why buy a used car?

On other threads, many have recommended buying a used car to save money.  If financing the entire thing, it seems to me that if you can get a special around 1% APR on a 2007 then you are paying about the same monthly payments as a 2004 of the same model if financing at typical used car rates around 6-7%.  Keeping in mind I'm talking about Hondas and Toyotas that don't depreciate too much, and that you'll be getting 60,000 or more miles out of it than the used model.

 

 

You've got to think about the initial depreciation that happens when you drive a new car off the lot. If that doesn't bother you, go for the new one. You get more mileage, you will know what damage has been done, when the oil has been changed, etc. People sell used cars for a reason. If you want to save money and pick up their car problems, go for it. Personally, I'd spend a few more dollars and get a new one. When you're shelling out thousands of dollars anyways, what's a few more?

If you are set on making monthly payments then the argument makes sense. Yes it is an efficient use of money. Same monthly payment, higher value at the end of the loan.

Instead think of the total cost. Buying 3 years old private party and getting an extended warranty makes much more sense.

For instance, lets take the ever popular honda civic. I'm gonna use a 2 door EX coupe auto since there is a used one on my local craigslist to compare with. MSRP for a new one is 19.5. At 1% over 3 years you're looking at 19800 total. After 5 years it will likely (based on current prices of 5 year old civics) be worth around 8.5k-9k. Assuming you sell now at low value it cost (not including gas, regular maintenance, etc...) around 11.3k or $2260 a year to drive.

A same model 3 year old civic with 30-40k miles can be had for around 10k. A 5 year/50k warranty goes about 2k. Total cost after 5 years is 12k and value is around 7-8k. Assuming you sell now it cost you around 5k or $1k a year, less than half the new car.

The point of all that bullshit is that the interest is only half the story. Total cost is what you should look at.

A same model 3 year old civic with 30-40k miles can be had for around 10k.

If that were the case, then what you say would make perfect sense.  However, 2004 Civic EX 2d coupes sell for over $15,000, not 10k (according to kbb.com private party pricing).  These cars aren't depreciating like they used to.  For me personally, though, a big part of my decision is that I plan to keep the vehicle for fifteen years or so, so re-sale isn't too much of a consideration for me.

I'm actually looking at the Honda Pilot, because my wife and I have two kids and are hoping for two more in the next four years or so, so we need third-row seating.  This is why we just sold our 2002 Forrester, not enough seating for a growing family (driving my 96 Ram in the meantime--  that I bought last year for $1,300 and did some repairs myself).  A 2007 Pilot LX MSRP is around 27.5K, and a 2004 at 35,000 miles goes for 21K.

Another thing I'm thinking over is that at 1% APR, that's less than inflation, so financing it should save more than paying cash; kind of like 30K in 2007 dollars is a lot more money than 30K in 2010 dollars.

I don't like theoretical prices. I checked asking price for '04 civics on my local craigslist. ;)

EX with 37k miles http://lasvegas.craigslist.org/car/311957297.html

LX with 65k miles http://lasvegas.craigslist.org/car/319723100.html

Keeping a car for 15 is a great goal for some people and do-able. Needs for a vehicle often adjust in a shorter window than that in my life so I wouldn't make such a plan, but your life isn't mine.

Short term low % financing may not hurt much in this case. (Drive it till it drops) Good luck with whatever you decide.

Thanks dude!  And for pointing out those deals, too.  I'll have to keep my eyes open for steals on craig's list, but you know how used car financing goes.

what you're missing is that you're supposed to be saving enough money so that you can buy a used car with cash.

couple things happen when you're buying a used car with cash. you'll really put your time into researching what you're gonna buy. you'll be less willing to pay the sellers asking price.

once my lease is up, i'll be buying my next one with cash. it'll be at least 3 years old. as my dad and bro are grease monkeys, i have a good support system who'll pick the cars apart before i buy.

stephen

I think there is a middle ground here that won't kill you. You can get a car you like / want like I did and pay most of it cash, then finance the rest. My monthly payment on my car is $177. Yes, that $177 a month would probably end up being worth who knows what in 30 years, but I kinda like having a car I enjoy while I'm still young enough to enjoy it.

Of course, shopping around for that right deal doesn't hurt either. If I was to sell my car private party right now I could get just about $1k under what I paid for it a year ago. Same thing I did with my Grand National... Bought it for $10k, drove it for about 1-1/2 years, sold it for $10k.

All good points, Stephen.  Of course, just because you don't pay cash doesn't mean you can't do the same research.  For example, we rented a Pilot for three days last week; could have rented a cheaper car since we needed one for those days anyway, but now we know it's going to be a great car for us.  I always take a used car to a good mechanic for a full inspection before buying, too.  If we do go for a new one, we'll also get quotes from 3-4 dealers before even starting to haggle.  Cash is great, but I'm still thinking that financing saves money in the long run, in that with inflation in consideration, you pay less overall for the vehicle (if you get good APR like 1%), and meanwhile you keep the extra money that you would have paid in cash in a savings account that is more than 1%.

I like Captain's approach.  Heck, I once bought a car for $1,500, literally drove it from Oregon, to Alaska, down to NY, to FL, to CA, then back up to Alaska and sold it for $2,000 :).

I think the eventual goal is to purchase a new or used car with cash, if possible, but if you're going to buy new, it is important to keep the vehicle a good deal of time until after it is paid off, with continual payments into a savings account at the same rate you did previously so you can afford to pay for a new car or used car when needed.