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4 Reasons You Should Buy a New Car

by J. Money on Thursday, September 6, 2012

beater car

(Guest post by Jason of WorkSaveLive)

I’d be lying to you if I told you I didn’t think that nice cars weren’t baller. While there are those that believe bigger trucks and nicer cars somehow relate to the size of your Johnson, are there any people out there that think some people just like to ride in luxury?

Nicer, newer cars are the craze these days and everybody I meet with that has had the same car for 5+ years is ready to dump their “old beater” and hop right into a 5-year loan for $25,000.

With 16,000,000 new cars being purchased each year, I often wonder why so many people strap themselves to endless payments instead of opting for a debt-free life that may include the ’97 Honda Accord that we roll in.

4 Reasons Why You Should Buy a New Car:

I’ve done quite a bit of digging and read multiple reasons why people SHOULD buy new cars, but I think I’ve come up with a better list and one that will help you really determine if a new car is in your best interest:

1. If You Don’t Understand Depreciation

I know I’m a math nerd and most readers here are financially savvy, but if you didn’t know: new cars lose value faster than Lindsay Lohan’s career.

New cars lose approximately 10% of the value the minute you drive them off the lot and plummet a full 40-60% within the first 4 years of ownership, depending on make and model of course. So, if you recently bought a new $25,000 car, I’d ask you to also consider flushing a $5 bill down the toilet each day just for the fun of it.

In addition to those awesome monthly payments, you’re also giving up a little over $6 in depreciation each day it sits in your driveway.

2. If You Believe Repairing Old Cars Cost More Than a New Car Does

The common belief, at least that I’ve run into, is that cars suddenly die and explode after they’ve hit 100,000 miles. As our vehicle approaches 200,000 miles, however, I’ll tell you that’s simply not true.

Yes, as cars age there is standard maintenance that need to be performed and particularly around 100,000 miles the timing belt and water pump need to be fixed.

But let’s think outside of common perception for a moment: all cars, whether new or old require many of the same maintenance requirements: oil changes, new tires, new brakes, and transmission flushes. So, with all things being equal, the only ADDITIONAL out-of-pocket expenses an older car is going to cost you are things that start to wear out.

Let’s do a little math: you’re paying $350/month, if not more, for your NEW car. That means I have $4,200 a year that I’m saving (since I have 0 car payments) and I can tell you that I’ve NEVER spent that much repairing my vehicle! Heck, I thought I had a bad year two years ago when I dumped $3,200 worth of repairs for BOTH of my old cars, but I’m still making out like a bandit with those numbers.

Yes, I realize that new car dealerships/manufacturers feed off of your fear and therefore come with scheduled maintenance incentives and warranties, but do you really think you’re saving money? If that were true then the car dealerships and manufacturers would be out of business…

3. If You Value Status More Than Having Money

I’ve had the privilege to coach managers of car dealerships and other upper-middle class individuals, and the same holds true for them all: they’d rather be caught dead than pimping anything other than a 5-year or newer car. It’s just not an option for them, and driving a $10,000 paid-for car is like asking them to go streaking through the quads.

The unfortunate reality of our world is that many of us care too much about other peoples’ perception of us. If more people were open and real about their financial situation then we’d all be in better shape.

4. If You’re a Baller

There are those out there that have saved and lived well below their means, and others that make a ridonculous sum of money, and for those people buying a new car (and taking the kick in the face via depreciation) it just doesn’t matter to their overall financial health.

For those people, I salute you. If you want to buy me a new car I’m really loving the new BMW 6 Series Sedan and I wouldn’t say no to a Maserati Quattroporte Sport GT S. …just sayin’.

Should You Buy a New Car?

Of all people, I believe we should live life and enjoy it to its fullest. Saying that, I also know that most Americans are strapped for cash, have trouble building an emergency fund, and can’t even scrounge up the money to max out their Roth IRAs. Pinching pennies and clipping coupons isn’t going to get you to the promised land, but making wise decisions on large purchases (houses and cars) will certainly help free up your budget and give you the flexibility to save and invest.

As you grasp the reality of depreciation and get over the notion that old cars “nickle and dime you to death,” you should instead be thinking that new cars “hundred and five hundred you to death!”

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Guest Post by Jason – A financial advisor and Dave Ramsey-trained counselor who blogs over at WorkSaveLive. He aims to educate his readers on a variety of financial topics while sharing his family’s journey out of debt.

(EDITOR’S NOTE: I pretty much agree that buying used – even if it’s just 2 years old – is the smartest way to go financially, but I will say that it’s okay to go with the emotional side too. IF you’re doing it for the right reasons and you’ve got your budget totally on lock. There’s nothing wrong with enjoying that new car smell if you do it responsibly, but 9 times out of 10 it’s usually a bone-head move ;))

(Photo by striatic)


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{ 30 comments… read them below or add one }

1 Lance @ Money Life and More September 6, 2012 at 7:11 am

Wow two guest posts in one day! You’re working like crazy! Congrats on that!

I agree that used cars are generally the better way to go but make sure you’re getting the best deal. When I did this in 2010 the new car actually was a better deal because the newer used car market was so tight from cash from clunkers and very few new car sales in the previous two years.

I don’t think the market is like that anymore but I always say look at all of your options and choose the best one at the time. It can’t hurt :)

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2 too funny September 6, 2012 at 7:23 am

Errr…. section 179 deduction >6000 GVRW w/ close to high marginal tax rates? In that case, a new car is much cheaper, unless you buy something 10 years old.

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3 Skrpune September 6, 2012 at 7:27 am

A couple months ago, I would have strongly avowed that buying a new car is just plain cray-cray. And then I bought a new car, lol! I had sworn to never by new again, but we did the math – we got a great deal on a new car, it had WAY better mileage than the vehicle we traded in (it was a Wrangler, and we got a KILLER trade in value), the interest on the loan is way lower than any return we’d be getting on investing that money monthly, and it’s a much more practical car (Forester) that fits are life so much better. If we needed/wanted to, we could pay off the balance of the loan, but we’re balancing liquidity and cashflow by keeping the loan for the time being. And honestly, the costs for a similar used car just weren’t worth it – the prices were comparatively high, and interest rates on used car loans are higher, too. Do I wish I had one less payment a month? Sure! But I also am really happy that I’m getting double the mpg and really chopping my gas costs!

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4 Greg@ClubThrifty September 6, 2012 at 7:29 am

I have actually never bought a new car, and I probably never will. As you say, they just don’t make much sense…and I hate wasting money on frivolus things.

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5 William @ Drop Dead Money September 6, 2012 at 7:33 am

The basic point is a good one and I agree. We’ve not bought a new car in years. However, the last time we did, it worked out pretty well for us. In Orange County new car dealers had a tradition back then of advertising specials on Fridays. We have a friend in the trade, and he told us by law they have to specify the VIN number of the car advertised to make sure it’s not “bait and switch.” On his advice, we figured out what we wanted (Corolla) and we were there the moment the doors opened, asking for the advertised special. We were the only customers there, so the salesman couldn’t claim the car had been sold.

Bottom line, we bought the car for less than invoice. It was basic (hand crank windows, but stereo and air conditioning) but it was a Toyota and it was cheap. Fast forward. About three years later, the car got totaled when someone shot out of a driveway and T-boned the car. (My wife was fine, thanks for asking.)

But here’s the thing: the insurance paid us more after three years than we paid for the car new.

When it comes to Honda and Toyota in California, and Subaru in Colorado, they keep their value so much longer than the incremental cost for going new vs. used is not that high. If you’re going to keep a car for 10 years or more, and you’re good about maintaining it, the total cost over 10 years narrows considerably.

That said, we just sprang for another car, and it was used, so like I said, we subscribe to your viewpoint in general.

Nice headline, by the way – ya had me fooled for quite a bit! :)

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6 Melissa September 6, 2012 at 8:13 am

I can’t speak to the States, but I know in Southern Ontario, where I live, the used car market has been a desert for the past few years, with a five-year-old, 100k mileage car costing only slightly less than the same car brand new. Some after effects of the recession. That’s why I bought a new car earlier this year. (Note that I didn’t buy a ballin’ car! Just a brand new one. Don’t think the boys are going to be knocking down my door to ride in my Rio hatchback.) I’d fully planned on buying a solid used car (recent, well-maintained), but I crunched all sorts of numbers and for what I wanted (safe, low mileage, good on gas), I found that buying new was the better call for me financially. Got a way lower interest rate, too, and flexible payment plan. I plan on driving the thing into the ground, not upgrading in a few years, so depreciation isn’t really an issue either. I also put the value of a used car down as a downpayment, so my monthly car payments are way, WAY lower than you’re estimating.

I also really value the five-year warranty that came with buying new. I’m just starting grad school and facing a long commute, so I wanted to mitigate the possibility of breaking down on the side of the highway as much as possible. (Unfortunately, taking public transit to school isn’t an option. I wish it was.)

Just my two cents. :) I bought a brand new car, and if I could go back, I’d do it again.

And for the record, I hate new car smell!

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7 Brian September 6, 2012 at 8:24 am

The never buy a new car advice is thrown out all the time and people don’t tend to think about the numbers (the white whale used car everyone is looking for usually isn’t that much less expensive than its brand new counter part). The advice really should be “Don’t have a car payment.”

We purchased a brand new Jeep this year since the Mini wasn’t such a good car for putting a baby seat in. We looked at used small SUVs and realized we could get everything we wanted for about the same price when we purchased new. We paid cash. The only car payment we have is to ourselves to rebuild the car fund.

In the end I think everyone just needs to look at where their priorities are and decide for themselves what they want to do. But I will reiterate the real advice should be “Don’t have a car payment!”

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8 Michelle September 6, 2012 at 8:32 am

Jason, you seem to be everywhere today! :) Loving your post.

We bought a new car recently, but we got a good deal. 0.9% interest and the same car with 50K miles is going for more than what we bought ours at (and ours is brand new).

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9 Jason @ WorkSaveLive September 6, 2012 at 8:42 am

@Lance – A lot of people say that the used car market is up and prices are higher than they have ever been; while that may be true I just don’t see that in my part of the country. My boss just bought (3 days ago) a 2006 Mercedes for $14,000 (60k miles) while the brand new ones go for $30,000. I even bought a 2011 car earlier this year and saved $7,000 off of the 2012 prices. It’s just a no-brainer…but, it doesn’t hurt to check the new car prices and see what types of deals they’ll offer.

@Too funny – I’ll have to check into that 179 deduction; thanks for mentioning it! Unfortunately I haven’t been in the higher tax brackets so I haven’t looked much into it.

@William – I wouldn’t disagree that the cost of owning a new/used car over 10 years would be fairly close, but that’s really hard to say because it depends on what kind of used car you get. The reality is that MOST people don’t own cars for 10+ years.

@Melissa – I’ll say that it’s great that you crunched the numbers! As I’ve learned from blogging, markets across the country are vastly different when it comes to income, jobs, houses, and cars; so maybe it really didn’t make sense to buy a new car. The important thing is you tried to figure it out and make the wisest decision.

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10 Jason @ WorkSaveLive September 6, 2012 at 8:59 am

@Michelle – I read about that on your blog awhile back and I was totally floored. I haven’t been in the market for a Jeep before but maybe that’s just how it is with that make/model. From reading your blog I’d also put you near the “baller” class as you don’t have much debt and you guys have a large pile of cash in the bank.

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11 RichUncle EL September 6, 2012 at 9:17 am

I agree with this post and I also think people rush into situations without thinking things through. For example that new graduate who gets that first job and has a 20 mile commute definitely needs a car and 80% of the time they end up buying a new car. I know a few elders who are wiser and still make stupid money decisions because money lessons never sunk in during their lives and because personal finance blogs are new to our society.

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12 Matt September 6, 2012 at 10:28 am

I would definitely never buy a brand new car off the lot. 2-4 year old cars is probably the newest car i’ll ever buy.

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13 Michelle September 6, 2012 at 10:36 am

Haha thanks Jason for saying I’m baller status :)

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14 Stephanie September 6, 2012 at 10:42 am

Perfect timing on this post!! I might actually be buying a certified pre-owned SUV tomorrow (fingers crossed the deal goes through!!). It’s significantly cheaper than buying the same model new, but has nice low mileage and is still under warranty. We should easily get another 10 years out of it if we maintain it well, the downpayment will still leave us with a nice chunk of change in the bank, and the payments will be low enough that we’ll be able to keep setting money aside to rebuild that savings account back to its former glory probably within a year. ;-)

But yeah, if you can pay for a new car in cash and/or get a low enough interest rate, and you have the money to burn, why not? But for me, cars aren’t super important, they’re just transportation from point A to point B. They don’t have to be super pretty or flashy, they just have to be reliable and not completely falling apart, so I don’t really see any new cars in my future. Just doesn’t seem worth the cost, given my priorities.

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15 Jason @ WorkSaveLive September 6, 2012 at 10:44 am

@RichUncle – I couldn’t agree with you more! My wife recently got a new job where she is working with a younger crowd, whereas her last job was filled with 50+ year olds. Well, she drives the ’97 Honda to work and she’s getting embarrassed because all of her young coworkers rock the Lexus, Acura, and Audi. :) The older people she worked with prior were all driving older cars and could care less about the status symbols.

@Matt – I agree completely! I recently bought a 2011 Camry and got a great deal on it.

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16 Fern September 6, 2012 at 11:33 am

The most important reason, for ME, why ALL YA’LL should buy new cars is so I can get good used cars at good prices.

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17 Chris September 6, 2012 at 11:44 am

“The common belief, at least that I’ve run into, is that cars suddenly die and explode after they’ve hit 100,000 miles. As our vehicle approaches 200,000 miles, however, I’ll tell you that’s simply not true.”

I nearly choked when I read that. I’ve never purchased a car UNDER 100k miles. After I read “The Millionaire Next Door” I decided I would continue to buy cars that are at least 3 years old.

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18 Jen September 6, 2012 at 12:12 pm

GREAT TIMING FOR A GREAT POST!! I’ve always been taught by my daddy NEVER to buy new, and he, nor I, nor any of my immediate family members have. However, recently, I’ve been talking to my hubby about my car not doing so hot (needs some repairs at 150K) and it’s 10 years old. Interest rates are SO LOW on a NEW car, it just makes ya wonder. So I see the title of this post, “REASONS YOU SHOULD BUY A NEW CAR” and I think, dang, is J$ or one of his gurus gonna really tell me I should buy a new car??? LOL! I started cracking up laughing as soon as I got to number 1. :) So thank you, Jason, for reminding me that what I do when I buy used cars at reasonable prices (while not as pretty and fancy as some others) is still more financially sound. :)

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19 Jason @ WorkSaveLive September 6, 2012 at 12:54 pm

@Fern – I completely agree! If there weren’t people that didn’t understand depreciation then there wouldn’t be any cars left for us to grab up after they took the kick in the face!

@Chris – glad you liked that statement! We hadn’t owned a car with <100,000 until this past year. After driving beaters for years, repairing them, while saving up for a newer-used car, we finally were able to pay cash for a $15,000 car this past spring.

@Jen – I've done a pretty fun study on how interest rates effect our decisions over the years. The lower the rates are the less people save and the more people borrow. It's like we lose our common sense when rates aren't high. I'm glad you liked the post! J$ took a bit of a risk and wasn't sure how people would react, but I'm glad you enjoyed my spin on things. :) Used cars at reasonable prices are the way to go. It's so tempting to do otherwise though, but it's most important that you take a step back and make the best financial decision.

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20 Jacob @ iHeartBudgets September 6, 2012 at 1:06 pm

Jason, you are a man after my own wallet. You know how I feel about new cars, so I really appreciated this post :)

BUT, I think I may be in the market for a new car now because you totally described me in Point #4.

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21 SavvyFinancialLatina September 6, 2012 at 1:53 pm

I bought my used car and it’s been awesome. I, also, did not go into and debt, and it even had the brand new car smell because it had been detailed :)
My husband’s car was also bought used.

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22 Jason @ WorkSaveLive September 6, 2012 at 2:42 pm

@Jake – If you’d had kept that inheritance then I could classify you as a baller. Isn’t that why you bought your pimped out red truck? LOL. :)

@SFL – Congrats on paying cash! With interest rates being so low right now, it can make mathematical sense to take out a car loan at 0-1% if you’re able to earn more elsewhere with your cash. However, I think paying cash is the way to go for most people and it really helps the budget! Congrats on you guys being so disciplined!

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23 Edward Antrobus September 6, 2012 at 6:59 pm

I’ve never really bought the depreciation argument. Who says that cars loose value? Despite what KBB may say about the value of my car, to me it’s worth as much as it would take to replace it. I’ve never sold or traded in a car in my life. Only junked them..

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24 Jessica September 8, 2012 at 12:18 am

LOVE THIS.

I’m driving a 2003 Toyota Matrix. I love it. I truly am happy with that car, and have been since the day that I stupidly purchased it brand-new. Hopefully I’m making up for my idiocy in driving it to the ground. It just hit 170,000 miles, and it’s never had a major breakdown. It gets 35 mpg highway, and it takes a 50 mph rear-end collision like a champ. I love the car, because I know it’s not going to hurt me. (Those gigantic plastic bumpers have saved my life twice already!)

I had the windshield repaired today, and was waxing sentimental with the repair technician who commented that it was a great car (I hear this everywhere I go). It’s like having an old dog–knowing its end is nearing, but not knowing exactly when that day will come. I hope to get another 5 years out of it–and then I may just buy another one, just a few years newer.

Side note: When driving an elderly car, use some restraint people. Frequently I see a $500 car with $2,000 wheels and a $1,500 sound system. When I see the inverse wheels-to-car-value ratio, my very first thought is “this person is not saving for his/her retirement.” Oh, and the 1984 minivan with the big spinner wheels…. the wheels did NOT improve the “cool factor” of that vehicle.

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25 MB @ 12 Year Career September 8, 2012 at 7:56 pm

Funny!

NB and I drive a 12 year old Civic with 230,000 miles. And I love it. I learned to drive in this car when it was my parents’ and I will continue to drive it until it falls apart on the road (which nearly happened a few months ago – timing belt broke). NB does all our repairs and maintenance and our 12 month rolling avg auto expenses have never exceeded $25/month.

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26 FinanceViking September 8, 2012 at 11:22 pm

Great post. Buying a new car is stupid for all non-Ballers. Duly noted.

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27 Brad September 9, 2012 at 6:56 pm

My wife and I just got rid of a car. However, we would definitely heed your advice in buying a used car. Feel free to follow our journey as we blog about paying off debt at passingthroughdebt.blogspot.com.

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28 J. Money September 11, 2012 at 4:29 pm

Thanks again for hooking us up on this, Jason – glad it got some good convos going :) It caught my attention too when I first read the title! Haha… but that’s what we need to stay motivated right? Some good ol’ fashioned entertainment. Thanks for giving me a break while I was away and answering everyone’s questions/comments – really appreciate it. To pimpin’ old cars!

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29 Janine VanLuvan January 16, 2014 at 10:45 am

2 year old Honda CRV’s were only 2000 less than brand new and were almost out of warranty on mileage. And carried a higher percentage rate for the loan. With the new car 0% interest 0 miles I also got 5 complimentary oil changes and inspections for life of ownership. Free tire replacement if I run over a nail or have a blow out. Free fixing of dings if someone dings my car in the parkinglot for 1 year. Free key replacement. I intend to drive the car until it actually dies which is the only reason I bought brand new. I also am paying it off in 8 months. It is not stupid to buy a new car in 100% of cases. It is however stupid for SOME people to buy a new car I would agree. Depreciation only matters if I intended to sell it as soon as I drove it off the lot or 30 days later, which is not the case so therfore irrelevant. The last used car I had was 2 years old. Car fax was clean but after an incident where my daughter bumped into farm equipment while reversing the person I hired to fix it told me it was rearended and showed me the evidence. Which explained the thousands and thousands of dollars I poured into it over 6 years. And the gas mileage I was robbed of due to engine problems that were covered up that the first 4 mechanics didnt realize. I could have had a new car. Not to mention what my daughter went through with the used car she bought. Ill never buy used again. My opinion of course. I already know you all disagree and that is ok. You are right for you. There is no firm right or wrong here. Its purely circumstance and certainly I have emotional bagage haha

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30 J. Money January 16, 2014 at 3:39 pm

Agree with you 100%. It’s all about doing what works best for YOU. Sometimes (most times) that’s buying used, and other times it’s new w/ all those great perks like you mentioned. I’ve never driven a new one off the lot myself, but I know plenty of others who have who are pretty happy out it. So do your thang! :)

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