Cost-effective to buy a new car?


I am currently still hunting for a full-time job. Fortunately, things are picking up for me- my current part-time job has extended my hours to more or less full time (minus the benefits associated with working full time; I’ll write a pit thread on that later) and I’m currently in the process of trying to get hired at a stable full-time job.

If all goes well (knock on wood), my income will almost double, jumping from $19,000/year to $36,000/year. Its still not that much, but for a guy living alone I’m optimistic since I’ve managed to survive on the lower amount for several years now. The major perks I see, though, are employee-covered healthcare and paid time off. Those will technically boost my cashflow even more. Right now I have to deal with the high costs of poverty- high deductibles on my car and health insurance (to even be able to afford them), credit card debt, and no renters insurance. In short, I’m living independently on borrowed time and I know it, hence the drive to get a better paying job to afford to build safety nets.

My goal is to pay off existing credit card debt (about $3,000) and maybe have about that much as an emergency fund. Once that is done, I want a new (affordable) car.

When I told some of my friends I really want a brand-new car when I get a new job, they told me it would be a bad idea- the increased insurance costs and intrest on car payments wouldn’t justify having a brand-new vehicle. My current car runs okay, but it has 97,000 miles on it and if it died on me today I wouldn’t have the money to replace it. I feel like having a new car (with a warranty) would give me more long-term reliability, since planned expenses seem less expensive than unplanned expenses.

If I did buy a new car, I’d get something <$20,000, with good mileage and reliability. But my friends insist on sticking with another used car.

The CW used to be that buying a new car wasn’t the best way to go, finance-wise. They used to say either buy a 1 yo almost-new car, or buy a beater that runs well.

But this has changed, and what has changed it the way cars are financed. If you have Good credit, you can buy a new car with 0% financing for up to 60 months, direct from the dealer, while your bank may want 7%.

On a used car, the finance rate is around 2% higher, an you are not going to get that 0% dealer financing. So, the CW is now wrong- but only due the the “price war” going on with car manufacturers.

The Honda Fit is very reliable and roomy, and runs around $14K.

I think the ‘sweet spot’ in terms of value is found in vehicles that are 2-3 years old. New enough that they still have significant warranty left on them, and were most likely maintained according to the factory maintenance schedule (check the paperwork to make sure). A good one will still look new, and if placed beside a current model in a showrooom you might have a hard time telling the used one from the new.

And yet, these vehicles are typically 30-60% cheaper than a new car. The bulk of the depreciation on a vehicle happens in the first three years, so you can avoid that hit and buy a car that’s still reliable and under warranty.

Six or seven years from now, the one you bought new and the one you buy that started out 2 years old will be roughly equivalent in value and reliability - no more than a 10% difference between them, most likely. Yet the one you bought used will have a lifetime expense much, much lower than the other. Not just in reduced purchase price, but lower financing costs and reduced insurance costs.

You can make the deal even sweeter if you take the lower price and use it to lower the amortization. i.e. If you could afford $300/mo for a car payment, buying a used car will cut the amortization time in half. The other option is to buy used, but spend the same money and get more car (instead of a new Civic, you could get a used Accord V6, for example). Then you won’t save money on interest, you’ll just have a better car. But if you buy the same class of car, the used one will cost you less, and by maintaining the same payment you would have spent on a new one, you’ll save a bundle on financing.

That said… Sometimes you can find incentives on new cars that makes the used option not so good. The last car I bought came with a $5,000 factory rebate, plus 0.9% financing for four years. The equivalent 2-year old used vehicle was only a couple of thousand dollars cheaper, and financing was at 6%, which completely eradicated the cost savings, making it a no-brainer to buy new.

The problem with buying a used car is you’re too-often buying somebody else’s problem. Dings and scratches are optional, but reliability is not Actually getting where you’re going is the whole point of having a car.

Years ago I was in the same situation, and I went the new-car route. I’d estimate I’d have gone through 2, and maybe 3 used cars since then, and I’d have spent many more hours stranded on the side of the road, too.

36K Is NOT alot of money.

If your current car isn’t on its last legs then stick with it for a year until you pay off your Credit card + build money for a downpayment. Then go looking at a new or new to you car. It sounds like you have no money for a down payment and 100% financing a car is a bad idea.

I think you’ll find that 0% financing hard to qualify for, and probably not for more than 2-3 years even if you do. They might promise you low, or 0%, to get you to sign a deal, but then you’ll get a call a couple of days later telling you you didn’t qualify and they got you a sweet deal at a higher rate.
I’d suggest you keep your present car, as Harmonix said, for a year or two, until your secure in the new job, have your debts paid off and a healthy down payment, at least 20%. Then you’ll be in a much better position to get a good deal.

Well, that was the plan all along- get rid of the credit card debt (which, according to my FICO statements is working against me right now).

The point I was trying to make is that I want to get a car while I’m in a position to make a careful decision on my timetable. I don’t want to wait until my current vehicle breaks down since there will be expenses associated with finding a replacement vehicle/transportation/repairs.

My husband is a new car guy. I’m a “good used car” gal. I also bought a warranty with it, which was damn near the same as a new car warranty.

Our '92 Ranger, purchased in '96, is still running. And my car payment was only $150/mo. You can’t beat it.

I think it depends on you making a realistic assesment of your present car. 97 K isn’t a lot on most newer cars, all else being equal, your car should be good for 2-3 more years. Is the car giving you trouble? Do you maintain it well? Only you can make the judgement, but, given the info. you’ve provided, it seems logical to wait until your in better financial shape before considering a major purchase.
Buying a used car isn’t as risky as some think, if you do your homework and choose wisely. Check Carfax and have it inspected by an independant mechanic before you buy. Buying used from a private party is probably smarter than from a car lot.
Don’t buy a new car just because you want one, be smart.

I bought a two-year-old Honda Accord eleven years ago. After buying it, I looked at the prices of new Hondas and figured that I saved very little by buying the car new, since Accords hold their value so well. It seems to me that if you buy a car brand-new, you get the full warranty and if you hold it until it dies years later, who cares whether it depreciates?

But I agree that a $36,000 salary is not a lot, especially not in San Jose, so if you can postpone the expenditure, you should do so.

I would recommend that if you are concerned about reliability you buy a few bangers until you are earning the big bucks.


It’s pretty much never “cost effective” or “cheaper” to buy a new car vs. a used car. If it was cheaper, everyone would choose new, and the price of used would fall until it’s cheaper to buy used. The market only makes sense if used cars are less expensive.

You buy new because you want a car that’s new, and there’s nothing wrong with wanting a new car. If your primary goal is to buy cheap, buy used.

Cars, OTOH, are the only product where others will feel the need to “advise” you on purchasing used in order to save money. Of course, they have no problem spending their own money on all sorts of new stuff like clothes, furniture and food, instead of saving money buying cheaper used versions.

Is this always true, though? We bought a new Honda Civic hatchback in 2000, and we looked at used models that were two or three years old, and, frankly, there wasn’t a huge difference in price. Used Hondas that were 12 to 36 months old were in such high demand they only stayed on the lot for an afternoon at best. I think you’re generally correct with many makes of car, but there are some makes out there that defy generalization.

My only advice to the OP is to buy a car that historically retains its resale value. Whether you bought it new or used, you can always ditch it if necessary to buy something cheaper.

If you take a late model used car for $12,000, and the loan rate on that is 7%; compared to the new model for $14,000 and the loan rate is 0.0%, which is cheaper? You may assume either a 48 or 60 month payoff.

Now, really, it *is *cheaper for dudes with Good credit to buy new. It’s those dudes without Good credit who can get a used car cheaper.

Used food? :eek: :wink:

Oh, it exists!

In larger cities here many supermarkets will donate their just before out of date food to homeless shelters and the like. Pret a Manger even makes a policy out of it.

The other kind of used, not so much.

It is true, and there is a very famous (and accessible) paper written about it. See Wikipedia @

One thing to consider, since you will not have much of a financial cushion when you buy the car, is the prospect of being “upside down” for a while. This is more of an issue for a new car. Lets assume you buy it and finance essentially the whole cost. For a while, your loan amount will be more than the resale value of the car. This is a problem if you either wreck the car shortly after purchase or decide you need to trade down. You will be on the hook for the difference between the car’s value and the loan amount. There is insurance you can buy for the wreck situation, but the trading down is still a risk, and no doubt the insurance costs money.

My recommendation is to buy a used car from a private party after having it inspected by a mechanic you trust. Car dealers make their money selling cars for more than they are worth. Private parties sometimes sell cars due to changing family circumstances, cash flow needs, etc. Allow yourself time to find one of those people. Avoid “informal, not-really-a-dealer” dealers like the plague.

New cars are pretty much maintenance free for the first couple years of ownership. All they really require is oil changes and tire rotations.

Buying used may save you money initially but you never know what the car is due to have replaced. Tires, brake pads, belts, system flush, AC recharge, etc.

New cars can be the way to go if you keep the car a long time. Buy a brand new Honda Civic or Accord, pay it off in 4 years and keep it for 10 years and it can be a down right bargain.

On the other hand, people who always like to be driving a different car every 3-4 years, new cars are a bad deal for.

Heh. I just bought a car with 160,000 miles on it. Mileage matters not to me, cars these days are designed to go on much longer than they used to be. Especially Hondas, like I just bought. Maybe buying a 2-3 year used Honda won’t save you much, (they do tend to hold their value better than most) but buying a 5-6 year old one sure will. Get any car checked by a mechanic, and get a Carfax report. You can get a nice car for $10,000, half of your proposed budget. Do you think you will really spend $10,000 on it to maintain it? I don’t. I previously had a craptacular Volkswagen that was just a really bad purchase, I bought it used and it was just a pain in the ass. Everything went wrong on it, plus parts and maintenance were at least double for it because it was a Volkswagen. I still only spent maybe $3000 in maintenance on it in 5 years.

I would do some research, and there is nothing wrong with buying new if that is what you want and you can afford it. But buying new to save money really doesn’t make a lot of sense. Interest might be a little higher on a used car, but insurance and such is cheaper.

It seems a lot of people are afraid of what a used car costs to maintain, but having been the owner of very used cars in my lifetime, I can say used cars are not that scary. Even if you can shorten your car payment by say, just a year by buying used, taking that car payment and saving it yourself for 4-6 months will give you a very nice savings account that you can use for car fixing emergencies. The benefit is that if the car doesn’t break down, the money is still yours, whereas on a new car it is guaranteed going to the bank.

Just my opinion.