Best Money Bets for a Clunker

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It once was a piece of shiny perfection, making its owner’s heart flutter. Now it’s a lady of a certain age, a well-used car spending more and more time at the shop.

So, what should you do? You can keep fixing it, sell it to an individual, sell it to a used-car dealer, turn it in for a new vehicle or give it to charity.

For most car owners, the decision boils down to two issues: finances and hassle. If the car can’t be counted on to get you to work and will cost a fortune to fix, it’s clearly time to get rid of it. But most car owners start pondering their options before things get that bad.

On a purely financial basis, it’s usually cheaper to keep a vehicle running rather than buy a new one, even if the expenses are coming more often. Many owners say, “I’m not going to put $2,500 into a car that’s worth only $1,500,” but the real issue is the cost of driving, not the value of the car. If that $1,500 will keep the car going a couple more years, it’s a lot cheaper than spending $400 a month on new-car payments.

As a general rule, it pays to fix or replace alternators, compressors, pumps, brakes and exhaust systems, as these parts cannot be expected to last as long as the rest of the vehicle. When the engine, transmission and body are shot, the vehicle’s only worth fixing if you’re a hobbyist or classic-car buff.

Of course, the best financial strategy is to buy a used car, keep it going until it’s really, truly dead, then replace it with another used car and repeat the process. That’s because used cars depreciate much more slowly than new ones, so you can buy a car at half of its original price and still have three-quarters of its useful life ahead of you.

Once you decide the vehicle has to go, you’re likely to get the best price from another individual, by selling on your own. A used-car dealer will probably offer less, so he can still make a profit reselling it at the market price.

For the same reason, trading the vehicle in on another will also fetch less than selling to an individual. But that’s hard to predict. You may get a higher turn-in allowance if you’ve failed to negotiate a low price on the new vehicle, for instance.

The hassle factor can be pretty important. Selling on your own requires being around to show the car to prospective buyers, probably evenings and weekends. It takes a thick skin, lots of resolve and a clear idea of what the car is worth. Wrecking a month’s worth of weekends may not be worth it if you’ll only get a few hundred dollars more than you would on a trade-in. Check out retail, trade-in and private-party vehicle values at Kelley Blue Book.

If the vehicle’s not worth much and minimizing hassles is important, a charitable donation is the way to go. Many charities will pick the vehicle up at your home, often not even requiring that you be there, though the cost of the tow leaves the charity with less. To make sure the charity gets the most value it can, select one that has its own vehicle donation program. Otherwise, the charity may use a for-profit middleman who will take a big cut.

Generally, if the car is worth more than $500 you can’t simply deduct the fair market value found on a site like Kelley Blue Book. You deduct what the charity realizes when it sells the vehicle. You’ll have to get a receipt from the charity. For more instructions, try the Charity Navigator site.

Obviously, a tax deduction from a donation is not as lucrative as a sale. A car worth $1,000 could save you $250 in taxes, assuming a 25% tax bracket, just a quarter of what you’d get if you sold it. But missing that $750 might not seem so bad if you avoid a few weekends of haggling with buyers. That’s why more than 1 million vehicles are donated to charities every year.

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