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November 09, 2010


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One more thing worth mentioning - if you buy as much car as you need, and not the most you can afford, does the new/used really matter? What I mean is, I spent about $18k on my current car, which I bought new last year during the heavy recession discounting. It is the base model. The only options are all wheel drive (which I wanted) and a power seat (because they all had that seat - there wasn't one in a 4 state radius without it).

People at work that know of my frugal nature made lots of fun of that. They all drive used cars. Everyone knows that's the way to go because you save so much money. But guess what? Their used cars are fully loaded. And pricier makes. They wouldn't buy one without a moon roof. No leather? No sale. And guess what? When asked, every one admitted paying more for their used car than I paid for my new one, not even taking into account they financed them (I did not).

Also, every one that teased me had owned at least TWO cars during the last 7 years that I owned one (which I also bought new, also heavily-discounted during the post-9/11 economic slump).

There is no doubt you CAN save money buying used. But did you? I don't think my choice was a bad one financially. I don't think theirs were bad either (assuming they bought within their means). They're just different choices.

I am sure there is a cross over point where if you keep your car long enough that it really does not matter if you bought new or used. Hubby and I have kept all but one of the cars we've owned (and bought new) for 10 years. We purchase a new car every 5 years.

Unfortunately we've had to finance them - we are not yet at a place where we can pay with cash. But the last car was 0% interest and still I did my homework and got a good price for the vehicle. Of course, we are lucky we've never been in an accident and had a car totaled.

All of your points except one of them lean towards uncertainty and unsubstantiated claims. Even the "I can afford it" is the excuse that the poorest of people use--using that argument, everyone with a payment plan extended out to 84 months can "afford" their car, just as everyone with a 40 year mortgage can afford their home.

The one claim that I will buy is that, "I can buy a new car for a 'good' price."

In any case, it is YOU, afterall, that have to make the ultimate decision, and as long as YOU are not suggesting subtly hints to your readers in other posts to not buy new, then you are alright in my book.

I think you can apply the same amount of diligence to the purchase of a used car that's as good as new but with a deep discount. A few years ago, my wife bought a previous year model with only 5,000 miles for a deep discount, primarily because it was used. I agree with Romeo that your post appears to be full of rationalization. Your main argument, repair/maintenance, belies the fact that cars are built to last 200,000+ miles and 10+ years, so buying a car with no more than 20,000 miles is about equivalent to buying a new car, without the premium price.

-> Phillip, you beat me to it!

I was going to say this post is 90% rationalization.

Romeo --

Did you catch the part where I pay CASH for the car? My definition of "afford" does not involve an 84-month loan as part of the deal.

FYI, I don't have a mortgage either -- haven't for close to (or maybe over at this point) 15 years now...

I bought a '99 Camry with 130k on it 6 months ago for $3400, and aside from replacing the 10 year old (!!!) battery, it's been running like a dream. Considering that a 2011 Camry with an automatic and a CD player runs $23,600, plus all the added tax, insurance and licensing fees, you'd basically be paying close to the cost of my car for every year you drive your hypothetical Camry. My insurance is $200 for 6 months, how much more do you have to pay for your body coverage? I drive fancy-free and don't really stress about any dings or scrapes I might put on the car, and if things give out (though I doubt that'll be a while), I'll just get a new one.

It doesn't seem like you're looking at a new luxury vehicle, either, which is something I would actually approve, assuming you've got the cash. There's definitely an added sex appeal, driving experience and generally positive perception of people around you when driving one of those. The difference between a used and new entry level vehicle is pretty minimal.

So how much more are you paying for your added utility and how does it compare to the amount you save per year through all your extra frugality?

I recall a psychology experiment that illustrates your thinking. Subjects were told they would need to buy a graphing calculator and a pair of headphones were shown one of two deals. In one, a pair of headphones that was normally $20 at a local store was half off at a place 10 miles away and the graphing calculator was $100 in both places. In the other, the graphic calculator was $100 at the local store and $90 at a place 10 miles away, with the headphones $20 in both places. Subjects were asked which store they would go to for their purchases. Guess what? An overwhelmingly greater percent of subjects said they would prefer to go to the distant store when the headphones were on sale than when the graphing calculator was on sale, even though their total savings would be the same! People frequently focus on the percent that they're saving, not the amount, and may spend much more time to make many small savings decisions (clipping coupons for 50% off a can of beans) and instead skimp on large opportunities where they could have saved a much greater sum (negotiating for an additional 1% off the price of a home).

I'm not saying that buying a new car is wrong in any way, just that you're inconsistently valuing your time. How many extra hours of repair time per year are you really going to need for an older car? How much more are you paying for your car new vs. used? Divide cost/(estimated hours saved). How does that compare to what you earn at your job, and how much you save per hour doing things you value as frugal? I think you're greatly underestimating the reliability of used cars and also the chance that your new car contains some faulty part that needs to be serviced in the first few months. Sure, there might be a hose or something wearing down in a used car that needs to be replaced during a maintenance check, but it's highly improbable that your car will simply stop functioning in the middle of the road.

So do the math and come back to us.

In my current situation, I'm all about used cars, but if I had the money, and a family that needed dependability and I just wanted a new car, then I would buy new. Lets face it, piece of mind has a sense of worth we cannot put in monetary terms.

People get real up tight about new vs. used cars. I'm with FMF. If I was in his position I would do the same. He has no mortgage, hasn't for over a decade. (Think about that for a minute. Many people could make 3 car payments a month with their mortgage payment). He has a great Emergency Fund. He is on track to retire well in a decade or so. He has already said his kids college will be well funded. He is frugal in many other areas.

I say, good for you FMF. You are frugal in areas of your life you care about and spend that saved money where you desire to. That's what smart money management is all about!

*peace of mind.. my fault

Nice post FMF! I would also note that the almighty DAVE RAMSEY says that it's OK to buy a new car when your net worth is more than a million (which yours is for sure). So no worries - you have Ramsey's permission :-)

You really have to do what works for you - and a new car you can afford is a wonderful purchase that provides security, reliability and a whole bunch of enjoyment for many years! I am still driving used luxury cars, but you can bet that once my net worth crosses 2 million, I will consider buying a new one. And I can promise you I am a die-hard frugalist (as I pull my sandwich out of a reused Ziplock bag haha).

Have a great day everyone!

My last 3 cars I bought brand new. For some of the same reasons FMF said. I bought my last one in 98. That car has 125k on it and I have been considering its time to get a new one. I've read so much about buying used the last several years that I decided my next one will be a used vehicle. However, after looking around just a little bit lately, I'm starting to feel as if the used car deals are not really all that people are saying. I too am starting to think that I will just buy new again. Then I will at least have the warranty and the peace of mind knowing that I am not buying someone else's lemon.
My reason for buying new... The used car deals are just not that good as I see it. I think these guys are trying to make too much off the used car deal these days.

I don't really agree with FMF's reasoning and feel he's wasting his money buying new cars but everyone, no matter how frugal they are, shouldn't be required to practice what they preach exclusively. We all have our weaknesses and if you're generally responsible across the board it's perfectly fine. It's called living.

I love food and will happily spend $500-$600 on a dinner-for-two if a good occasion arises (Alinea, how I miss you). I could write an 6-point justification for my semi-annual binge but when you boil it down it's just a plain bad decision from a financial standpoint. I also wouldn't change it for anything in the world -- with the money I save buying gently used cars I can afford it. :)

I agree with billyjobob above, some used car deals are not all that great. Used couple year old Honda with 45,000 miles = $17,000. New Ford Escape = 18,000. Yes, this is a basic model, but still has power windows, stearing, door locks, duel airbags, plus side curtain airbags, stabili-track , plus the dealer waranty. I bought the Ford and have no regrets.

One of the biggest myths ever created is that cars lose value when you drive them off the dealer's lot.

If you really decided you wanted to sell your brand new car after putting 20 miles on it (who does this?) you should be able to find a private party that would pay pretty darn close to what you paid the dealer (assuming you negotiated a good deal). Cars do not magically lose 80% of their value or whatever people spout just by driving them off the lot -- take a look at used car prices if you don't believe me.

It is true that cars do depreciate faster their first few years, but that really has nothing to do with if they are on a dealer's lot or not.

FMF - go for it! After all, someone has to buy new, or no one else could ever buy a used one. :)

You're paying cash, got a deal for the absolute best price (as you outline in your post about buying online), and have plenty in savings for a rain day.

If anyone should buy new, it is someone in your position as you've described.

The next question is...what are you going to do with the old car?

1. Trade it in?
2. Sell it yourself?
3. Keep it for the kids?
4. Give it away in your FMF monthly reader giveaways? ;-)

Like FMF, we choose to buy new, but keep the car for about ten years (which means we replace one approximately every 5 years). We aren't car people (no knowledge, no interest, no interest in acquiring knowledge), so all maintenance needs mean that somebody has to take time off to take a car in, coordinate picking up kids from school and daycare, and figure out a way to get back and forth to two jobs with one car.
With cars under 5 years(60K miles), this is not a big deal. They usually don't need extra care and feeding. Once a car hits 7-8 years old, and over 80K miles, there are usually multiple trips in a year for repairs. Not dealing with the maintenance and scheduling headaches for more than one car at a time is our splurge.

"-- and a 20k car usually doesn't go for much of a discount"

hummm...not entirely true, I was able to get a Benz with 12K miles on it for 10K less than a brand new one... just food for thought...


Was that $10k less than the sticker price, or the price after factory rebates and dealer negotiations are included?

A new 2011 Ford Explorer Eddie Bauer 4X4. 40K
A used 2010 Ford Explorer Eddie Bauer 4X4 with 25K miles. 26-28K

Seems to be a bit of a price discount to me...30-35% discount. I found 5 of them in less than a minute on Autotrader.

If you want to buy new, go for it. But the reason to buy new is because you like new. I do to. Not because used isn't much cheaper.


Let me be clear. It is perfectly ok to buy a new or used car, paying CASH when all of one's financial goals are on track, or are being exceeded. Afterall, what's the point of saving money if you can't buy something that gives you piece of mind?

In the end, what does it really matter if the car depreciates in value? It's not an investment anyway. I think the point is if you can get the same model, not year, for a better price, financial sense says go for it. By example, the 2011 Ford F-150 didn't change much from the 2009 Ford F-150.

The focus of my original reply was that you could have simply said,"I'm buying it because I want to!" Just don't feed us excuses why you need to rationalize for doing so, especially when your reasons are unsubstantiated.

On a friendlier note, I wish all of us were in your position to pay CASH for a new car when we want to do so. Job well done!

Romeo --

I don't think "I'm buying it because I want to!" is a valid post. Plus, the other items are factors in me buying new. You may call them excuses (or whatever you like) but they are valid to me (and as you can see from other people's comments, them as well.)

So you might want to be a bit friendlier when you show up new to a blog and start spouting "wisdom" for someone else to apply. Just sayin'...

I can easily use the points made above to rationalize any purchasing decision I choose, save one: All financial goals are taken care of already.
"But used is too much work!" doesn't cut it.
"But I've bought into the marketing about safety!" doesn't cut it.
"But I work so hard, I deserve it!" doesn't cut it.
"But I got it on sale!" doesn't cut it.
"But it makes me feel better!" doesn't cut it.
"But over the long haul, it's probably not that much more anyway!" doesn't cut it.

"Because I can afford it and I want a new car" is the only justification that carries any actual weight. This post would have been much more powerful if you had distinguished between rationalization and reason. As it is, it merely provides excuses for those of us who haven't made it to our first million yet.

I, too, buy new cars only (after shopping around for negotiations etc). I have driven my last car for 9 years now, and I am planning to buy new again when the time comes to replace it.

I know next to nothing about car maintenance, and I wouldn't know better if the repairman "suggests" me to change some parts because he thinks the car needs it. I wouldn't know if his advice is valid, if it's a necessity or a nice-to-have, or if he overcharges me as well. Buying new, at least I know the condition of my car from day 1, and avoid costly unnecessary maintenance.

Romeo, oh Romeo. Wherefore art thou common sense and courtesy Romeo?

This topic is very timely for me as my husband and I just settled on the new car we're going to purchase last night! Though we have some valid reasons for purchasing new instead of used, and we've done all our homework and secured a great price, I've still been feeling a little uncomfortable because technically we could save about 5k if we bought used. But at the end of the day, buying new makes sense for us for a variety of reasons, some you can prove with a formula on paper and some you can't. For example, the car we're purchasing will primarily be my husband's commuter car. He is on the road (in Bay Area traffic) for about 2.5 hours a day. He's a total car guy, and has been driving my 100k+ mile Jeep for the last few years without a word of complaint, even though I know he'd love something more comfortable with better gas mileage. So I'm happy to pay 5k more over the life of the car (which we'll keep at least 7-8 years) to make him happy, safe and comfortable. Isn't that why we're being responsible with our money 99% of the time?

I have to agree with Maria. It's your money, you work for it, and you can choose to save in some areas and splurge in others, but there's no rationalization that rings true when overpaying except "I want it!" By the way, I own a 2005 Pontiac Vibe with 77,000 miles on it. All I've had to do so far is replace the tires. When this car goes to car heaven, I will replace it with a used car. I will be able to afford a better car if it's not new.

Thanks for the post FMF. My wife and I have been discussing this exact issue as well and come to about the same conclusions as you. I'd bet many people attempt to feel better about their used car purchase by over-inflating the purchase price of a new car and ignoring the wear (i.e. consumption) on the used car. For some brands and models it makes more sense than others to buy used, though for the model that you bought and the model that we are investigating, the benefit to buying used is small. Also, as you so appropriately indicated, not enough emphasis can be put on the value of disposable free time.

He's rationalizing - so what?

Let's face it: FMF has an irrational preference. I guess he must be human after all. I've noticed he is enjoying his life. Hands up everyone who saw him get cable TV!

He is following my definition of frugality - decide what you want and then get the best deal on it. In his case, he wanted a new car, so he did his homework and got a better price than anyone else in America.

I do the exact same thing. I drive a very expensive (SECONDHAND) sportscar. Completely irrational - it guzzles premium gas, I can only take one passenger, and I have to borrow my wife's car to go to Home Depot.

But I still use my coupons, ask for discounts and shop around. Oh - and I would NEVER buy a new car!

Mark --

I think you're the first person in five years to call me human. ;-)

Well said Mark. FMF's approach is very like my (very wise) mom's. She always says, "I can have *anything* I want, I just can't have *everything* I want!" Words to live by!

"A new 2011 Ford Explorer Eddie Bauer 4X4. 40K
A used 2010 Ford Explorer Eddie Bauer 4X4 with 25K miles. 26-28K"

Psshh... Nobody is paying 40K for the new one. Out of pocket probably ends up being probably 36K, less if you just wait for the 2012s which a responsible person such as FMF is would do. And 25K is two years of use. And you've picked probably the worst example possible--that Eddie Bauer thing is gonna really cost you in the new one and you'll probably get a discount in the used. If you back off the souped up model, the savings won't be as significant.

The last two times I've bought new cars, I've looked for the nearly identical thing 1-2 years old and both times I've been massively disappointed in the 'deals' I would get. When you look what I'm paying over the lifetime, I get pretty much the pro-rated amount off from the mileage on the car and I don't get to have a new car and I lose half of the warranty. If you want to talk about buying a car with 80K on it or something, than I think you can make that reasonable argument--but this buying a 1-2 year old argument is overdone, from what I've seen.

Many people promote the idea of buying a used car but by used they mean 1 year old (maybe 2) with 5-20k miles on it. That's not used. That's barely taken out of the box and the savings are minimal. A used car has 80-100k miles and is 5-6 years old and then there are some real savings.

There are good arguments for both new and used but 1 year old cars don't meet any of the arguments for buying used (finding one exception in 50 doesn't prove the point). When people talk about used and mean 1 year old I stop listening cause they are telling themselves a story they want to believe which the facts don't merit.

I think we can all at least agree that it's a good thing FMF didn't lease. :)

I agree with FMF--I'm not a mechanic, if I buy used I have to jump through hoops and cross my fingers that the car isn't a wreck.

I also live in the midwest with it's terrifyingly awful weather--we are talking death in some cases if your car breaks down.

Under the circumstances, and because I love a nice clean car and getting exactly the features I want, I buy new.

It's similar to not buying used furniture anymore--I'm just tired of stuff that's worn out and that doesn't do the job as well. Oh, and I can afford it.

Maria said: "But I've bought into the marketing about safety!" doesn't cut it.

Safety is not simply marketing. New cars are safer. Every year they come out with improved technology and innovations that improve the safety of cars. It may not seem like it on teh surface and maybe you doubt the improvements matter but they are substantial and do improve safety. This is also reflected in fewer and fewer highway fatalities over the years. Safety features in cars is not a lie propagated by marketing, its real.

I've noticed that the more someone knows about cars, the more likely they will buy used. No two cars are exactly alike and it takes some experience to properly access the condition of a used vehicle. There is a perception that all new cars of the same Make and Model are identical. This is a comfort to someone who is afraid of getting "ripped off" and people will pay a large premium for that comfort.

I agree with you. I sold a car I'd bought new in 1992 twelve years later, with 84,000 miles on it. I couldn't buy a new car at the time, so drove a used one for a couple of years until I could pay cash for a new car. I'm not going to buy cars frequently, and I'm never going to finance one. I hear people say that buying a new car is stupid because it depreciates as soon as you drive it off the lot. Well, I'm not going to sell it very soon after driving it off the lot. And another thing is that I will never trade in my car when buying a new one. I would rather give it away literally, rather than pretend that I am getting something from the car dealer. They give you virtually nothing (I don't know how it is when you buy new every 2 years and trade in), and then sell your old car for thousands more. That's just not fair.

I think if you run the numbers, you will find that from a pure financial standpoint you will come out ahead with buying late model used vs new. When I say late model used, I mean say a 2008 vehicle. Safety features are generally the same (yes, they had side airbags in 2008 - heck my wife's 2003 model year car has them!), and they won't have so many miles on them that repairs are a factor, especially when you are talking about a reliable model.

I will say, though, that there may be some popular models that don't depreciate that much in the first few years, so you might come out ahead with a new, but again it depends.

At the end of the day, if you feel better buying new, then you shouldn't worry about defending your decision. We are all human with all the inherent weaknesses that come with that. If this is FMF's worst weakness then he is going okay in my book!

@FMF: Somebody has to be first :)

But - I still won't buy a new car!

@jp: I think you summarized it very well: "the more someone knows about cars, the more likely they will buy used". There is a huge fear that the used car will turn out to be a lemon, and a perception that most of them are. People who understand that
- the average car coming off a 3-year lease has been maintained at a dealer,
- you can get an inspection before you buy, and that
- there is such a thing as an honest independent mechanic,
buy used.

FMF. I don't blame you. If I had your income and amount of savings, I'd buy new, too. As long as you can get a good price, paying more for something can be worth it if it means less hassle in the long run.

But since I'm not in your league, I still buy used.

Just a depreciation question that I hope somebody can explain. Assuming you have done your research to find a good value on a new car, if you are planning to keep the car until it dies, does the depreciation on a new car matter? The faster it depreciates the less you have to pay for taxes and insurance every year :-> In general, I thought depreciation was only a problem from the resale standpoint.

KMI --

I handle it differently than most, but here's what I do:

I depreciate the value of the car (in Quicken) over four years, so it's worth nothing (in contributing to my net worth) after 48 months.

Then when I buy a new car (a couple years after that), I sell the old car, subtracting what I got for the old car from the price I paid for the new car (in other words, the new car is in Quicken valued at the price I paid for it less what I got for the old car -- so it's immediately "worth" much less than a new car.)

Then the process repeats itself.

"A new 2011 Ford Explorer Eddie Bauer 4X4. 40K
A used 2010 Ford Explorer Eddie Bauer 4X4 with 25K miles. 26-28K"

This is such a bad example.
1. Nobody pays suggested retail, so what is the point of using it for comparison?
2. Why use Ford, when FMF bought a Toyota? Toyotas depreciate a lot less.
3. How much are 2 extra years of trouble-free driving worth?

You have to factor in all 3 points for the comparison to be meaningful.

"Many people promote the idea of buying a used car but by used they mean 1 year old (maybe 2) with 5-20k miles on it. That's not used. That's barely taken out of the box and the savings are minimal. A used car has 80-100k miles and is 5-6 years old and then there are some real savings."

Again, how much of a useful life such an old car has left? How high is the maintenance price going to be for such an old car? What would be the probability that the car would stop in the middle of a road while you are driving to an important meeting at work? How one uses a car?

Now the old cars have its use - for people who can't afford a newer car, for inexperienced or bad drivers (no point of giving an expensive car to a kid who'll wreck it in a month), etc. Someone who drives occasionally 5 miles to a local grocery store probably could use this car too.

I reality, I don't understand used vs new argument. Some people can afford to pay a certain amount of money for a car, others can't. A used Ferrari is certainly less "frugal" than a new Toyota, yet in these forums someone coming and saying "oh I bought a used car (by the way it's a 10-year old Ferrari that cost me most of my savings)" would get a pat on the back while someone who has money saying "I bought a new Honda Civic" would be criticized for buying a new car.

As long as one can afford the expense, does it matter?

I bought a used '99 SUV (with 90K miles) 5 years ago for $7000. It has needed about $2500 in repairs since then but I see no reason it won't last for another 5 more years. That same SUV new would have cost me around $30K so I have saved tremendously in buying used vs new.

Interesting -- just found this saying used SUVs and trucks may cost more than new ones:

If you can afford (and I mean pay in full, with cash) a new car, then knock yourself out. Personally I'll continue to buy lightly used. I

n 2002 I got a 2001 Toyota Celica GT-S with 3000 miles on it for $10,000 less than the original owner paid for it a year prior. With the exception of repairs due to failing an emissions test at 140,000 miles, I never had to do anything outside of schedule maintenance. Wish I still had that car...

If I were in your situation I would probably buy new too(or buy a nice used sports car). My current used car though has been incredible. I bought a 93 nissan altima 6 years ago for $2200 and besides oil changes(which I do myself) I have bought one battery, an air filter, and a pair of tires. The car still runs like it did when I bought it. The car I had before that cost me 300 dollars and about 200 dollars in repairs. I got a good year and a half out of that thing before selling it for 350. Despite that I am still itching to get a new car at some point.

I have a 9 year old Acura I bought 6 years ago for $18k (tax, tags, title) - it's loaded. I have had one problem with it - a minor oil leak - that took half a day and $200 to fix. Everything else has been routine maintenance you'd have to do to any car - new or used - tires, oil changes, replacing bulbs, etc.

My husband has a 2007 Camry he bought new for $24k (tax, tags, title). It's nice, but not as nice as my car. My car with 120k miles on it still rides nicer than his when it was brand new. He has had to take his car to the dealer 3 times to get recalls fixed. I'd say he's spent a total of 9 hours at the dealer now for a new car. He's also had a minor oil leak fixed - about $200 - all with under 40k miles on the car.

Before that I had a 16 yr old Nissan, bought used, that didn't have anything outside of routine maintenance until it hit about 120k miles. My husband's Civic, bought new, had 3 mufflers before it had 50k miles on it. So I'm sorry if I don't buy the idea that new cars are less maintenance than used.

If you choose to spend your excess money on new instead of used cars that's fine - heavens knows I blow my money on some expensive things, too. But you are using rationale, not facts, to argue that you are saving money. This may not get you in trouble - but it may get those who don't have your financial advantages in trouble.

"'...A used car has 80-100k miles and is 5-6 years old and then there are some real savings.'

Again, how much of a useful life such an old car has left? How high is the maintenance price going to be for such an old car? What would be the probability that the car would stop in the middle of a road while you are driving to an important meeting at work?"

Such an "old" car has *most* of its useful life left. Our car is 10 years old and is approaching 250k miles. The only repair we've had was replacing the starter for $400. We've done regular oil changes and tire replacements as they've worn, but that would be needed for new cars as well.

I think people who really want to buy new cars grossly overestimate the amount of repairs that are needed on higher mileage cars. I believe 30 years ago, cars really did only last 125k miles, but that just isn't true anymore. I am always surprised when otherwise frugal people say "well, my car has almost 100k miles on it so it is time to get a new one." Rubbish. Such a car is only approaching its mid-life, not its end.

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