Repair or Replace? The $2,000 Rule Everyone Gets Wrong

Your mechanic just told you the car needs $3,000 in repairs. Your first thought: “I should just get a new car.”

But should you? The answer isn’t obvious—and the common “rules” are often wrong.

The Popular Rules (And Why They’re Flawed)

You’ve probably heard these:

“Never repair more than the car is worth” Problem: A $3,000 car that needs $2,000 in repairs and then runs for 3 more years costs $1,400/year. A $15,000 replacement costs $5,000/year in depreciation alone.

“The 50% rule—don’t repair if costs exceed 50% of value” Problem: Same issue. A $4,000 car needing $2,000 is still cheaper than buying something else.

“Just get something newer and more reliable” Problem: Newer cars cost more and depreciate faster. “Reliable” isn’t free.

The Right Way to Think About It

Compare monthly costs of ownership:

Keeping current car:

• Repair cost ÷ Expected months of use
• Plus ongoing maintenance
• Plus current insurance rate

Buying replacement:

• Monthly depreciation (purchase price - future value ÷ months)
• Plus car payment interest
• Plus likely higher insurance
• Plus any repairs on the replacement

Real Example

Your current car:

• Value: $4,000
• Needed repair: $2,500 (transmission)
• Expected life after repair: 36 months
• Monthly insurance: $80

Monthly cost to keep:

• Repair amortized: $2,500 ÷ 36 = $69
• Depreciation: ~$50 (old car, minimal)
• Insurance: $80
• Total: ~$199/month

Replacement car:

• Purchase: $18,000
• Value in 36 months: $12,000
• Monthly payment (at 6%): $548

Monthly cost to replace:

• Depreciation: $6,000 ÷ 36 = $167
• Payment interest: ~$45
• Higher insurance: $120
• Total: ~$332/month

The repair saves $133/month—or $4,788 over 3 years.

When Repair Actually Wins

Repair is usually better when:

• The car is paid off (no new payment)
• Repair extends life by 2+ years
• Repair is a known fix (not “maybe” this, “maybe” that)
• Car otherwise runs well
• Insurance stays low

Even expensive repairs often beat replacement:

• $4,000 engine? At $150/month amortized over 24 months, still cheaper than car payments
• $2,500 transmission? Gives you years of use at low monthly cost
• $1,500 in maintenance? Just normal car ownership

When Replace Actually Wins

Replace is usually better when:

• Car needs multiple major repairs (engine AND transmission AND…)
• Repair only buys 6-12 months of life
• Safety concerns (frame rust, airbag issues)
• Car is actively unreliable (stranding you)
• You need something the current car can’t do (towing, space)

If you’re patching a sinking ship, stop patching.

The Hidden Costs of Replacement

People forget to include:

Sales tax: 6-10% on the purchase Registration: Often higher on newer cars Insurance: Usually increases significantly Unknown history: You’re trading known problems for unknown ones Depreciation: Biggest cost of all, especially years 1-3

A $20,000 car loses $3,000-4,000 in year one alone. Your beater depreciates zero.

The Hidden Costs of Repair

To be fair, repairs have hidden costs too:

Rental car/rides: If repair takes days Time and hassle: Shop visits, diagnosis Cascade failures: One repair leads to discovering another Uncertainty: Did they actually fix it?

The Sunk Cost Trap

“I already put $5,000 into it” shouldn’t affect your decision. That money is gone regardless. Only future costs matter.

If you’ve already spent $5,000 and now it needs $3,000 more:

• Question: “Will spending $3,000 give me 2+ years of reliable use?”
• Not: “Have I spent too much already?”

Past repairs don’t make future repairs more or less worthwhile.

Emotional vs. Financial

Sometimes the right financial answer isn’t the right answer for you:

Keep if:

• You’re comfortable with the car
• You know its quirks
• You trust your mechanic
• The math works

Replace if:

• You dread driving it
• It’s affecting your job (unreliable transportation)
• You’re constantly worried about breakdowns
• Peace of mind is worth the premium

Just know you’re paying for that peace of mind—often $200-400/month.

Questions to Ask

Before deciding:

1. What specifically is wrong? (Get a second opinion)
2. How many more miles can I expect after repair?
3. What’s the replacement cost including all fees?
4. What’s the true monthly difference?
5. Am I deciding emotionally or financially?

My Rule

If the repair amortized monthly costs less than a replacement’s monthly depreciation and payment, repair wins.

If the repair only buys 6-12 months before the next big problem, replacement might win.

If you’re doing major repairs every 6 months, the car is telling you something. Listen.