What makes more sense: To own a car for 10 years, pay for all repairs as the car ages, OR buy a new car and trade in my old one just before the warranty ends (about every 3 years). Keep in mind, insurance will be higher on a new car, but on the other hand, I wouldn’t have so many repair expenses, and they’d be covered by the warranty. What makes more financial sense?
Cars are good for 200,000-300,000 miles nowadays. It’s always better to drive them until the wheels fall off.
On top of that, once you get your car paid off, you can drop collision insurance, another savings.
I’ve owned my 93 Aerostar for nearly 10 years now. After I paid it off back in 1997, the rest was all gravy. You have to figure that a new car would cost 400-500 per month. If you can only keep on driving that old car, you’d be saving 400-500 per month.
My last three cars have had good preventive maintenance; none had more than $2000 in unscheduled maintenance in the first 200k miles. Clearly, it was cheaper to keep them for a long time than to dump them after 3 years. YMMV.
The first three years of a cars life are the most expensive. You lose a huge amount of value in the car over those three years.
The thing is, most people finance their new cars for 5 years at the most.
Since average mileage per year is 15,000 miles, that means that when the average car is paid off, it has less than 100,000 miles on the clock.
Now, since modern cars, with regular maintainence, can go 200,000-300,000 miles miles until they are “shot”, that means that once you pay your car off, you should have several years of usage without any car payments or expensive car repair bills.
Don’t buy new cars.
If you drive less than thirty thousand miles a year, this is my advice.
Buy one-year-old cars with very low milage, and shop very hard, and drive an absurdly hard bargain, walking out if you don’t get a deal that threatens to leave you sniggering out loud at the dealer. If you didn’t walk out of at least two dealerships, you screwed yourself. When the car you buy is four years old start looking for another one. Take a year, if you need to. Don’t trade in, as part of the deal. Sell it.
Don’t finance for longer than four years, better for three. Best, is riding at least one car down into the pavement, while socking your car payment equivalent into a money market account. Then use that to pay cash for a car. Keep the payment going even when you have a newer car paid in full. Don’t get collision insurance, unless you are in financial shape that means you are left in a real lurch if you drive your own car into a light pole hard enough to stop you from driving it.
Have the proper maintenance done on your car. Oil changes are cheap. Crank shafts, on the other hand are rather pricey. Check tire pressure, and wear often. (like every two tanks of gas.) Wash and wax regularly. How your car looks really matters when you sell it. The price of your “new” car (including finance charges) minus the return from your old car, divided by the time you own it is your cost of ownership.
Tris
But what about resale value. A 3 year old car has quite a lot. A 10-12 year old beater very little.
Quite a few years ago Consumer Reports reccommended selling at 4 years, based in depreciation of an average car’s value. Looking at their site today, however, I can’t find any advice about when to sell. The offer plenty of advice about how to sell, but not when.
I’ve been driving a '66 Volvo 122 for quite a while. I paid $1800 for it, and when I sell it I expect to get $1800 for it. Sure, it gets only 18 mpg, but when it is time to take it into the shop, most fixes are under $100.
…also have a 2000 Hyundai accent. Replaced the transmission last week. I cringe to think what that would have cost had I not had a warranty.
You don’t buy new cars for financial reasons. You can’t justify them that way, because you pay a large premium for driving new. A $30,000 new car will lose 50-60% of its value in four years. The first year it might lose $5000. Then $3000 in the second, third, and fourth. The slope of depreciation flattens out as the vehicle gets older. On the other hand, the slope of repair costs starts to rise as it gets older. But that slope is almost never as steep as the depreciation curve. The cheapest way to drive is to buy the cheapest car that you are happy with.
But no one drives cars like that, or we’d all be driving around in '74 Toyotas or something. So the proper question is, “Is driving a new car worth the extra thousands of dollars a year to me?” In the case of driving a new car vs one that’s three or four years old, the difference is probably something like 2-3 thousand dollars a year.
I bought my Voyager in 1989 and I have 50,000 miles on it.
Hmmm… let’s see now. That’s 300,000 divided by 50,000 times 13 equals…
Holy shit! I’ve got 78 more years on that sucker!
According to www.alg.com, the main Japanes cars lose 50 - 55% of their value in 3 years, and the American cars lose 62 - 63% in 3 years. Depreciation has become more severe over the last 12 months as car dealers have kept new car prices down and offered 0% financing to try maintain volume, and this has had a knock-on effect on used prices.
Can’t find a cite for it now, but IIRC, the Car Talk guys once said that, from a purely economic standpoint, the only reason to get rid of an old car is extensive rust. That’s the one thing that can’t be repaired for a reasonable price. It’s even cheaper to put a rebuilt engine or transmission into an older car, rather than buying a new car.
At some point, of course, I suspect most of us succumb to the “sick to death of it” syndrome, and have to move on.
I can’t help but imagine that the answer to this question is highly dependent upon the type of car(s) you’re thinking of buying. If Consumer Reports’s annual issue on cars is to be believed, different types of cars vary widely not only on initial price but also on the need for repair. I’m sure that this latter characteristic is a factor in different depreciation rates.
Myself, given the innumerable but usually unaccounted-for costs involved in owning a car (parking; gasoline; cleaning; insurance; driver’s licence fees; tolls; repairs; taxes to pay for roads, highways, traffic signs, and law enforcement; long-term environmental damage; greater risk of injury and death to self and others; etc.), I think it’s best to walk, bike, or use public transport. I grant that given the urban planning (or lack thereof) in North American cities, this isn’t possible for most people.
The hidden cost of older cars is time and reliability. Maintaining an older car takes time. Time is money. If you earn $30/hr, and maintaining your used car on average takes you 5 hours a month, then that’s $150/mo of your labor you are sinking into the vehicle.
That’s one reason fleets don’t buy used. When you’re providing your own mechanics to fix everything, then all those little annoyances and small repairs start to add up to real money. Plus, corporations get to deduct depreciation.
I have never bought a new car and never plan to do so. Here’s some “worst case” math for the cost of keeping a used car on the road versus monthly payments.
The most frequently broken car I owned was a '89 LeBaron that I paid $900 for, in 2000. In the 15 months I owned it, this car required the following repairs, with the costs approximated:
- A new radiator. $100. (Bad when I bought it.)
- A new starter. $300.
- A new battery. $100.
- A new clutch. $450. (Also was shot when I bought it.)
I’m sure you will agree that this car was a maintenance nightmare. I sold the car for $800 once I got a real job and decided I wanted something in better shape. I now have an Isuzu Amigo that I bought with 50,000 miles on the clock. So, here’s the cost of ownership for that car:
Purchase price: $900
Repairs: $950
Less cost recovered when it was sold: $800
Total cost of car and repairs: $1,050
That averages to $70 a month. If the car had been completely trashed and I hadn’t been able to sell it, that would have made it $123.33 a month. That’s still considerably less than the $320 a month I’m paying for the Isuzu, and way less than what it would cost to buy a new car every 3 years on a 3 year loan. While I would not recommend a total beater for anyone who can afford better, the cost of keeping a used car on the road is far below that of a new car even if you get a 10 year old clapped out beater.
I’m inclined to think that just about anything manufactured these days is a far better buy at 3-4 years of age than new. But, we do need a steady supply of new car buyers to keep eating the depreciation for us.
There’s nothing wrong with buying a new car - you just have to be rational about your reasons for doing so.
I have purchased new cars and used ones. The new cars I bought because A) It was a new model with features I couldn’t get in used cars, or B) I needed the reliability.
For example, when our child was born I traded in my 13 year old Camaro and leased a new Ford Windstar. I live in a cold climate, and it’s one thing to risk a breakdown in winter when you’re a 25 year old male, and another to have a breakdown in winter when you have a family with an infant. So I gulped and ponied up the money.
You just have to be clear on the real cost. To figure that out, look at lease pricing. Leases are usually pretty close to loans when it comes to how much a vehicle really costs you. A lease represents the depreciation of a vehicle, profit for the dealer, and financing costs. The Windstar was $24,000 to buy, but the lease was $289/mo for three years. That $289/mo is the real cost of owning the vehicle, minus gas, scheduled maintenance, insurance, and parking.
If I had purchased a three-year-old Windstar, It would have cost me about $5,000 in depreciation over three years. So the monthly cost would have been $140/mo, plus I would have had to take the vehicle through its first year off warranty, and would have had to replace the tires, and probably some other components that wear out. Call it $2,000 in maintenance perhaps. Total cost: $194 per month, plus financing charges.
So in that case, I was paying about $100/mo more for the privilege of driving new and not having to worry about maintenance. I decided it was worth it to me, and went for it.
The people who are really getting killed are the young people buying cars they can’t afford, people who buy really expensive trucks, and people who buy domestic luxury cars. These vehicles depreciate like mad. Around here, a Chrysler 300M is about $45,000 new, and you can pick up three-year-old lease returns for under $20,000. That’s $25,000 in direct depreciation costs over three years, or about $833 per month. If you buy the three year old car, after three more years the $20,000 car will probably be down to maybe $14,000. So the monthly depreciation cost drops $833 to $166. I’d have a hard time justifying spending an extra $600+ per month just to get a slightly newer model of the same car.
To illustrate the hidden cost of reliability, what’s a breakdown that leaves you stranded at the side of the road worth? Sure, it’s dollars and inconvenience, but it can also be dangerous. Once one has lost faith in one’s car, one tends to sell it or restrict use to daytime, local areas which limits the vehicle’s usefulness.
In most cases, it is probably cheaper to buy a three year old used car (already taken the biggest brunt of depreciation) in great shape for a bargain price and drive it until the wheels fall off. However, once your average monthly repair cost crosses your personal discomfort threshold ($100 per month? $150/month?) a newer car looks tempting.
The retail price of all the parts (plus the labor to install them) in your car absolutely swamps the value of the car itself, so never talk yourself into a false sense of security by thinking about all the big ticket items you’ve recently fixed. Plus, you will get exactly zero return on your investment on your trade-in for your recently repaired heater core, water pump, steering rack, etc. because a used car is expected to have such items in working order. You have to have a good sense on when to bail out.
Cars that have had all the scheduled maintenance done tend to last longer than cars that have had just gas and oil changes.
If you want a new car every three years, educate yourself on leasing. If you drive 12-15,000 miles a year or less and take great care of your cars, you can save money, improve your cash flow and eliminate used car resale risk by leasing. But you have to really know what you are doing so that you will not get “taken.” It isn’t as easy for the typical lease-ignorant consumer to accurately judge whether or not he is getting a good deal on a lease.
This is largely a matter of opinion depending in part on one’s individual circumstances, so I’ll move this thread to IMHO.
It seems to me you’re asking which would cost less: buy a new car and drive it for 10 years, or trade in often enough to keep it in warrantee. Strictly in terms of money, driving it for 10 years will cost you less. You can figure things out for yourself this way. At the end of the waranty period (which should be either 5 or 7 years powertrain for most cars, with bumber to bumber and roadside asssistance being 3 years for most of those) stop and do some math.
Each year, keep track of everything you spend on payments, insurance, routing maintenance, repairs, and incedental expenses related to repairs (ie, the cost of taxis or rentals if the car has to be in for repair) for your current car. Add the expenses and divide by 12. This is the average monthly cost of ownership (not counting gasoline). Figure up the same figures for whatever brand new car you are considering–you’ll have some projecting to do, but with a new car repairs should be minimal.
You may find that at 3 years, there isn’t much difference, and based upon that, be willing to trade in for a newer car for the same payments. This looks very attractive, and is one way new car dealerships get customers. But you’re losing something.
That something occurs at four or five years, or however long it takes to pay off your car. When the car is paid off, you a: have no car payment and b: get to drop collision and comprehensive coverage. This could be saving you as much as 600 per month for a typical 20,000 car. Unless the repair expenses are that much, and they shouldn’t be with routine maintenance, you’re making money every month. Put that money away, and you can reasonably expect that you’ll be able to go 10-15 years total, or another 5-10 years before repairs become such a hassle that you want to go new again. Now, once your warranty expires, you may want to join an autoclub that offers many of the same things as the roadside assistance that came with your new car, but not having a car payment more than offsets that.
If you must buy new, once you’ve paid off the new car, put the 500 a month you’re saving into an interest bearing account. By the time you reach that 10 year mark, you’ll have enough to buy a pretty nice new car for cash, or a very nice 1-3 year old car. Drive this car for 5-6 years, putting your car payement in the bank each month, and repeat–new car every 5-6 years without ever having a car payement.
It definitely is more financially sound to drive a car for it’s full useful life.
That said, don’t dismiss the used car idea. If it’s the warranty that attracts you to a new car, look at one-two year old quality used cars. These typically retain whatever’s left of the new car warranty. For example, when Mrs. Six and I recently when car shopping, we found 1 year old top of the line Camrys and Accords–typically around 25,000 new–for about 20,000 with about 15,000 miles, and these both had a pretty decent 6 year limited powertrain warrantee (we finally chose a new car because the 0% financing made it cost less to buy a 22,000 new car than a 20,000 used car at higher interest).