Coming up tomorrow, I’m going to write about why I completely disagree when personal-finance pundits say “Buying a used car is the smartest thing you can do!” In fact, I’ll tell you exactly why I bought a new car.
But first, I want to collect a list of links where people say buying a used car is the best/only option. Add your comments and let’s get a good list going.
I’ll start. From “10 things you shouldn’t buy new” (http://moneycentral.msn.com/content/savinganddebt/finddealsonline/p92985.asp):
Why not let someone else take that hit? Not only will you be able to save money (or buy more car), but you’ll pay less for insurance. Cars are better-built and last longer than ever before, which means you’re less likely to get a lemon.
Add your links here.
I'm the New York Times bestselling author of I Will Teach You To Be Rich. I co-founded PBwiki and graduated from Stanford.
23 comments
Leave a commenthttp://www.edmunds.com/advice/buying/articles/47079/article.html
http://www.roadandtravel.com/buyingausedcar/newvsused.htm
http://cars.about.com/od/helpforcarbuyers/a/buyingused.htm
http://www.womentodaymagazine.com/money/newused.html
And more neutrally:
http://www.cars.com/go/advice/Story.jsp?section=buy&subject=new_used&story=nuIntro&referer=advice&aff=national
http://www.msmoney.com/mm/life_purchases/auto/newvsusedfl.htm
I am a major advocate of buying used and have written about this many times on my site. In fact, I just wrote about this topic today. I would love to hear your reasoning for why a new car is a smarter choice.
Hey Ramit,
I just started reading your blog a few weeks ago. Coincidentally, my car needs some hefty (for my budget) work. My aunt wants me to get a “newer” car, while one of my friends gave me a point-by-point explaination on why I should repair instead of replace.
Anyway, this isn’t a pro-Used Car site, but it is interesting: http://www.carbuyingtips.com/
Thanks!
Here’s something more in-depth, and both-sided:
http://www.cars.com/go/advice/Story.jsp?section=buy&subject=new_used&story=nuIntro&referer=advice
That’s not what Suze says…
Link here
She advocates Certified Pre-Owned because they: are cheaper, have low mileage and they have factory warranties.
Dangit.
I went searching for articles to support buying used cars because this is something that I have considered smart for a long while.
I ended up finding an article that actually supports NOT buying a new car: http://www.wired.com/news/business/0,1367,60703,00.html
It’s about a guy who sells used cars, and then steals them back — just so he can sell them again.
http://www.consumerreports.org/cro/cars/buyingleasing/pros-and-cons-of-buying-a-used-car-206.htm
http://auto.consumerguide.com/CPO/index.cfm/act/CPOprosandcons/
Be interesting to hear your thoughts on this.
My advice is at:
save money on used cars
I look forward to seeing what you say!
An unrelated question — do you know of any resources for comparing Roth IRA funds? I’m looking to invest in one, but am sure there are some resources I’m missing.
Ask Bankrate!
http://www.bankrate.com/brm/auto-advisers/br_newvused.asp
Not everyone views a car as a tool to get from A to B. I realize cars are not smart places to put money, but for me, it’s a passion and hobby, and I proudly admit it. I got my BMW new and have put thousands into it … and it brings joy to every day of my life. My point? Respect that not everyone views a car the same way. Sure, I could have a decade-old Honda, but I’d be miserable. As enthusiasts say, it’s not the destination we love, it’s the journey. Take the long way home!
This isn’t a link, but here are my reasons:
1) Can pay cash.
2) Cheap insurance.
3) Don’t have to worry about dings and scratches so much.
Not exactly what you asked for, but this article describes the tradeoffs between new and used.
http://www.fool.com/car/car04.htm?source=PFinAg
I’m a Pundit (literally), so I’ll be curious to hear what you have to say tomorrow. I had a good experience (in terms of personal finances and satisfaction) recently buying a slightly used car and planned to try repeating it in the next couple of years.
Used cars are great, but for the same money you can buy a really nice bike.
I went carless almost two years ago and have benefitted in ways I never imagined.
No car insurance, payment, gas, etc. I’ve lost lots of weight, my coffee habit is reduced since I get woken up by a ride.
Additionally my company pays less on my insurance, I don’t spend time dealing with car repairs and maintenance, my grocery bill is reduced because I have to shop more often and can’t load up the cart with tons of unnecessary items.
There countless other little things that made it a great move for me, and I think it is something that more people should consider, it really isn’t that hard to pull off.
I live in the midwest in a small city that is by no means geared towards bikes. My daily roundtrip commute is eight miles and takes about the same amount of time as in a car.
Yeah, it takes more work and if I need to buy drywall I have to borrow a truck, but that is a small concession.
I am an IT Manager/programmer, I wear a tie at work, and ride there everyday on a track bike.
Interesting topic. I probably also would buy new, mostly because I’m looking for fuel-efficiency and safety first, but I’m curious to hear Ramit’s reasoning on this topic.
http://www.daveramsey.com – Dave Ramsey says don’t buy a new car unless you are filthy rich because they are too expensive.
I have purchased both used and new cars over the years, but I recently just purchased new. My point of view is if I can own the car for 10 years and average the depreciation over those 10 years, the difference between new and used isn’t terribly high. I also like getting the first 5 years of ownership covered under a warranty so my risk for out of pocket expenses isn’t too high.
I posted about my latest purchase at: EverybodyLovesYourMoney
I was about to write on this same topic on my Blog. What I can’t imagine is how buying new can ever approach the cost of used. I target between $50 and $75/month in pure car costs (purchase price-residual value/months). I own two cars and both are withinn that range. Point me to a new car that is that cheap and I’ll buy one.
With used cars, you never know the dealer’s profit on the transaction. That depends on the Dealer’s Vehicle Cost(DVC). If the dealer stole the car, they could be making a pounder(car lingo for a car deal in which the front end of the deal yields $2,000 or more gross profit.) However, if they stole the car, the profit they made was probably due to them buying the car for less than it is worth. That’s what makes great deals great deals: When two people came agree on a number.
On the other hand, when buying new, you can research and buy your car for invoice. Nowadays, most dealerships will gladly print your the vehicle’s invoice if you drive their car and show sincere interest in purchasing.(If they won’t – find somewhere else to do business!) When buying invoice you know that you are not being taken advantage of by the dealership. If you come to find a deal where they show you a break-even deal or even a loser for them, it is most likely made up from “dealer hold-back,” which is an undisclosed gross profit the dealer receives from the manufacturer, and even Edmunds.com can’t touch. It is usually very small on cheaper cars($200-500), but can range much higher for the more expensive vehicles($700-$2500+). This is usually where they are making up the loss, however it also could be a unit used solely for advertising or a deal in which the dealer thinks they will make up the loss on the back end of the deal(finance charges, products: gap insurance, warranties, etc..).
The crazy factor that most people never bring up is, “how the hell can manufacturers explain dropping prices on single units by $8-10,000??”(in the form of rebates and incentives.) Sort of makes ya wonder how much the manufacturer is raking in per car deal.
The dealerships will always get blamed, but if you go to trade in a car you bought brand new and it has depreciated DRASTICALLY(> $10,000) in a short amount of time, it is probably due to the manufacturer’s alter of the Actual Cash Value of the car by dropping incentives.
Not neccessarily needed info, but kind of nice to know maybe…if you have any car buying questions, please feel free to email me at highgross14@gmail.com.
Oh this one is easy. And it depends on what kind of consumer you are.
If you are the type that goes to a dealer to get fuses changed or light bulbs changed then I pity you but also recommend that you buy something pretty darn new. I pity you just because I can’t imagine paying $20 for the smallest things like light bulbs…
If you are willing to learn how to do your own maintenance, and willing to get dirty, if you have a place to work on a car (inside or out depends on the climate you live in), and if you will invest in tolls slowly when you need them – then in a few years you will operate a vehicle very cheaply.
I have worked on my own cars since my first car purchase at 14 years old. I changed the oil in my car for the first time when I was about eight years old (with proper parental supervision).
My current vehicles have never been to a mechanic for anything but mufflers (I lack a proper welding machine) and tires (can’t do alignments or mount/balance tires).
I currently own a ’99 CR-V. It cost us about $20K new. It’s worth about $5K now and we’ll keep driving b/c it has been flawless aside from a radiator that leaked. Its due for me to do another timing belt on it and service all of the fluids soon. So it cost me $15K to drive 165K miles. I’ll drive it until 200K miles and then consider whether I want to replace it. A previous Accord lasted past 325K miles on the original engine, five-speed tranny, and so on. I lost sight of it after that b/c the current owner retired it, sold it out of town, or moved.
My other car is a ’97 VW Cabrio. Yeah, I drive a girly car. VBG! The previous owners took a $15K depreciation on it in $100K miles. I purchased it and have driven it 55K miles for the purchase price and the equivalent of two new car payments. It’s doing fine and I’m getting ready to spend another $300 on it which will get all of the repairs up to date for the next 6-9 months. Shifter bushings, power steering pump, and some plastic parts that are past their prime is what it needs. It also will easily reach 200K miles when I’ll likely sell it. At that point it will be worth ~$2200 So it has cost me $2200 plus $1000 in repairs to drive it ~100,000 miles at the 200,000 point assuming nothing major fails like an engine (~$500) or transmission (~$250).
~$8750 (Honda cost) vs ~$3200 (VW cost) for 100K miles to use simple math.
If you rely on a mechanic for repairs then the VW may eat up the savings. I find the VW parts to be no more expensive than the Honda though.
Also if you make a six-digits income then you might find the savings with the used car to be inconsequential. Lastly the difference in cost might be worth the added peace of mind when you are driving somewhere knowing the newer car is less likely to have problems.
A better solution is to buy cars with 20-30 thousand miles on them. The owner takes the big initial depreciation and you still get a like-new vehicle.
If you take my numbers way out past 400,000 miles the cost of operating is even less. Depreciation is nil, the value of the vehicle is low, and things that are repaired correctly with quality parts (i.e. not discount replacement parts) will last again over 200,000 miles.
I find that most cars have a period around 125K miles where several things wear out. A fellow I once talked to who drove VW Rabbit and Jetta diesels says at 400K miles strange things wear out occasionally like steering column bearings and pedal bushings. Nothing expensive, just weird stuff.
There are also safety items that pop up like worn balljoints and suspension bushings that need to be replaced so the steering doesn’t fail or a wheel doesn’t fall off. Still simple to do but any suspension work like that requires an alignment afterwords to prevent the tires from being quickly ruined.
You do not have to spend thousands more on a brand new car when you can buy a used-car at the fraction of the cost. Just be on the safe side and choose from one of the many reputable dealers.There is nothing wrong with buying a used car; the problems arise when purchase from bad sellers. The secret to getting your money’s worth when buying a used car is choosing dealers that are trustworthy, honest and offers only the best pre-owned vehicles
Here is my tips on buying a used or new car. Treat each like a investment and take the option that is best for you:
http://www.savingtoinvest.com/2008/09/ten-car-buying-tips-to-getting-best.html
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