got the supplemental pizza delivery job. I don’t want to borrow money to fix the car because I would be paying a car note and a repair note. We could almost buy two older used vehicles for what it is going to cost to repair our minivan and I would have to have a vehicle large enough for a family with three children. Then I would be getting an older car with someone else’s problems. Even if we purchased two older vehicles instead of repairing my minivan, then I have a useless 3 1/2 year old vehicle sitting in my driveway. The only solution I could come up with was for us to park the vehicle and be a one-vehicle family until we could save the money to fix it, but I hate to keep making $291 monthly car payments and $75 monthly insurance payments on a vehicle we can’t even drive.

~Thank you, Benedictus

What Makes The Most Financial Sense?

There are many variables here, so naturally you have questions. I will try to answer all of them beginning with your last, “What makes the most sense financially? The answer to this question is usually, “Do not go further into debt.” In fact, owing money on this vehicle is a big part of your dilemma. Adding more debt will only compound the problem. Therefore, I would say the one thing you absolutely should not do is borrow money for the repairs (this is Debt Free Adventure after all.)  With that option off the table, we will look at the pro’s and con’s of the other possibilities you listed.

Scrap It?

In situations like this, we tend to feel let down by the vehicle we have. This makes us want to junk what we have, and try for anything different. Caution is warranted, as disappointing as it is, solid vehicles break down sometimes, and recklessly jumping to another vehicle may not alleviate the problem. As you noted, few people sell perfectly good cars, so anything we buy will have problems of their own. That being said, if you have to have another vehicle now, a used car that you can afford may be the only option.

Park It?

Unfortunately, the payments will have to be made no matter what you decide. Since you owe more than the vehicle is worth in its present condition, whether you scrap it, park it, or fix it, you will have to keep paying on the car note. More unfortunately, it is likely that you will have to maintain full insurance coverage as a condition of the car loan even if you park the vehicle. Check your loan documentation to find out for sure. If the option is available, you could save money by parking the van, and only maintaining the comprehensive coverage.

Fix It?

You may not have the money now, but once you save up the money, this is still a good option. While the vehicle may not be “worth” that much, that is not an important consideration. Vehicles are an expense, not an investment. We spend money on vehicles for transportation, and eventually they end up being worth $0. What that means is you are asking the wrong question. The question is not whether it is worth $6,000 to fix your van, it is whether $6,000 would buy a better vehicle. The answer depends upon your local used car market, but consider that because you bought this van new, you know if it has been maintained. That is worth something and should be factored into your calculation. If a better vehicle is available, buy it, if not, fix the one you have. Finally, before you make a decision on this point, I would get a second estimate on the engine. $6,000 sounds a little steep to replace the engine in a domestic vehicle; I would have expected it to be closer to $4,000.

In Summary – What is the best way to deal with this situation?

  1. Should I borrow the money to do the repairs? No.
  2. Should we continue to make payments while we save? Yes, the payments must be made no matter what you decide as the van is worth less than you owe.
  3. Should I spend $6,000 to fix a vehicle that is only worth $4,800? Yes, if a better vehicle cannot be bought for the same amount.
  4. Should I sell the minivan? No, better to still have the van after making payments, than to sell it and make payments on nothing.

I think you were on the right track before you wrote to us. If I were in your situation, I would live for a time as a one-car family. Your financial situation makes this necessary. While it is no fun paying for a broken car, a contract is a contract. Learn from the experience; buy your next car in cash. Save your money for the repair; next year you will be a two-car family again; your low-mileage van will have a brand-new engine, and you will be one step closer to being debt-free.

Do you have any other advice for Benedictus?

Have something to add?  Please share your wisdom and experience and help point Benedictus in the right direction.  Thanks!

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1 John VonDo

It truly is a very difficult situation you are in. You appear to be very sincere in your efforts to make a wise decision in your next crucial step. “In a multitude of counselors there is safety.”

I would echo Matt’s sentiments that it is crucial to get a second and even third estimate on the repairs (because of the cost of this decision). There is always the hope that they were wrong in their diagnosis or overpriced in their estimate. In difficult times many businesses take advantage of difficult situations such as yours and over-estimate to try to remedy their own financial position. Others will under-estimate for the same reason.

Good information is key to making good informed decisions. Ask around for a good, economical mechanic. Good decisions are paramount on the debt free adventure. Ask yourself honestly, what do I WANT to do? Don’t allow that to influence your decision. That is what causes the need for a DFA.

2 Jon

All good advice John, but you may notice that Matt didn’t write this particular article.

3 Sonia

Hello Jon, this is inconsequential to the root issue! Semantics!

4 thisisbeth

Most cars have seatbelts for five, so if you have three kids, most cars will work. It’s not the most comfortable or easiest–especially if all three are small enough to be in car seats–but it’s still possible.

5 Neil

I disagree with the conclusion. A car that has a higher repair bill than its market value is ready for the scrap yard. Parting it out may yield more than its market value (and best of all, probably still has some value in its current condition). At 4 years old, it’s no wonder Chrysler went bankrupt.

Few people honestly need 2 cars. Unless you both work jobs that require you to drive (at work, as there is almost always a cheaper alternative to driving to work), then it’s just a very expensive convenience.

If the car loan requires full insurance, then look into what it would cost to pay it off with an line of credit. If the difference is less than the cost of insurance, then that’s your ticket. Then you can either scrap the car or park it and use the savings to clear the debt faster.

Financially the best alternative is probably to arrange an “accident,” and get insurance to pay out.

6 Budgeting in the Fun Stuff

Let’s avoid illegal alternatives… 🙂

7 FernWise

I suggest that you search online for ‘hidden/secret warranties’ before you make any decision. It could be that your Caravan has a problem that Chrysler knows about but hasn’t been upfront about. If you have not done any driving that should have toasted the engine, after all, then the engine shouldn’t need replacing this soon.

8 Budgeting in the Fun Stuff

I think Robert is spot on…park it until you can afford to fix it or buy a better $6000 car. You aren’t making payments on a broken car, you’re just paying off the car you bought 3 1/2 years ago.

I do feel your pain though since my Chevy Aveo is 5 years old, has less than 42,000 miles on it, and I’ve already had to replace a cracked serpentine belt, broken 02 sensor, and a cracked-in-half thermostat housing since my car was made with bad parts. It also wears down tires way faster than any other car I’ve ever heard of…

9 ChrisFM

I’m of the opinion that in the medium to long run, it would be better to just let it go. That’s sort of easy for me to say, seeing that I drive a beater that was all but given to me. 😉

Best of luck.

10 Jim

$6000 seems a bit high for an engine repair to me as well. Another option that has not yet been explored is the possibility of replacing the engine with a used one. This could cut thousands of dollars of the cost of repair and make it an easier decision. I agree that cars can be very frustrating when you start adding up the costs. This car is relatively new and should have lots of life left in it, so I don’t think I would be against such a repair. If you can, try to use one car while you save up money and shop around for the best rate and a good used engine.

This is another great example of how the depreciation costs associated with buying new can really hinder your options down the road.

11 Thomas

Wow! What a dilemma! As implied by the multitude of reponses, there is no real easy way out of this one. It’s going to take some sacrifice on your part to get through this. Here are a few questions/points I’d like to bring up:

1. Is a minivan a necessity at this point in your life? If so, I’d say go ahead and save up, get the car fixed, replenish your emergency fund back to around $1,000 and then work hard to pay off the car loan. If the van is not a necessity, I’d say split your savings 50/50: half towards car repairs and half towards paying down the principal on the loan.
2. Are you planning to go back to work? If so, your recovery might be faster than you think. Even if you got something part time. Heck, after the van is repaired, you could continue to work and dump all your earnings into paying off the car.
3. Are there other areas in your life right now that you could cut back on to save some money? It sounds like you guys might be in a tight spot right now and may already be cutting back. If not, now’s the time. : )

12 Financial Bondage

tough call. wow. sorry to hear this.

can you refinance the car with a loan for the extra $ to replace the engine? then just make payments on the balance, try to pay off asap. I mean spending the $6k is still cheaper than getting another car.

did you buy this car from a dealer? Id write them a letter, trying to get them to pay for 1/2 of the engine. it should not have gone bad so early

13 Jim

I love the idea about writing the car dealership or the manufacturer. 52,000 miles is not a long life on a brand new car. It would definately help if you had the receipts from the different services you have performed on the van. It is worth a shot, even if they can cover some of the cost. Good luck!

14 james presta

oh wow my friend you are in a very tough pickle, you will be better off keeping the minivan because in the long run it will help you out.

15 I Stop for Pennies

Your best option is the one Jim recommended. Get SEVERAL quotes on a used engine. $6,000 sounds a little steep when I’ve heard several low $3k quotes for other vehicles.

A rule of thumb with these situations is if the scrap value + repairs is larger than the value of the car then it’s not worth repairing. It sounds like you fall into this situation unless you find a cheaper engine. Best of luck.

16 KimC

I agree with the recommendations to get additional quotes, but don’t limit yourself to yellow pages auto garages.
We’re about to have the engine in our Mazda replaced. We have found used ones locally for $400-700, and will be paying a knowledgeable friend a few hundred to install it for us when he has a free weekend.
Swapping out engines isn’t like changing the oil in your car, but for someone with the proper tools and experience, it’s actually not a huge job. You may find you know someone with more time than money who can save you thousands of dollars.

17 Kate

I would definitely get an estimate from another mechanic. I just rebuilt the engine in my Jetta and that was $4k with getting a new clutch and some other work done at the same time.

You can also look into used engines.

18 BG

I wouldn’t even replace the engine — why can’t it be fixed? Rebuilding a motor is what? $2,000 or so?

Unless you cracked the block or something. $6,000 could replace everything under the hood (engine, powersteering, AC, etc, etc). Find a better mechanic.

19 Jenna

If you do decide to park it until you come up with the money, make sure to cancel your insurance on the car (or lower it). That will save you some money.

20 Steve in W MA

Hubby is out of work, why doesn’t he get about $500 worth of tools and learn to change the engine out himself. What else have you been doing with your time?

A used engine will run you a maximum of $1000, in fact I’d guess most likely around $600.

With a reasonable tool set and a rented engine hoist and jack stand, hubby and you can drop a new engine in yourself over a weekend or a couple of weekends since you are novices.

21 damion

Thank you so much. we are now in a similar situation. i was considering getting another credit card to fix the vehicle, but that would only exascerbate the situation. Thankks a bunch and God bless!!

22 Savinsacrificing

Oh I actually am in a similar situation, so these interesting posts have helped me to be more clear. I love what Budgeting said, you are not paying for a broken vehicle, just one that is a few years old & has some issues
Whatever you do, always ask yourself(& sometimes do the math) “is this decision going to hinder or help my financial goals?”
If it will set you back, reconsider it 3X & ask if it is worth the setback. There are cultures in USA & worldwide(mostly) where people are taught form a young age to sacrifice, live below their means & set goals, so they can reap the rewards later. We are not necessarily pushed towards this in America.
Therefore, we have 70% of Americans over-indebted with credit cards & other debt! … this recession should have taught us all a lot!
the sacrifice of being 1 automobile family for a while is a great one.
& yes, the used engine suggestions & engine repair as opposed to replacement ideas are brilliant. The more you educate yourself on your situation, the wiser your decision will be!
Really think about what adding new debt to your situation will do to you.
Then think about how it will feel when you pay off the repairs in cash after a little sacrifice & then be able to drive your van worry free! – & owing less on it too

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