Every once in awhile, I get a question like this:
I'm actually quite surprised you are considering getting rid of your current car and even more so that you are considering purchasing a NEW car! I'm in a similar situation with a '97 Honda Accord with 110,000 miles but highly doubt I would buy a new car. Isn't purchasing a new car one of the worst moves financially, as the value depreciates quite a bit as soon as it's driven off the lot? With that in mind, why not buy used, or certified pre-owned? What benefit do you see to spending much more money for a new car?
I have responded before in various comments, but I wanted one post where I could detail my points and refer others back to it in the future. This is that post and here are my thoughts on why I buy new cars:
- My biggest reason for buying new is that I prefer a car that will run for a long time with minimal maintenance and little (if any) repair work required. I don't want to spend time (my disposable free time is very limited and I put a premium on it), effort (it's a big hassle to drop off a car for repairs, manage on one car, etc.), and money on regular trips to the repair shop. And I know someone will say that there aren't as many repairs to cars these days because they last longer. That may be true (there are fewer repairs needed than in past years), but I also think a reasonable person would concede that there will be more repair work done in the next few years to a car that already has 100k miles on it than on a brand new car. (And yes, I could buy a car with 20k miles on it, but used car prices are pretty high these days -- and a 20k car usually doesn't go for much of a discount.)
- There's also the safety factor -- in a couple ways. First, newer cars are less likely to break down at inopportune moments (like in the middle of nowhere or on a busy Chicago freeway). In addition, newer cars are more likely to have new safety features (like side air bags). In a way, buying a new car for this reason is similar to buying insurance.
- As you can tell from the two points above, I'm not really a "car" person. I don't know much about them and don't do my own repairs/maintenance (I can do basic maintenance, of course -- but I'm talking more complicated repairs here.) I'm sure I could learn, but I prefer to spend my time in other ways. Looked at from a purely monetary standpoint, I'm better off financially spending more time growing my career, making an extra income, or doing a number of different activities (or simply enjoying my free time) than I am learning how to do maintenance on my car.
- I can buy a new car for a "good" price. No, it's not as good as a used car price, but I can get a better deal than average (and always under invoice) using my proven method for buying a car using the web. It's not like I'm purchasing one for MSRP (or even close to that).
- I can afford it. As you know, I'm a saver. I save in advance for new car purchases and pay cash. So I'm not incurring finance charges of any kind. Combine this with the last point, and I'm buying a new car for the lowest possible price I think I can get.
- What's really the price difference between a new and used car over a six or seven year time period? When you factor in purchase price, insurance, repair costs, time, effort, final trade-in value, and so on, what are we really talking here? Maybe $5,000? Possibly $10,000 at the most? Even if it is $10k, that's an extra cost of less than $2k per year. Not a big deal for someone in my financial situation. (And could it be true that buying used isn't all it's cracked up to be financially?)
- If for no other reason, think of it this way: it's one of the ways that I choose to spend/enjoy my hard-earned money. We often talk about saving money simply for the sake of it versus saving it so you can enjoy some of it. If it seems incomprehensible to you that anyone would buy a new car, think of it as my "enjoyment" purchase. ;-)
So those are my reasons for buying a new car every 6 to 7 years (usually with 100k or so on the old one). I realize that the overall issue probably has many of you scratching your heads. After all, I'm the guy buying generic aspirin to save $2 versus the name brand.
So why go the opposite direction when it comes to such a big purchase? It just doesn't seem to make sense.
It's true, my general nature is tilted towards frugality. But it's that tendency to control my spending that allows me to buy a new car -- because I have plenty of savings and surplus. Yes, it's a contradiction -- saving in most areas and then not making the most economical move in this (big) area. But like I said, I can afford it and it's how I choose to spend/enjoy my money. Besides, I don't spend any more than most of my peers -- and they seem to be doing ok financially.
Let me end by saying that I think buying new cars is not the cheapest option available (though it is usually better than leasing). If you're trying to save money, it's almost always better to buy a good, used car IMO. This is what I would do if I was financially strapped or needed to save money for one reason or another (to get an emergency fund, to fund retirement, to save for college costs, etc.) But I have all of these covered and hence have the flexibility to do something I prefer to do. And isn't having that flexibility the reason we all seek to manage our money the best we can?