A New Car? Or Maybe a Used Car?

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Here are some good – and some not-so-good – reasons to buy a new  car.

Or a used car:

* Higher interest rates on used car loans – and shorter loan periods . . .

Generally, you’ll pay a higher interest rate on a used car loan – in part because the loan term is usually shorter. That, in turn, can lead to a higher monthly payment vs. what you might have paid for a new car.

If financing a used car for $400 a month for 36 months means that for the next three years you’ll have very little reserve cash on hand to deal with unexpected expenses, it might be smarter to sign up for the new car loan at $250 a month for five years – if it means you’ll have more financial cushion in case something you didn’t anticipate comes up.

A good rule of thumb – if you really want to be safe – is to figure out the absolute maximum monthly payment you could afford – and then cut that in half and buy whatever car that sum will allow you to buy. New or used.

Even better – pay cash. This way, you avoid the problem of interest payments – and the car is yours as soon as the paperwork is done. No liens, no debt hanging around your neck. It’s a nice feeling – even if the car itself is nothing more than a $6,000 used Yaris.

Because it’s your Yaris.

* Anticipate higher – and sooner – maintenance costs if you buy a used car . . .

A new car will usually not need major repairs – and if it does need them, you won’t be the one paying for them. They will be covered under warranty. This may be the single biggest plus of buying a new car – especially if you’re not someone who works on cars and so have to rely on others to fix them when they break. And pay them to fix them.

Also, the normal wear and tear items – things like tires, brakes, tune-ups, etc. – are distant, down-the-road issues with a new car. Other than gas and routine oil/filter changes, you shouldn’t have to worry about having to get stuff fixed or replaced – for at least the first four or fives years.

When you buy a used car, on the other hand, you may need to buy tires for it, too. Or get brake work done. Right away, too. And – unless you buy a used car that still has some time left on its factory warranty (or you buy an extended warranty) anything major that blows up in your face will be entirely your problem.

This adds a level of “due diligence” to the process – it’s up to you to carefully check the car over (or have it checked it out by someone competent to do so) before you buy it. A given make/model new  car sold at one dealership will be exactly the same as the same make/model new car sold by the dealer down the road. You can focus on the deal rather than the car. But with used cars, the deal can matter less than the car – or at least, it (the condition of that particular used car) matters as much as the deal. A good deal on a crap car is no deal at all.

Be aware, also, that some makes/models require very expensive service at certain time/mileage intervals. For example, timing belt replacement. Be sure to educate yourself about such potential costs – and factor them into your buying decision.

And: If you buy used – even if the car seems solid -  it’s a smart idea to set aside some money for “just in case” repairs. Because more likely than not, you’re going to have to deal with them.

* Insurance costs -

If you buy a car and buy it outright (no financing) you can choose a lower-cost liability-only policy that doesn’t cover physical damage to your car in the event of an accident. This can knock your insurance costs down to maybe a couple hundred per years vs. two or three times that for a full-coverage comprehensive policy – which you’ll be required to buy if you finance, whether the car is used or new.

This can save you thousands of dollars over a period of just a few years. However, don’t forget that you could face having to pay for repairs out of your own pocket – maybe even buy a replacement car on your own – if you do get into an accident. If you’re a good driver, the odds are pretty low, but things can (and do) happen. Here again it’s good policy to have some money set aside for “just in case” so you can deal with things like having a fender replaced if you accidentally bag a deer with your Honda – without having to head for the pawn store first.

Also: Though premium cost for used vehicles tend to be lower, some insurers will lower their rates for a new car equipped with the latest safety equipment vs. an older, used car that may not have these features. Of course, rates also vary depending on the type of vehicle. It may – and probably will – cost you a lot more to insure a used Corvette than a new Camry.

Shop insurance quotes before you decide to buy a car – new or used.

* Longevity – and depreciation

A brand-new car should last longer than an older, used car – which by definition has already been used. It has miles on the odometer – and so, wear on the various bits and pieces. Even if the car has just been sitting, the clock is still ticking.

And while a new car will depreciate faster at first, it should also be worth more, longer – again, because it starts out having higher value.

On the other hand, late-model used cars with 40 or 50k on the clock will usually go at least another 100,000 largely trouble-free miles if you don’t abuse them and maintain them properly, especially the basic stuff like regular oil and filter changes. And if you get a really good deal on a four or five-year-old used car and drive it for another 8-10 years or more, depreciation won’t be as much of a factor anyhow since by the time a car (any car) is pushing 10-12 years old, its value has pretty much plateaued – regardless of whether it was originally purchased new or used.

Throw it in the Woods?

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eric

Author of "Automotive Atrocities" and "Road Hogs" (MBI). Currently living amongst the Edentulites in rural SW Virginia. 

  8 comments for “A New Car? Or Maybe a Used Car?

  1. mikehell
    November 11, 2012 at 3:59 pm

    Great pix, Eric. That shot of the Superbird especially made my day. Wouldn’t that be a blast to run through town with?

  2. MoT
    November 11, 2012 at 5:58 pm

    That top pic reminds me of those east european markets. Just look at the apartment blocks in the distance. Who knows where those cars came from. Maybe the latest container shipment from Albanian mafiosi.

    I’ve been buying used from day one. If my income were such that I viewed a new vehicle on the same level as used today then it wouldn’t matter. But that’s not the case. So I get the best thing for the least amount of coin and drive it till it drops. Up front cost, interest, fuel economy, potential repairs, and insurance costs all factor into my “horse” matrix. Depreciation already calculated as I want something that’s near or already at the bottom of the steepest decline. In-cabin DVD players and other distractions don’t matter a hill of beans. And once we get to TEOTWAWKI then it’ll be whether it’s easily repairable or modifiable. A Mad Max wonderland of customization to cruise and survive a future hell.

  3. justin
    November 13, 2012 at 1:23 pm

    Im 48,and Ive never bought a brand new car, never have,never will.

    the depreciation is the largest expense of owning a new car, costing more than ins, gas or maintenance.

    Also, most people never calculate it this way, but the insurance, gas and maint on a car, usually equals the payment, so Erics advice of calculating your max payment and cutting it in half is spot on.

    Also, look at the newers cars maint requirements down the road.

    On a new Chevy Malibu , to change the headlight bulb, requires the removal of the front wheels, inner fenders and front bumper.

    Laugh if you want, Im not making that up.

    The Mrs has a Beetle with the turbo diesel. Alternator went bad. The first line in the official VW repair manual, says ” begin by removing both front fenders.”

    My advice is to get an older car thats easy to repair.

    Look under the hood of a 95 F-150, see if you can locate and identify the water pump, alternator oil filter, spark plugs, etc, then look at a 2012 F-150

    Plus theres this, on a 95 F-150 you have ONE coil, on my ’04 Expedition you have EIGHT coils, that cost $70 each. and they last about 6 or 7 years max, plus the Fords spit out spark plugs, stripping the threads in the engine. And look at the engine: half of it is back under the dash, when you need to work on it, how are you gonna reach it?

    Get a flash light and at just the right angle you might be able to see where the heater hose connects on the firewall, how you gonna ever reach in there and change the hose and clamp?

    last year we bought a 04 Expedition at an auction, 4wd, every avail option, including heated and COOLED seats! for $6000, cause we needed something to haul around a basketball team.

    Some moron paid $52,000 for this thing when it was new.
    but Ive already decided that
    My next vehicle will be a 88 Blazer.

    Sadly most cars are now disposable, just like your father used a Zippo and refilled the fluid and replaced the flint, now all the lighters are disposable.

    So, for the best deal on a used car, Id reccomend a Buick or something that old people drive, they maintain them pretty well, and there is no resale market for 10 yr old Buicks.

    Either that or find a rust free late 70′s-early 80′s Toyota with the 4 cylinder and rear wheel drive, like a Celica or a pickup.

    these are rock solid reliable and easy to work on.

    I think the all time best car deal ever was this:

    in 1988 my brother bought a 76 Celica for $1200, had 120K on the clock. at 220K the engine blew, so a junkyard replacement was installed for $500. At 320K that engine blew, so another junkyard engine was installed for $700. at 499K someone hit me and smashed the car, but it was still driveable, we got $1100 from the ins co. Drove it another year, then the axle gears stripped out. so we sold the car for $500

    we got over 400K miles out of a car for less than $4000.

    • MoT
      November 13, 2012 at 4:14 pm

      Excellent!

    • DD
      November 13, 2012 at 5:32 pm

      How the heck did your brother blow two 20R engines?
      He must have run them out of oil(?)

      I am starting to see a lot of old cars on the road now…A guy down the street has a friggin Ford Maverick! I see a lot of 70s Olds Cutlass Supreme as well.

      • BrentP
        November 13, 2012 at 8:48 pm

        Mavericks like the said toyota above rusted away. Keep them away from rust and maintain them and all is well.

        Around here at least mavericks made it in good numbers to the 1990s but those 1970s toyotas were eaten by 1983 or so.

        I really got to get my maverick done mechanically. It’s drivable right now but it needs a goodly amount of stuff to be right. Most of which I already purchased.

      • justin
        November 15, 2012 at 1:28 am

        Well, its a long story:
        he was the kind of driver that could break an anvil with a rubber hammer.

        The Yota was not his first car, he had a 80s regal, blew the trans, a 80;s RWD Cutlass, blew the trans.
        A 70s Dodgge pickup, blew the trans, a 79 Chevy truck, blew the engine, a 62 Chevy pickup, stripped out 1s and reverse.

        The Yota was the first car he couldnt break.

        The 20 & 22r engines , when they expired, had around 250-300K on them, and after the second or third head gasket replacement, it was cheaper to just buy another junkyard 22r from a wrecked pickup.

  4. MoT
    November 13, 2012 at 4:17 pm

    I’m going to put my new “new” math to use here. I’m going to calculate that a good used car will give me, minus all the expenses of factory fresh, a remainder that I can apply to the purchase of food and weapons. Thus “multiplying” what otherwise would have been made zero.

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