Oct 22 2007

New cars vs. used: A scenario

I’d like to see where you stand on this: Is it worth it in the long run to buy a brand-new car? Here’s a scenario:

New car:

You have your eye on a car. This four-door model has all the latest safety features: Front, passenger and side airbags, anti-lock brakes, even an emergency release in the trunk in case somehow you get locked in there. You have a five-year warranty on parts. You plan to keep the car for at least 10 years and 150,000 miles, and if you can get 15 years and 250,000 miles out of it, you’d be fine with that. However, you’ll be making payments on this car for 4-5 years.

Used car:

This used model is five years old. It has 75,000 miles on the odometer. It has driver and passenger airbags, and the previous owner has kept all oil change receipts. Yep, this car has been serviced every 5,000 miles or every three months, whichever happened first. It has no warranty. Because you were unable to save money before buying this car, you’ll still have to finance it and make payments for at least 3 years, but most likely 4. You still hope to get at least 150,000 miles out of the car, but realize that could happen within five years from now.

Do you buy the new car or the used?

Here are some things to consider:

-For the next five years, you’ll either have a full warranty with your new car, or you won’t have a warranty with the used car. Consider the cost of typical repairs each car might have during these five years and the cost.

-If you buy the new car, you’ll probably have it for five years payment-free. If you buy the used car, there’s a chance it will survive longer than your payments, but then again, you might have to buy another car as soon as you pay this one off.

-What are the final costs? How will the monthly payments affect your monthly cash flow?

-What will your insurance rates be for each car?

What else should you consider? Please comment!

7 Responses to “New cars vs. used: A scenario”

  1. Tips on purchasing a car from Dave Ramsey:

    Number one: Only buy a new car if you’re very rich.

    Number two: Only drive a car that is at least two years old and pay cash for it.

    Number three: If you currently have a car payment and you can’t pay it off in 18 months, then you need to sell and get rid of the debt.

    Number four: Cars, vehicles, boats, and motorcycles should not have a total value that exceeds half your annual income. If you make 60K and have two 30K cars, it’s no wonder you don’t have any money.

  2. For my husband and I our goal is to have just one or no car payment at all. We have two cars so for us this means that we expect to at least be having to replace one of our cars every five years while keeping the other for ten years. The car he drives right now, we bought and it was 4 years old but only had $25K miles on it. Mine we decided to buy new because this is the car we are keeping for at least 10 years. Right now we are saving for the next car we have to replace (his, and hopefully not for another two and a half years).
    So to answer some of your questions: if I intend to keep the car for a while (10 years or so) I would buy new. We assume that we will always have a car payment in our budget. Final costs, I can’t calculate but you will have more repair and maintenance costs (not only oil changes, but flushing fluids, etc). This will also depend on the brand of car you get.
    Did you read the article on Consumer Reports last month on this? I have online access if you are interested in reading it. But I know a few bloggers talked about it too.

  3. I’ve always heard that buying a car brand-new is a bad idea. The second you drive it off the lot it loses a lot of value. We got our 5 year old car for $3900 cash and it’s in great shape. And you can always buy used from a dealer for a little more, which will give you a warranty. Cash is definitely best. Leasing is also a good option, unless you’re going to be driving long distances. Cars shouldn’t be thought of as investments, because every time you use it the value goes down and there’s a risk for an accident.

  4. Thanks for your comments, everyone! It seems everyone has a different perspective on what’s best.


    I’d like to look into Dave Ramsey’s money philosophy. Based on his car views, I think I’d be without a car for a very long time. Up until recently, my job required that I have a car. In a way, now it still does :)

    Money Common Sense: I didn’t see the Consumer Reports article. I’d love a link, or maybe you could e-mail me the article. Whatever works!

    Bee: For me, I don’t care about the car’s value as much. I don’t plan to sell any car–I just want to drive it forever. Then, when it can’t go any further, I’d try to get rid of it somehow. By the time it has 250k miles on it, if it makes it that far, I could get $100 for it and be happy. Maybe.

    Unfortunately, we aren’t at the point in our savings to be able to pay cash for a car. If we wait until that’s possible, then life is going to be miserable (no trips home, I won’t be able to do grocery shopping/errands during the week, etc.)

    I DO want the safest car possible. I’m terrified of car accidents!

    I used to be able to get by with a bus pass. Wish that was true today!

  5. Other factors:

    Do you and DH (or close family or friends) have any aptitude for working on cars? DH and I are lucky enough to be able to do most of our own maintenance and repairs, but without a good, reliable shop or someone handy with a wrench, it can get hard to keep up with an older car (thinking in terms of the used car outliving the loan).

    Another idea to consider: purchasing a used car that’s used, but newer than 5 years, and which still carries a factory warranty. Kind of a compromise between new and old. ;o) Some private party sales can have transferable warranties, and many dealerships have certified pre owned vehicles with warranties.

    Also, if you DO go with new, do your homework before you go into the car dealership to make a purchase, plan on being there a LONG time, and ask for the internet department or the fleet manager to work out a deal with you.

  6. I guess I should explain more about my personal situation, rather than leave it too vague and hypothetical.

    First, Rachel, we are not mechanically savvy. We can change a tire, and that’s about it.

    Second, I already have the (new) car. My parents bought it for me last year, intending for me to take over payments as soon as I could afford to do so.

    They wanted me to have a brand-new car in part for the warranty and because we cannot do our own repairs.

    We’re at the “Kacie, take over the payments” phase, and I’m trying to get a loan.

    I hope to keep the car for more than 10 years, but at the same time, making payments for 3-4-5 years is a little daunting. But I’d have to make payments on a used car, so it’s probably best that we keep what we’ve got.

  7. Ooooohhh, in that case yes, I would keep the car you have. ;o) If you’re not already with a credit union, I would suggest looking at rates with one compared to your bank(s). We have a bank and a credit union, and the CU rates are much better, hands down. It requires (usually), having a checking account that the car payment comes out of, but all you have to do is set one up and deposit enough for the payment each month. Just a thought, since I know when I first went to a bank for financing for a used car for DH, I about had a heart attack at their rates as I had never had an auto loan. The CU was much more reasonable with us!

    And just use preventative maintenance, and it should be very possible to keep your car up for 10+ years. Mine is at 8 years now, and 111,000 miles.

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Hey! I'm Kacie, wife to Shane and mother to Jonathan (7), Vivienne (5) and Amelia (2) . I write about my family's finance: how we save money, improve our spending, and plan for the future.

I hope I can inspire and encourage you to improve your situation. See disclosure.

I'm adopting a much slower-paced posting schedule, and treating this as a hobby blog now.

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