2007 Tahoe. A while back I noticed a few drops of oil in the driveway. Checked the transfer case and it was low. I bought the special oil for the transfer case from a GM dealer and filled it up.

Fastforward a while and the truck started making a howling noise going down the road. I kinda thought it was a hub or the rearend. Its hard to pinpoint these noises. It would also sometimes make a clunking sound when you take off. It would also feel like something was dragging just for a second in the driveline while you took off. I should've checked the fluid level again but I didn't. Last week my wife called and said it was broke down. It did the same as before she said, but also made a bad sound. When I got there it would go forward ok, but when you went into reverse there was a terrible screeming type sound. I got under there today and the noise seems to be coming from the transfer case. Another symptom was it was parked on an incline and it didn't want to hold itself. Toe truck driver noticed the park problem and said it was out.
So I took the transfer case off. It was really really low of fluid and smelled burnt. I wanted to try the transmission to make sure that it wasn't the problem. So I had my wife start the truck and try it in forward and reverse while holding the brake and me under it. Forward sounds fine. Reverse made a gear type noise, but nothing like I heard before. She said the speedometer was also turning. As it was running some fluid was going out the rear of the transmission. I hope I didn't harm the seal back there but I wanted to try it. If fluid gets passed that wouldn't it mix in the transfer case with the special gear oil? What should I do from here. I hate to pull that transmission if it isn't bad.

 

fluid will pass out the trans but it will not enter the tcase.


is the case out or back on the truck.

 

Transfer case is off the truck. I called a transmission guy I trust and he said the needle bearings are known to get loose and make the planitary gears go bad. He told me to drop the pan. I did and its got a bunch of metal in it.

Now the delIma. Should I let him remove, rebuild, and setup the transmission for maybe $1400; or buy a used one with 100,000 miles that will probably have the same problem again for $650? I'm not sure if it's a replace or do I need to go somewhere and have it "calibrated" to the truck?