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Is the timing chain tensioner making contact with the slipper to put tension on the chain?
I haven't pulled on mine to see if mine move that much, but you generally can't tell just by pulling on the chain like that. You have to measure a set distance between a certain number of links to see if the chain actually stretched out.
According to the FSM - that would be 16 links, fully extended, and verified at three separate locations - should have a length of no more than 122.6mm. Any more and it means the chain is stretched out.
At that point - it would depend on what caused the chain to stretch on you - that would give you an idea if you have more than just the chain to worry about. If the engine is consuming quite a bit of oil, has lots of other issues, or has an unknown previous history - might be worthwhile to do a swap with a newer engine. Keep in mind that there is no 100% guarantee that the new engine will be superior to this engine you have now. That will have to be a judgement call on your part - $200-$300 for a light rebuild or 3x-4x that for an engine swap.
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2002 Corolla S, 1.8L 1ZZ-FE VVT-i
2003 Matrix XRS, 1.8L 2ZZ-GE, VVTL-i (RIP)
2009 Matrix XRS, 2.4L 2AZ-FE VVT-i
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