To Buy New… Or Not?

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People ask me – should I buy a new car? Or does used one make more sense? And my answer is always the same.

It depends.

What do you value most?

Let’s have a look at some of the variables.

* With a new car, you don’t have to worry about the car

You know what you’re getting; it’s new. They’re all the same. No miles, no wear and tear; no damage. No worries about whether it was wrecked and repaired, how it was maintained or whether the dealership is trying to cover up flood damage. If anything’s wrong with it, it’s fully covered under the warranty. You will pay nothing to fix anything. All you have to worry about – as far as the car goes – is the price and the color and the options.car-shop-pic

You hardly even have to look at the thing. In fact, you can safely buy it from afar – over the Internet – from a dealer in another county or (state).

With a used car, you have to worry about the car above all else. No matter how great a “deal” it appears to be, if it turns out to have major problems, they will be your problems – and the cost of fixing them will come out of your pocket.

* Financing will be easier to get (and cheaper) –

Interest rates on new car loans have been at “free money” levels – at or below the annual rate of inflation – for years. Given this fact, it can makes financial sense to buy debt. Provided you are comfortable with making payments for the next 6-7 years (the average length of a new car loan today).paperwork-2

In contrast, loans on used cars are usually much higher – and the duration of the loan will usually be shorter – because it’s based on the lower (depreciated) value of the used car.

That means a higher monthly payment.

As far as getting the loan: That’s easier with a new car because the new car is at its highest value point when it’s new. It’s worth something. Banks and credit unions will almost automatically loan you money at competitive interest on any new car, assuming you have good credit. You also usually have the option of financing through one of the car companies’ in-house financing arms (e.g., GMAC). You can and should shop around for the best deal on money – which can be as important as getting the best deal on the car.

Used cars, on the other hand, are worth less – and much closer to being worthless. Banks are more reluctant to loan money on such things.

* More choice –

Unless it’s the end of the year – or the model you’re looking at is an old model about to be retired or replaced with a new version – you should be able to get it in whatever color you want, equipped the way you want. The dealer will probably try to sell you one off the lot in a color you may not particularly like and without some of the equipment or features you wanted – because he wants to clear inventory. But that doesn’t mean you can’t order the car your way.saleslot

The dealer wants to make the sale, regardless.

With used cars, you usually have to compromise. There is a more limited supply and you probably have a hard time finding one that checks off every box (color, equipment, mileage, condition). You usually end up accepting something less than optimal – such a second or third choice of color – because the car is otherwise what you were looking for.

And now, for the other side of the coin:

*Your money will be tied up for years in a depreciating “asset” – 

While interest rates on new cars are low, monthly payments are often very high. Because the principal on which they’re based is very high. The average price paid for a new car is currently around $30,000 – which works out to about $400 a month over six years – assuming zero percent interest.payment due

So, for six long years, you have a $400 monthly nut to cover – in addition to your other expenses, including those not anticipated. That means $400 each month that’s not available to spend on other things that may come up – such as a replacement washing machine or medical bills.

Also, at the end of the six years – when you have finally paid off the loan – your “asset” will be worth much less than you paid for it. Cars are appliances that – like toasters or washing machines – wear out.

The longer you own one, the less it is usually worth.

*You will generally pay more to insure it and always pay more in taxes –

People sometimes fail to take into account the peripheral expenses that attend buying a new car, such as the cost to insure it and (in states where this applies) the cost of property taxes.taxes

Both are based on the value of the car – which is at its highest point when it’s new. While the insurance mafia may give you “credit” for all the “safety” features a new car comes with, the fact remains that the premium will still be largely based on the replacement cost of the car, in the event of a total loss. If the car is worth $35,000 (as opposed to $3,500) you can expect the premium to cover it will reflect that fact.

Property taxes absolutely will – and they can be a killer. Depending on where you live (and the assessed value of your car) they can be as much as $1,000 or more annually, for several years  – until the car depreciates sufficiently.

It’s a very smart idea to find out what you’ll pay in taxes – and insurance – before you commit to buying a new car.

And used cars?

*You will almost always pay less for the car, but more to keep it up – 

Even if you buy one that still has a portion of its original new car warranty in effect, or you buy an extended warranty, wear items such as tires and brakes are almost never covered under warranty. And because the car is used, it will have been used. It will have wear and tear on wear items such as tires and brakes – and those are things you will have to pay for.car-fixing

And if it’s no longer covered under warranty – the original factory one or an extended one you bought – then whatever goes wrong or needs fixing will be money out of your pocket. Cars are mechanical things and mechanical things wear out, eventually – no matter how well you treat them. The more they’re used (the higher the miles) the greater the odds something’s going to need attention sooner rather than later.

These expenses are (or can be) offset by the lower price you pay for the car itself – but don’t forget to factor them into your purchasing decision.

*Used cars are individuals

There are no two alike – very much unlike new cars.

Therefore: Worry about condition first, price second.

All cars start out the same, but each one lives a different life. They are driven differently, treated differently, maintained differently. Two same-year, same-make, same-model used cars will be very different cars – even if they are exactly the same color and have exactly the same features and equipment.lemons

One may have higher mileage; the other been smoked in. One may have had its oil changed regularly, “by the book,” with high-end synthetic oil by a conscientious owner. The other may have rarely had its oil changed – and always with the cheapest-grade stuff on sale at Wal-Mart.

It’s always a gamble – even if you have the car thoroughly checked out by a mechanic you trust. But always have the car checked out by a mechanic you trust before you buy.

It at least reduces the chances you’ll be left holding the keys to what was once someone else’s problem – but which is now your problem.

PS: I buy parts from Advance Auto all the time; they usually have whatever I need in stock – even if it’s for something weird, like my old gray market Satoh Beaver tractor – or something old, like my ’76  Trans Am. And if they don’t have it, they have always been able to get it!

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

12 COMMENTS

  1. If you want “that new car smell” why not lease?

    The cost is higher than buying outright, but you know what you’ll be paying monthly (no surprise repairs).

    Plus you get to drive a new model every X years.

    There are plenty of fun-to-drive vehicles that you don’t want to be on the hook for after their warranty runs out. (e.g., any VW)

  2. Once these new technological monstronsities are out of warranty, they are not economically feasible to drive. Buy one, and understand that it’s lifespan is essentially the length of the warranty. Once the warranty is over, it can cost THOUSANDS to fix every little thing that fails.

    More recent used cars are not a good deal either, as they have gotten very expensive, and are just as expensive as the new cars to repair.

    I will not buy anything newer than ’99. I keep my eyes open for good vehicles at reasonable prices, even when I don’t need them. Get ’em while you can! I really want to get to the point where my vehicles are all from the 70’s or early 80’s.

    • 2000 is a good line to draw. Obviously the closer you get to 2012/2013 the worst things are going to get. Especially with the emissions systems. They have to be very fickle. $1000 to replace a cat. Three per frickin car now.

      Recent used cars are not a deal at all, even disregarding repairs. Why spend 18K for a car with 50k miles on it when I can spend 22K for a new one? And that’s MSRP.

      Eric, I keep getting sent to an Advance Auto Parts site whenever I click on certain things.

  3. I just bought a 2000 Z 71 but I’m still looking for an early GM pickup since I can do everything to it that might need to be done and it will do the same job a 2017 will for a tiny portion of the price. Like eric said once, the only brand new vehicle he’d ever bought was a high hp sport bike and that goes for me too…….only thing I ever had with all zeros on the odometer and was actually sitting on the showroom floor…..a Zuk 1000 GSL when they were the fastest mass produced bike made. I sold it a couple years old and bought a badly needed pickup……shit. The only parts replaced on it was a factory warranty screwing of getting it “tuned up” at 500 miles at which time they changed the not even remotely worn plugs and air cleaner element that was pristine and “adjusted” the perfect timing on it and changed the oil just so I’d know I’d had some totally un-needed screwing. And then I changed oil and filter again to my liking and replaced the air intake with an aftermarket and re-jetted the carbs because it was too lean with individual air cleaners on 4 carbs. I might have run some Moroso octane booster through it and that was the entire “maintenance” bill for 2 years. It would have run forever had not my nephew lost it on the interstate at some triple digit speed……..dumbass…..

  4. I haven’t bought a brand new car in over 15 years. Unfortunately, I did buy a 2 year old Subaru for about $16k from Car Max. I made the mistake of trading my paid for Jaguar S-type with 92 k miles on it. It had a few things wrong and I had put in about $5-6k in maintenance in three short years. At that point, I needed reliability and I wasn’t getting it from the Jag. Over time, the Subaru became the same way. That thing was in the shop about every 4 months for something the last two years.

    All that said, I would always buy used, but follow some useful rules of thumb.

    1. Do NOT buy a popular model car. Those cars typically “hold on to their value” and you end up paying more for a car that is in crummy shape than you would for a much more lightly used American car. Example: You will get a lot more for your money if you buy a 2008 Chevy Cobalt with 75k miles than if you spring for a Honda Civic with the same mileage. About 3k. Same things goes for a Malibu versus an Accord. Or a Fusion versus a Camry.

    2. Make sure you have time to read and investigate the cars. Read reviews on ericpetersautos.com. Read used reviews on edmunds and other websites. Read old road tests to get an idea of what the car is like. Spend time on it. Another site I like is true delta.com. I am a regular participant on it, letting the site know of my maintenance and repair experience. Spend time on this. Do NOT shop when desperate.

    3. If you can, spend no more than about 7k on a car.

    4. Budget about $1500 a year on maintenace if the car is a vanilla sedan. $2500 if it is a luxury Japanese car. $3000 if it is a Euro luxury car. For all of these, it can vary by the year.

    5. Buy cars that have the smaller wheels and tires. They almost always end up being cheaper.

    6. Check the carfax as a minimum. Have an inspection done.

    7. Stay away from all cars made after about 2012. That’s when stability control became mandator. If you can, don’t buy anything later than 2009. That’s when the latest rollover and side impact standards were implemented.

    I like a used car with high market penetration, but high depreciation rates. That give you your best deal. But… avoid Subaru.

    • Good info swamp. I also want to add that when shopping for used cars, always buy from a new-car dealership (or an owner). If the car was ever at an auction, it’s because the car dealer that got it as a trade-in didn’t want it or couldn’t sell it. So there’s probably something undesirable or wrong with the car. When dealers get a trade-in, they keep the good ones and send the trash to auction. Can you get a good car that lived a portion of it’s life at auction? Sure, but why chance it.

      As for point 7, you could use stability control as your line in the sand. But I think it’s also good to see if the car has a power steering pump or electric steering. If it uses electric steering, it’s probably too new. Obviously if it has a touchscreen, too new.

      A Hyundai/Kia might match your criteria. Fairly high penetration and depreciation. Somewhere in between Japanese and American on the quality/maintenance cost spectrum. The way Subaru is dealing with their current known oil-burning problem would be enough for me to discount them.

  5. You can buy an almost new car for a lot less than brand new. I bought my current car when it was two years old and 20k miles on it for just half the MSRP. Granted, it was fully loaded with $3k tacked on the MSRP for a worthless nav system, but for the same money new I would have been in a stripped down 4 banger econocar rather than the functional equivalent of a Lexus GS.

    And, I’ve used the cheapest oil that meets the mfg specs, and still running strong with over 100k miles. I think the oil change interval is way more important than the oil, unless you drive it pedal to the medal, redlining it at every opportunity.

    • Jim, this is definitely true for Luxury cars. In my area, it seems used cars that are between 1-5 years old are not good deals next to the new cars they’re trying to give away.

  6. Nice summary.

    Buying new works well when you can get a vehicle that you really like, and keep it for 10+ years.

    The best way to buy used, IMHO, is to purchase something around 5 years old, in a very dependable brand like Honda or Toyota. This way, the price has already been reduced, a lot, by depreciation. And even if the car has 85,000 miles, you probably can expect another 40,000 or more from it before incurring major maintenance costs, if it’s been decently cared for.

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