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March 06, 2013


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I certainly wouldn't advise getting a car loan. BMW's are costly to maintain. Sell the BMW and buy a used car that less costly to maintain. Once he's graduated and dealt with the student loan debt, then save some money to upgrade the car to a better used model.

Are you having the repairs and maintenance done at the dealership? If so, you might want to use an independent shop. I have a 325I and it costs no more than a domestic car as I use a local guy that specializes in BMWs. Several of the BMW forums have listings and recommendations. Some of the basic maintenance items are also very easy to do on your own with that car. I would try to get by with what you have until you pay off your student loans and have built up an adequate emergency account.

New car payment: $400 a month likely minimum.

$400 * 12 = $4800 a year versus $1500-2000 a year.
Haven't even added additional insurance costs a newer car may incur.

You're still coming out ahead.

Keep the car for another year or two, stop worrying about KBB value, it's value and costs to you that counts and provided repairs aren't crippling you, you're ahead of the game for now.

I also recommend keeping it not just for financial reasons, but because you don't know where you will be post graduation. I ended up moving twice within two years back and forth across the country. You could end up in a place where a car is not necessary, take an overseas assignment, or just be somewhere you don't use it that often. Additionally you are bounding yourself to a car payment when you don't have to. With the money you have and can save prior to and shortly after graduation, you should be able to buy one outright with no payment after six or seven months of working.

Best of luck.

I would be inclined to sell the car and use the funds to buy a reliable used car. With the upcoming student loan debt I would suggest focusing on that and being sue that can be handled before taking on a loan. Once he's gotten the student loan taken care of he can focus on getting a newer car.

I would look into getting something more affordable that has lower maintenance costs. There are always reliable cars out there, you just have to look for them.

Excellent, excellent response by getagrip. He outlined both theshort term and long term issues that are important to consider.

Maintenance is a cost of owning any car, domestic or foreign. If I were in your position, I would either sell that car you have and replace with another late model domestic that is cheaper to repair, or just rock that thing till the wheels fall off. It doesn't make financial sense for you to get something new or expensive. Car payments are a major reason people don't have any savings.

Start your life thinking net worth, not cash flow, and you'll be ahead of the game. Its depreciation plus costs that matter. Your car's annual depreciation is now pretty low, maintenance costs high, added together is prob around $3K for the next year of that BMW. Just use that to compare to the depreciation and costs of any other used/new car. It's not a secret anymore, Edmunds True cost to own calculator is one place that will give you all these numbers for all cars both new and used

BMWs are always gonna mean you don't mind spending a lot of money on your cars (early on depreciation very high, maintenance/repairs later very high). I own a 10 year old camry that requires few repairs and has basically stopped depreciating. Its no BMW, but there's at least a dozen things I want to spend my money on other than cars.

From the sounds of it your car is no longer reliable. You have to be at work and the car will not get you there, that is never acceptable. Now your condition does not meet my personal standard for buying a new car which is when your repairs equals 50% or more of its value. But if you are putting in 2k per year for several years then i'd let it go. My last opinion, you cannot afford much until you have a job in hand so stay away from pricey cars like your old Beemer and go with the small sedan lineup instead.

I'm having trouble understanding why it would be costing you 1-2k/yr to maintain yr car, but then, I've never had a bmw. I'd say: drive the bmw another 1-2 years without fixing anything and let it just fall apart. Or, if it isnt even drivable, you need to sell it and buy a used car for 3-5k. Its not rocket science to get a good, cheap used car. Look for something real common and easy to fix and with a good or toyota or subaru or even it from an individual not a lot, and get it looked at by a mechanic before you buy. Trust your gut: go for something that feels solid, is clean and well maintained, sounds ok when you start it, hopefully being sold by an older person, dont worry abut mileage because maintenance counts for more in cars this old. Price should ideally be in line with blue book in your area. Think short term: hopefully you can drive it 2-4 years until you start making more money. Dont buy a new car now because you'll be stuck with car payments forever and also high insurance costs--bottom line, you cant afford it.

Too many people focus on the repair costs like its the only real cost and they get really concerned about it when the car is worth less. Rules like Luis' 50% of value going to repair costs being the trigger are not a financial assessment of what is the best financial decision to make.

If your car is worth $5 and costs you $1500 per year to maintain but you could buy a new car that would depreciate $5,000 per year and both would be perfectly acceptable to you it's just the repair costs that you don't like then which one is the better financial situation? The $1500 annual repair is 3 times cheaper to own than the new car that depreciates $5,000 per year.

These are all real costs that you will incur.

Now if the car is constantly in the shop and a major hassle because it is breaking down all the time that is an entirely different calculus. But from a purely financial standpoint the decision comes down to cost of ownership which others have already addressed.

The phrase you often hear people say when they have a situation like this goes something like this. "I have to get rid of this car. This thing is nickle and diming me to death."

So they trade in the nickle and dime costs for much higher dollar costs through much higher depreciation. But since depreciation is not something you write a check for every 6 months it doesn't seem real but it is every bit as real.

The decision to get a new car should have nothing to do with cost of repair in comparison to current value. It should be a combination of your need for reliability combined with total cost of ownership irrespective of the value of the car. And if you have the luxury of considering comfort and style you can throw that in there too. You are going to pay for that but if it's worth it to you then that's a choice you make.

But if you have a car that has hardly any depreciation left and is costing you $1,500 per year to maintain, you are certainly not going to save money by getting a new car. You are going to lose more actual money in each of the first 5-7 years of owning that new car than you are now paying in maintenance for this one.

A good used car could be close to an even swap or maybe slightly better but probably not much of an improvement in actual cost of ownership.

You look for a new car when you feel it is no longer relaible and are tirerd of repair bills.

Sounds like you are there.

Question is do you want to turn in your German engineered car for something else? Something cheaper? Something in the relaiable econo box?

I tell you right off the bat that I am having a problem finding ANY used car is cheap. A used 3 year old econo box that has 45k miles ($13K to $14K) on it is only a couple of thousand cheaper then the same car new.( $17K to $19K)

Personally under this difference I would buy a new car if the cost difference is only $3k to $4k from a used car and have fewer worries over the 45k miles on the used car instead of thinking I might need new tires, brakes and other maintenace items.

That repair and maintenance cost is fairly high and you can do better one way or another.

If you can cut down on maint. / repair costs then thats the better option. If its simply a matter of finding a cheaper mechanic then just do that. I'm assuming its not that simple.

If you can't cut it otherwise then I'd buy something like a 5-10 year old Honda Accord or Toyota Camry. You could spend $5-10k on one of those and end up with maint/repair in the $500-1000 range. Plus a bit better gas mileage. My '04 Camry is costing me ballpark $250 a year in maintenance and depreciates only around $600 a year.

Don't buy a new car. The cost of depreciation per year on a new car is more than what you're paying in repairs now so that would be a step backwards as far as affordability.

Your car's KBB value is not important at all. How much does it cost you per year? That's the important question.

With your new car, you will pay:

1)more for insurance: it will be expensive. Also, for your used car you can skip comprehensive coverage, but with a new car, you cannot.
2)a lot more for depreciation: no need to explain.
3)interest for the loan. no need to explain.

These will all limit your cash flow. So if the car is still safe to drive and you have access to alternative transport for a couple of days a year when it is in garage, drive it until it dies. 125k in odometer is not that much.

if you still want to (or need to) buy another one,
- Either go for a 2-3 year old domestic and profit the huge depreciation (what I did) if you understand well from cars (i.e. you like cars, can spot early warning signs of trouble, can find a nice mechanic etc.).
- Or, if not, go for a 4-5 year old japanese.

I say a BIG NO to a new car purchase.

The advice to not look solely at repair costs but at the total cost of ownership is correct. You need to factor in extra insurance costs, depreciation, excise taxes etc. It may be true that a different used car is cheaper than your BMW, I'm not sure it's cheap enough to justify crossing the bid/ask spread though. you'd have to do the math yourself.

I don't agree at all with the suggestions to buy a slightly used car. "Conventional" wisdom says that new cars depreciate quickly and that buying two or three year old car will be a cheaper alternative. Unfortunately this is no longer true. In the current market the new/used car spread has compressed dramatically. A new car doesn't experience anything close to $5k of depreciation annually anymore, the depreciation curve has gotten much flatter. That is due in part to better quality cars leading to more valuable used stock. The greater cause, however, is the extremely low used car inventory available currently. 3-5 year old cars would have been sold during the bottom of the recession when car sales plummeted to extremely small volumes. Fewer cars available means higher prices.

Using real data to analyze the problem, the Manheim Used Car Index is a price index that calculates the change in actual trading prices for used cars in the US. It corrects for differences in vehicle characteristics, so it is the best approximation of change in used vehcile prices I'm aware of. Between Jan 2009 and Jan 2013 prices of equivalent used cars rose 21.3%. According to the BLS the change in new car prices over the same period was only 9.8%. That's a tremendous shift in relative value in favor of new cars over a very short time period. Anecdotally, I faced this exact issue a year ago when I chose to purchase a new car. I paid $24,895 for it approximately one year ago, I had multiple offers within a couple hundred dollars of that number. Today after searching major used car trading sites the cheapest 3 year old car I can find in the US is offered at 20,995. Is that pretty handwavy? Sure, but it would tell you that 2 years of depreciation is only worth $4k or $2k annually.

None of this means you should buy a new car. But I truly believe that a gently used car is, at the present moment, a bad deal. I would look at a new car or something in the 7+ range and compare those alternatives. Given that you are about to graduate and unsure of your future situation I'd personally just keep the current car and revisit in a year or two.

I agree with Bill. It took 6 months for me to find a decent deal for a 2-3 yr old nice car.

With the life changes you might be facing in a year when you graduate it seems silly to spend money on a new car that might not fit your needs in such a short timeframe. You might get a job in a place where it snows, a place with good public transit, a sales job requiring lots of driving, or a job that doesnt pay as much as you were expecting.

Not to mention your net worth is currently negative, AKA you are broke. This limits your budget substantially as signing up for interest bearing debt on a depreciating asset is a luxury you should not afford yourself.

Sell the car. I'll give you $1800 for it.

In all seriousness, there is some good advice above; but you raise a great question. When should one buy a car? To that, I'd add, how much is the right amount to spend? I've never seen a good analysis of the right price point, like I've seen with housing.

Our vehicles are 13 and 14 years old and we kick this idea around the dinner table regularly, but never come up with anything. I feel like we should have a strategy for buying before there is a genuine and pressing need. But honestly, I hated the dealership experience the three times we went thru it so much that I'll do my utmost to postpone that as long as possible. Even more, I hate the idea of making car payments, since my car sits in a train station all day.

So, let me know how soon you want to sell. I'll match the trade-in, and give you an extra hundred in cash, which is going to be around $1800.......

This is the logic that I would use:

Assume that a new car will last you ten years. Take the cost of that new car (cost plus interest if you'll be financing) that you expect to pay and divide it into ten years.

Is that yearly cost of the new car less than what you're spending now or is it more? Considering that you're *only* paying 2k a year in (extra?) maintenance and your new car will probably cost more than 20k, I'd say that with just considering money, your old car is still the winner.

Of course, that's just the money part of it. If the inconvenience of repairs and the lack of reliability is wearing on you, then get a new car however the math works out.

I'm sure that inflation skews the cost/years idea but it's just a rule of thumb.

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