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15 Little Life Hacks

Cost vs. value: Why I bought a new car

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In college, I drove a rickety-ass minivan that my parents let me use. Here’s how bad it was: It shook so badly that when I drove it on the freeway, I always drove in the right lane so that when it broke down–not if–I could simply pull over gracefully. When I took it to get a smog check, which of course it failed, I just put my head in my hands. The funniest thing is that one day my dad went to get new tires for the van and he came back with whitewall tires. I don’t know if any of us are old enough to know what whitewall tires are, so here’s a picture from Steelthundercc.com:

from steelthundercc.whitewall.jpg
The damn van looked like a pimp’s hoopty ride. Dear god. I made my dad take them back so quickly.

I always found it odd that almost every personal-finance pundit recommends buying a used car instead of a new car. (Here’s a list of links submitted by readers where you can see) Why is there such universal agreement? Apparently, among the reasons they list, cars depreciate quickly, they’re built better than ever, used cars have lower insurance, etc — so every young person should buy used.

I disagree. Now, used cars can be a good way to go. But to apply a broad rule that “used is the best” is idiotic. While used cars are a good purchase for some people, new cars are a great choice for others. Here’s why I chose to buy a new car.

I was in my last year of college with lots of business meetings that I would rather not have missed because my stupid 12-year-old van broke down. In November, I started looking for a car to buy. This was intentional: You can get amazing deals at the end of the year when dealers want to beat their quotas. First, I test-drove a few cars and researched them, narrowing it down to a Honda Accord or a Mercedes C230. (Both were 4-door models because Indian people hate coupes. Seriously.)

Now I want to take a second to explain how I decided between the two. The Mercedes was sporty and cool and kinda affordable (if a little bit of a stretch for me). But I decided against it for a few reasons: Service is absurdly expensive and I would just be angry every time I had to get stuff done at a dealer, plus insurance is more, etc. But the real reason I didn’t want to get the Mercedes is, where do you go from there? You can’t get a Geo Prism after driving a Mercedes for a few years. So I decided it would be stupid to get a Mercedes as a 22-year-old. Plus, cars are important to me, but not that important.

I decided to get a Honda Accord. Now I had to choose between new or used.

Why I chose a new car instead of a used car: value (not just cost)

Sure, a new car costs more. But over the long-term, not that much more. And the value–not just monetarily–is much higher. Here are a few things I debated before choosing:

  • Reliability. Above all, I didn’t want to get a car that would break down. I have enough stuff going on in my life and I want to avoid car-repair issues (time, $) as much as possible. I was willing to pay slightly more for this certainty.
  • A decently-nice-to-pretty-nice car. Buying a car takes an enormous amount of time. I planned to have this car for many years and I didn’t want another piece of crap. As a result, this baseline requirement reduced the disparity between new and used prices. In other words, I wouldn’t save a ton of money getting a used car because I wanted a pretty good car, regardless. Quick note: This is admittedly a little bit of vanity. But I’ve written time and time again about spending on things you love. I love driving and I do it a lot; it’s not strictly functional for me. I even sprang for the V6 model. Plus, there are other ways to minimize your total cost, which I’ll get to in a minute.
  • New-car smell. Good god, is there a better smell on earth? This wasn’t really a requirement but I just wanted to mention how much I love it. This, and the smell of Payless Shoe Source. Find me at the mall, walking in and out of Payless over and over.
  • How much cash I’d have to put down. This is important. If you don’t have any cash (or very little), a used car is more attractive because the down payment (i.e., money you have to pay immediately) is typically lower. And if you put $0 down, the interest charges on a new car will be much more. In my case, I had cash available to put down.
  • Interest rate. This becomes more important over a longer-term loan.
  • Resale value. At first, I was resistant to this idea. After all, I would probably just drive whatever car I got into the ground instead of selling it. Well, fine, it was pointed out to me, but at least calculate what would happen if you sold it in 5 or 10 years. A lot of people point out that “You might have an accident, so the resale value will be totally shot!!” I find that pretty dumb. Yes, it’s good to also know what would happen (financially speaking) in that case, but having a total accident is such an edge case that I think it’d be foolish to plan an entire purchase around it. If you’re that worried about getting in an accident, maybe you should put away your cellphone AND COSMETICS WHILE DRIVING. Also, you have insurance. Anyway, having a car with good resale value can considerably decrease your total cost of ownership.
  • Insurance. The insurance rates for a new and used car can be pretty different. Even if they’re only slightly different (say, $50/month), that can add up over a few years.
  • Gas. Everybody loves to debate the minutiae of gas prices, but the actual differences were, financially speaking, insignificant for me. I didn’t pay attention to this. (For example, see why hybrid cars don’t save you money.)

Here’s the deal: Buying a crappy used car will save you up-front money, but it may cost you a lot more over the long-term. If you decide to buy a pretty good used car, in my opinion you might as well spend a little more to mitigate the risks of car repair, etc. That’s the risk/reward perspective.

Another perspective, cost vs. value, influenced me more. Buying a new car seems scary because they numbers are so high ($20,000!). But that’s what financing is for–especially at extremely low rates like 2-4%. You can put down as much money as you’re comfortable with. But the biggest factor in my purchase was the total-value concept: You can get a new car for a relatively low cost over the long term by doing a few sensible things.

Now, most of the pundits who talk about buying new vs. used seem to assume that people are completely stupid and will do things like pick a bad car that looks sexy but is poor choice financially (e.g., a Dodge Neon vs. a Honda Accord), spend a lot on the initial purchase price, not shop around for competitive insurance, not take good care of the car, and sell it when they see something shinier.

If you do these things, then yes, you are a moron.

But if you actually think about this, one of the biggest purchases you’ll ever make, you can save a lot of money. So do some commonsense things that will make you much happier over the long term:

  • Christ, pick a good car. There are some cars that are objectively bad decisions that nobody should ever buy. Yet sometimes they’re shiny and popular and we buy them. Take the VW Jetta, which got popular during high school and everyone wanted one. I know of exactly 1 person who’s happy with his Jetta, and I still scratch my head that he’s had such good luck with TWO Jettas. The rest hate them. Why would you buy this? Pick cars that are reliable and have a decently high resale value. This doesn’t mean you have to pick a boring car, but it does eliminate about 80% of cars right off the bat.
  • Negotiate mercilessly with dealers. I have never seen so many people make bad purchase decisions as when they get in a car dealer’s office. If you’re not a hardball negotiator, take someone with you who is. Better yet, don’t even go to the dealer! I bought my car for $2,000 under invoice by spending a month researching and planning. When I decided to buy, I had 17 car dealers bidding against each other to get my business (by fax/email, while I reclined and watched Laguna Beach) and I only went in one dealer’s office: the winning one. Also, I started negotiations at the end of the calendar year, when dealers are salivating to beat their quotas. Your saliva is my salvation! (I highly recommend http://www.fightingchance.com to get more info on this technique. The $35 I spent saved me thousands.) Also, your interest rate matters, and this is why having good credit score matters–if you have multiple sources of good credit, your interest rate will be lower.
  • Don’t do stupid things like getting an upside-down loan. An upside-down loan is when you owe more on the car than it’s worth. I know a girl who bought a new Lexus, but decided she didn’t like it 5 months later and traded it in for something else. She now has an upside-down loan and a distinct lack of common sense. Treat your car like a stock and plan to hold it for a long, long time. This is hard because we’re judged on how new our car is. But with each year you drive your car payment-free, you’re saving tons of money.
  • Your car’s price is vastly dependent on its condition. Go to http://www.kbb.com and experiment with pricing. Try the same car in Excellent, Good, Fair, and Poor conditions. You’ll see what I mean.

Ok, so I decided to get a new car. Let’s assume my car cost $20,000 ($25k sticker price, negotiated). If I can pay it off in 5 years, and drive it for 3 years afterwards, I can sell my car for about $10,000. (Extrapolate data from KBB and realize that it’s a bit hand-wavy.) That’s about $1,250/year. And it only gets better as you drive the car longer with no payments. In other words, you save more in non-payments than the car depreciates.

Now, some caveats: First, don’t forget insurance, registration, repair, etc. But remember that a used car has all these things, too–just in different amounts. (In my case, insurance for a 5-yr-old used car would save me about $100 every 6 months…not very compelling.) With a used car, the risk goes up (likelihood of repair increases, resale value decreases). The question is whether the reward of lower payments is worth it. Second, this doesn’t work with all cars. If you’re buying a Dodge Neon, your resale value is going to suck and you’re going to be angry every day of your life.

I expect this post will generate a lot of debate, and that’s cool. Here’s the bottom line: I don’t like when pundits say that buying a used car is the only way to go. It’s not. Buying a new car can be a smart choice if you pick the right car, negotiate extremely well, and stay disciplined about shopping for insurance, maintaining your car, etc. (It doesn’t have to be a purely numbers-oriented decision. I love my car–it’s fun to drive and if I had 10x the money, I would still get it.) Because buying a car is such a big purchase, I’m fine spending a little more money and time up front to mitigate risk and get a great car that will last for a long time. And by being sensible about how long you drive your car for (longer is better), you can get a new car for a great value.

Whether you’re buying a car or trying to find your Dream Job, earn more on the side, or become successful, it’s important to have the right information and a system that works. I want to share one of my favorite systems that makes finance pain-free and automatic — so you’ll have plenty of money for drinks and travel, retirement, bills, and your next car.

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171 Comments on "Cost vs. value: Why I bought a new car"

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Tom
Tom
10 years 3 months ago
Oh come on. If you just wanted a new car, and thought it was worth blowing some extra money on it, be confident enough to say so. It’s OK – everyone has things they like to spend more money than they should on because it makes them feel good and enjoy it. Except for the argument that the financing is so cheap on new cars vs used cars that if you’re not putting anything down you can actually pay less for a new car (although I think if you can’t put any money down you should be thinking strongly about… Read more »
Doc
Doc
5 months 1 day ago
I agree. My dad, a CPA, WW11 Navy Commander, reservist for over 20 years always told me to buy like it was 5 years ago. I got smart one day and told him I was buying some 5 year old sock and he just laughed but he said, they’ll be a better buy than new ones. He explained how buying like it was 5 years ago was more a mindset than a reality. Buy an older car or truck for certain he would agree. I owned my own business for over 40 years and the only new vehicles I ever… Read more »
Ramit Sethi
10 years 3 months ago

Of course it’s not just about saving money! I like cars and if money weren’t an issue, of course I’d prefer a new car. But I’m just pointing out that the pundits don’t have a universal lock on saying “used is better.”

I’ll pass your compliment to my dad, too.

Andy H
Andy H
10 years 3 months ago
You could have avoided all the ‘negatives’ of a used car, and gotten almost all the ‘positives’ of a new car (aside from smell), by buying a 3 or 4 year old Accord. Which would NOT be significantly more likely to break down in the next 5 years than a 2006 model would be. And you would have saved 6 grand or so. Although really you can destory my argument by saying ‘spend money on things you love’. But in this case, admit it — most people don’t love cars (and is a 2006 really any better/lovable than a 2002?)… Read more »
Anonymous
Anonymous
10 years 3 months ago

In my opinion, if you’re going to buy a new car, you need to sell it and buy a new one in the next five years. It’s absolutely pointless to buy new and run it into the ground. Either buying old and killing the car is better, or buying new and selling it is better.

Chris Yeh
10 years 3 months ago
Let’s not forget the non-monetary value of peace of mind. The first car I bought for my wife, I bought used. And when it broke down, the mental anguish I went through more than outweighed the cost savings. If you buy new, choose the right car, negotiate hard, and run it into the ground, you may be losing money out of your pocket relative to buying used, but you might also be happier. On the other hand, I have a friend who is mechanically inclined who always buys what he affectionately terms “beaters.” He buys an old POS for about… Read more »
jack chou
10 years 3 months ago
i love this post. in high school i drove a 1987 oldsmobile ’88 royale (don’t ask me why the model name was a year beyond the model year). it was a terrible car and almost caused my death at the corner of el camino and san antonio rd. (as an aside, i think driving a crappy car when you’re young is vitally important for personal development). i entirely agree with your point about buying a GOOD new car as opposed to a used car. my friend recently purchased a used lexus is400. his reasoning: ‘it’s a much nicer car than… Read more »
Matthew Vieke
10 years 3 months ago

I don’t agree that new cars are a better value, but I do agree that you should not spend a lot of money on something you don’t like.

BTW…Is there some reason why indians hate coupes, or is it genetic?

Nick
10 years 3 months ago

I bought a new car instead of a used car for one reason and one reason only: because I wanted to. I wanted a vehicle that was mine from day one to day $the_last. I really wanted a MINI Cooper, and that’s what I got. I threw cost efficiency out the window and went with my heart. (Of course, MINIs are very good for the money, so it wasn’t a purely stupid decision either.)

Rachel
10 years 3 months ago
I still morn that we couldn’t negotiate two new cars together. That said, I LOVE my mazda, which was brand new and cute, but best of all, has a ridiculously high reliability rating. As in it was rated #1 by Consumer Reports. Why people will spend 80K on a Jaguar that they know will break down in a year is beyond me, I would pay thousands more to buy a car I knew was going to run forever. That said, when I was researching new and used cars, I discovered that the price on used work horses like civics and… Read more »
Christian
Christian
10 years 3 months ago

Although you mentioned being a hardball negotiator as part of your buying process, what happened to being a hardball investigator?

A good used car with low mileage, perhaps only 1-3 years old, will still sell for thousands less, and have a warranty + much of the reliability of a new car. Researching vehicle history and carefully examining a car on the lot can be fruitful.

I feel this update was written with a “brand new” vs. “ridiculously old” mentality, and didn’t benefit from an analysis of the shades of gray.

My two cents! Thanks!

Jason A Balencia II
Jason A Balencia II
3 months 26 days ago

Exactly. Upgraded used car with low miles > new car with no miles. A nearly new used car is way less money and comes with all the luxuries of brand new. If you dont know how to do basic maintenance you shouldn’t be buying a new car in the first place.

Jonathan Radande
10 years 3 months ago

When the pundits say “used car” I don’t think that they mean another peace of clunker that’s bound to fall apart.

When they say “used”, they simply mean a car that has been driven for a little bit. They mean a car that has less than 20-30k miles on it. They mean a car that has had no accidents and has had a good maintenance record.

If I could save $2,000 or more on a car just because somebody decided to drive it for 1,000 miles and sell it, I will take the offer.

0xcc
10 years 3 months ago

There is a difference between a 12 year old used car and a 2-4 year old used car. Typically cars lose 10-30% of their value in the trip from the dealer’s lot to your driveway at home. Although buying used can make sense if you are prepared to own the car for an extended period of time (more than 5 years) I personally think that 2 year old cars provide much better value.

Keith
Keith
10 years 3 months ago
While I agree (to a point) with your assertion that one can’t make a blanket statement that used cars are best for every person/situation, I have an issue with some of your logic. Primarily, I don’t know upon what data you base your assumption that a new car is necessarily more reliable. In fact, I think that many times a new car can be LESS reliable than a decent, 1-3 year old used car. It would seem that many manufacturing defects will manifest themselves in the first 5-10k miles. In addition each new year would seem to introduce new bells… Read more »
TADollar
10 years 3 months ago
Nice try, but I’m still not convinced. Jonathan makes a good point. Your scenario compares apples and oranges. A 12-year-old beater versus a new car? When I buy used, I look for a car that is a few years old, has low mileage for its age, and is in good condition. Everyone mentions safety as being a reason to buy new. Used car buyers care just as much, if not more, about safety as new buyers. That’s why I choose reliable and safe, over flashy. You are trying to justify spending thousands of dollars more to have that plastic new… Read more »
g
g
10 years 3 months ago
Coming from a family of long time car dealers I have a few opinions on this subject. One thing to keep in mind is that your points about picking a good car, negotiating price and staying out of bad loan situations are applicable in both new and used car purchases…which can further increase the value of a quality used car. One major problem I have with your analysis is your assumptions concerning the value of your vehicle when you decide to sell. You said “let’s assume my car cost $20,000 ($25k sticker price, negotiated). If I can pay it off… Read more »
Hakim
Hakim
10 years 3 months ago

Ram, your losing credibility with post like these. There is no way that buying a car new is better financially on average than buying a 1 to 4 year old car. First year depreciation is too big.

Jeremy Bettis
10 years 3 months ago
I have two vehicles that were purchased new, and I wish I hadn’t. $700/month car payments have just about killed me. At the time it was “just a little more” than I paying before, so it didn’t seem like a big deal, but a “little bit” every month for 4 or 5 years really adds up. The best deal I ever got on a car was a Ford Escort that had 8,800 miles on it, was 1 year old, and had been flooded. It cost me $8000 and I put 80,000 miles on it and never had any breakdowns. (Just… Read more »
chris
10 years 3 months ago
I’ve always had used cars for the last 12 years. I’ve probably broken down on the road 2-3 in that time. With maybe one exception, each time was due to my failure to buy new tires. The tread actually wore off. Not safe. If I had maintained the tires I doubt I would have ever broken down. Do used cars have more problems? It depends. I had a used Honda that was 8 years old when I got it. I drove it without incident until it had 213k miles. After buying and selling all the cars I’ve ever had, I’m… Read more »
Eric von Rothkirch
10 years 3 months ago
1999 Ford Escort I bought new for around $14K new. It’s 2006 and I’m still driving that car. 🙂 It’s been paid off for a long while now. If I sold it now I’d only get like $2K for it. So there is no incentive to sell it. I will just drive it until it is completely destroyed. I am saving a ton of money. A lot of people I know have changed their cars out 3-4 times since 1999, and all they’re doing is throwing away money. So yes, buying a car new is a wise choice IF you’re… Read more »
Amy
1 year 13 days ago
Meet the person driving the same car for 15 years. Bought a 2000 Subaru Forester in 2001, coming off a 1-year lease with about 10k miles on it. We’re near the end now; just paid $800+ to pass inspection (mostly due to wheel bearing replacement) and it still ought to have a timing belt replacement, tires, brakes, etc. It’s been paid off for 10 years now, and I’ve loved this car. Hate to give it up, but this is the point where it’s going to start costing a bundle to keep it viable. I’ve had very few problems and worries… Read more »
Eric von Rothkirch
10 years 3 months ago
1999 Ford Escort I bought new for around $14K new. It’s 2006 and I’m still driving that car. 🙂 It’s been paid off for a long while now. If I sold it now I’d only get like $2K for it. So there is no incentive to sell it. I will just drive it until it is completely destroyed. I am saving a ton of money. A lot of people I know have changed their cars out 3-4 times since 1999, and all they’re doing is throwing away money. So yes, buying a car new is a wise choice IF you’re… Read more »
Jennifer
Jennifer
10 years 3 months ago
As someone who has just been through a year and half long ordeal with the most anal car guy on the planet, I have this to say: 1. Before buying ANY car, you need to read atleast 6 months worth of Consumer Reports. Not every beater is a junkbucket and not every new shiny red thing rides like a dream, but you don’t know what’s what if you don’t do the research. If the minivan you drove was a 90’s-era Chevy Astro, you should know that the IIHS has declared them unsafe at any speed. 2. Even if you love… Read more »
Russell Crosswy
10 years 3 months ago

Got a 2003 Honda Civic right as the 2004s came out (~late Sept. 2003). Dealer wanted to sell the 2003s he had, cut a good deal. Paid up front the cost of the car to the dealer, no financing. Still driving that same car and it is in great shape.

Oh, BTW it’s a stick. Gotta love a manual!

hopster
hopster
10 years 3 months ago
I’ll piggyback on the first comment by Tom – it’s the only one I read. You aren’t making a fair comparison. Of course, the jalopy mini van has a lot of down side compared to a new car, but you should be comparing a new Accord to a barely old Accord. The only reason repairs and maintenance would be any different is that the used car is or two years older than the new car. The difference wouldn’t be financially significant. I would have liked to hear you give a more objective review of the differences between used and new… Read more »
Roland
Roland
10 years 3 months ago
As everyone has pointed out so far, hands down it only makes financial sense to get a used car over a new car of the same or better reliability (upgrade with the money you are saving). Please don’t cloud the discussion with things like “you’ve got to spend money on things you love”, because that has no relevance to a value comparison. If you want to talk about other measuring sticks like total satisfaction or personal preferences, then be honest and say so. As for me, I’d rather not deal with the paranoia of owning a brand new car and… Read more »
SPark
10 years 3 months ago
I definitely see your point here. And I’ll agree that for some people a new car is the way to go. However, it’s the way to go if you’re able to scoff at saving $100 a month in insurance. For me, an extra $100 a month would break me. I wouldn’t be able to save a cent, I’d end up living solely hand to mouth, and if something ever went wrong, I’d be screwed. Much as I usually love the advice on this site, this is one instance where it won’t help me any. I’m definitely in the “used cars… Read more »
anon
anon
10 years 3 months ago

SPark, i think he said 100 every 6 months.

Gary
10 years 3 months ago

The choice doesn’t have to be between brand new car and old beater.

A reasonable alternative is to buy a year-old used car… it’s already taken the huge first year depreciation but has the reliability benefits that come with buying new. Just make sure you know the car’s provenance (avoid buying a rental car which probably wasn’t well treated or well serviced, for instance).

tanya
10 years 3 months ago
I had to delurk to comment on this discussion, since I will be buying a “real car” in the next few months. I don’t think many people understand the psychological trauma of driving a car for years, that can break down at any time! That factor alone can outweight many of the “financial positives” of a used car. Is there a price on peace of mind? My first inclination is to get a new car, because I have been so scarred by driving a junk heap for the last 6 years – throught grad schools. I am slowly [very slowly]… Read more »
Michael G. Richard
10 years 3 months ago

Glad you enjoyed the ‘new car smell’, Ramit, but it might not have been so good for you:

Check it out.

Carlin
Carlin
10 years 3 months ago
If you buy a new car, get gap insurance. Why? Because they lose so much value. During college I talked to a lot of people who bought a new car, totaled it within 2 or 3 years, and then their insurance company pays about $4,000 to $6,000 under what they owe on it (because it isn’t worth even close to what they still owe, gap insurance covers the “gap”). Granted, you don’t plan a purchase around an unlikely event, but it showed me that a new car loses its value quickly. Also, expecting $10,000 for an 8 year old car… Read more »
Tom Sommers
Tom Sommers
10 years 3 months ago
I post a comment this afternoon, and suddenly there are 27 others. This has obviously touched on some nerves. Lets face it – from the discussion here it’s clear that cars are different things to different people. To some they are merely transportation. Others view it as security. Others think of cars as toys to be played with. Others (unfortunately) view it as part of their identity (certainly the auto ads speak to these kinds of people). There can be a bunch of valid opinions about this topic, depending what category you fall into. I scoff at the people who… Read more »
Paul
10 years 3 months ago
I’m guessing I’m in a minority here, but I’m the sole income earner for our family (me+wife+3 kids under 6). Let’s just say that a new car is *not* an option for us at the moment. We brought our used Honda 18 months ago for $1500. It’s done 30,000km with no maintenance except regular mandatory warrant of fitness. We’d keep it for years if it wasn’t too small (2 door!). I fail to see how a new car could EVER ake more financial sense than that. $1000 a year has been the rule of thumb we’ve lived by for years.… Read more »
Cap
10 years 3 months ago
I’m fairly certain Ramit didn’t get a 06 Accord, since he probably doesn’t have access to time travel. and is there a difference between the 06 and 02 model? big fat yes. 98-02 models are different than 03+ models anyway, some of you are missing his point. he didn’t write about his crappy old van so he can compare it. he’s talking about the value vs cost (title of post) of new car and used car.. and of course, value is quite subjective at times. That said, I don’t think I can agree with some of his points too. As… Read more »
unexpected
unexpected
10 years 3 months ago
This is a classic asymmetric information problem…New car buyers are willing to pay a higher premium for the certainty that their car is fresh from the factory and hasn’t experienced any problems. While many of the comments above are arguing that “i’ve bought a used car and it has run perfectly,” all this evidence is purely anecdotal. From a hard numbers perspective, a used car won’t last as long as a new car. Intuitively, since a used car has a lower initial price, yet shorter lifespan, and a new car has a higher price, but longer lifespan, there should be… Read more »
cmadler
10 years 3 months ago
I think one key issue that most people overlook when suggesting that you should buy used is that depreciation varies a lot from model to model. For example, last time I bought a car I was looking at the Honda CR-V and the Ford Explorer. For the Explorer, used makes sense because they lose value quickly. There is a big price difference between a new Explorer and one that is 3 years-old. I decided on the CR-V, and quickly found that the price difference between new and 3-4 year old CR-V is relatively small (in some cases less than 10%),… Read more »
Buz
10 years 3 months ago

I love my Jettas. I’ve had two in the last 20 years with a Ford Bronco in between. I bought both of them used and drove the snot out of them. I put around 175,000 miles on each. Someday I may buckle down and get a new car; but for my lifestyle and cash flow, a two or three year old car seems to hit the sweet spot.

Tammy
Tammy
10 years 3 months ago
This post was wonderful and I completely agree, my mom does too since she’s the one handling all my financial stuff. I got a new civic 06 this year instead of an old car. Not the smartest move to purchase a car when it first is out, but I knew what I was doing 🙂 Long run new cars is better deal. I’m sure many people will learn alot from this post. Also white color cars tend to sell at higher price then other colors; if you plan on selling it in the future, that is always nice to know… Read more »
Trevor
Trevor
10 years 3 months ago

Lots of comments… wow… in just 24 hours…. seeing how this is such a debate, I thought it interesting to see an article that went along the same lines on CNNMoney:

http://money.cnn.com/2006/03/28/Autos/tipsandadvice/monthly_squeeze/index.htm

This talks more about the “idiots” though, with upside down loans and such.

DWorth
DWorth
10 years 3 months ago
Interesting perspective. I think you can do okay with a new car, in either of two scenarios. You keep it forever (10 years plus) or you finish your brutal negotiations in the dealer’s leasing manager’s office. Cars with very high residual values (what they are projected to be worth at the end of a lease period) can cost less per month to use than what you would have to charge yourself in depreciation over the same time period (car’s price new minus what you can sell it for, divided by number of months owned.) Obviously you will need to make… Read more »
Rob
Rob
10 years 3 months ago

So what do you do if by either your stupidity or otherwise, you do end up in an upside down situation, like $9000 upside down, what can you do to fix that.

It’s a 2004 Dodge Intrepid with 60,000 miles and I owe Like $15,500 and it books for about $6,000. I know the easy answer is to stick it out and pay off the car, but I want to know some other ways to get rid of this thing.

I have recently bought a house, so I have no equity and I can’t just sell it and buy something else.

Ryan
Ryan
10 years 3 months ago

I love how this guy purports to “teach you how to be rich” but then has to make a big point to make himself feel better about his irrational decision. Awesome.

Wilson
10 years 3 months ago
Grats on your new car, Ramit. I respect your choice to go for the new car. As others have mentioned above, some people feel better with new stuff and are willing to spend more. Also mentioned above, I’d agree on the point that depreciation of the first few years is too great, unless you were going for a ‘new’ generation car (like the new eclipses or BMWs). Otherwise, you could get the same generation car (same motor, same body) a year or two older for much less used. I feel that the arguments presented above pretty much encompass both sides..… Read more »
Jared
10 years 3 months ago
I think you’d be tough pressed to prove your argument strictly on a financial basis. Removing fashion, taste, gratification, and joy of driving and giving and reducing them on finance, an I don’t think your argument on this one holds water. 1. Reliability Issue. If you compare junker per nice new car, and sure that helps. But compare the same model year today and two years from now. Any care with reliability issues after two years used, is not a car you would want to purchase new. Under any circumstances. 2. The lower interest rate still doesn’t compensate for the… Read more »
Mario
Mario
10 years 3 months ago
Do you people do anything for fun? I mean he’s telling you he enjoys his car and that adds value to the new car v. used car. Everytime I hop into my NEW car i get a big fat smile on my face. My last car i bought new for $15,000 in ’94, drove it for 10 years, spent a total of $350 in non-routine maintenance on the car and sold it for $2,600. 18 months ago I bought new again, $30k all in after tax, tag and title for a car that stickers for $32k. I have it financed… Read more »
carcounsel.com
10 years 3 months ago
i’m an automotive investment advisor of sorts so your post was of great interest to me. here are my two cents… first i tend to avoid sweeping generalizations for just this reason – words like ‘better’ are red flags when it comes to decisions, particularly when specifics are not modelled into the equation. there are few cases in which a new car is ‘cheaper’ than a used equivalent, but there are cases in which new makes a lot of sense… first i’d offer the cost of bringing a used car to the level of safety of a new one –… Read more »
Anonymous
Anonymous
10 years 3 months ago
Ramit, You make a compelling and unexpected argument…but there are some things you don’t consider. First, “new” is not synonamous with “trouble free.” Lemons exist. An argument can be made that a two year old car has been ‘shaken down” and problems revealed. Many will argue that a two year old Corolla or Accord is much more reliable than a new car of another brand, and in some cases I’d agree. And, you are assuming all and everyone has followed your excellent advice regarding credit. Not always true. for many people the credit cost of a new vehicle is outrageous,… Read more »
Bond investor
Bond investor
10 years 3 months ago
While Ramit’s purchase choice is obviously right *for him*, when the discussion expands to what’s right from an economic standpoint, we seem to be forgetting about the distinction between capital and operating costs. Operating costs for an auto are the maintenance and fuel costs. Capital costs are the purchase price. If an SUV cost just $12,000, then the fuel price increases of the past 18 months would seriously change its cost of use. However, since an SUV costs $40,000, the capital costs trump the operating costs, and people continue to buy and drive them. I have never seen a study… Read more »
thrillhouse
thrillhouse
10 years 3 months ago
Ramit – you are out of your mind. Thought I had stumbled onto something good here, but interest rates, payments, credit score?? you got it all wrong. The financial people who tell you that used cars are the way to go, will tell you that, because they pay cash. No payments, no debt. Buy a good condition 2-4 year old vehicle, and pay cash. A new car on average will lose 60% of its value in the first 4 years, meaning you’ll be below 10k by the time you’re done making payments. Thats besides the fact that you’re paying interest… Read more »
NSK
NSK
10 years 3 months ago

Dude, chill out and enjoy your new car. Congratulations! Don’t get freaked out on justifying an emotional act as a financial one.

jerm
jerm
10 years 3 months ago

Over the past few years, cars are only getting marginally better, so unlike computers there is really no point in being on the cutting edge.

As mentioned several times already, the premium paid for a new car over one just a few years old cannot be justified on financial terms.

That being said, irrational new car buyers like yourself subsidize used car buyers like myself. So thanks!

P.S. pickups are a usually better choice anyway unless you have kids

JD
10 months 2 days ago

Not true always for example, the 2015 Honda CR-V’s new engine comes from the Accord midsize sedan, so that is a big improvement over 2014 models.

Joe Ranft
10 years 2 months ago

You can get the quality of a new car and the value of a used car by buying a 10,000-mile used car. You pay about 70 percent of the cost of the same new car. With the Internet, it’s crazy not to do this.

Courtney Gidts
Courtney Gidts
10 years 2 months ago

I’ve managed to save up roughly $74408 in my bank account, but I’m not sure if I should buy a house or not. Do you think the market is stable or do you think that home prices will decrease by a lot?

New Car
New Car
10 years 1 month ago

I just bought a new car and I love it!

redshirt
redshirt
9 years 11 months ago
Great thread, I just bought a car. It came down to a brand new Toyota Corolla vs. a used BMW 325i (2003 with 30K miles on it). From a financial point of view, the Corolla made more sense as these cars are inexpensive, ridiculously reliable (I have two friends that have owned their Corolla’s for 3 years and so far, ZERO problems), have good resale value. However I came from an inherited BMW 535i that I drove for 15 years. That’s right, 15 years (so for the person above who asked who drives their car for 15 years, the answer… Read more »
John
John
9 years 11 months ago

this post is about looking neato in a new car. but it’s not teaching anyone to be rich.

Kevin
Kevin
9 years 11 months ago
I am suprised that you did not comment upon the safety factor. I read recently an article talking about just one of the safet factors on new cars saying that it saves some large number of lives every year. While I am sure that some of that was hype I do believe that (of course there are exceptions ) newer cars are safer than older cars. Factor that in and you have to consider if the “additional cost” of a new car if there is any, needs to be weighed against the benifit to you and your family of the… Read more »
Daniel
Daniel
9 years 11 months ago
After a half dozen bad old asian cars and all the costly breakdown agravation, I proudly bought (the moment I could afford it) a brand new north american. It spent 29 of its first 55 days of usage at the dealership. The moment I would get it on the road, smth else would break. Getting to the last fixes for the glitches with the most intermittant symptoms took six years (the length of my extended warranty). It is now all paid for and warranteeless and I hate it so much I can’t wait for smth major to break down so… Read more »
Will
Will
9 years 11 months ago
I am 100% in agreement with Ramit, buy new, run the numbers and the difference is minimal. Anyone who doesnt factor in repair costs for a car out of warranty is mad. They can run to thousands for broken gear boxes and so on. Personally i lease cars which is probably the no.1 crime in Ramit’s book…but here’s why: Who wants to own a big depreciating lump of metal? I have an Accord also, bought new in 2004, costs $200 a month with a tiny downpayment. The cost is totally predictable, i will never spend a cent more than $200… Read more »
Kenan
Kenan
9 years 11 months ago
I don’t understand why the rush? I guess your in the states, here in Canada, while I had my license very early, I made a vow for public transportaion. On very few days of the month, I made a small budget for a taxi, for those special important occations… To me, its not only about cars, you either do the right thing, in FULL, or DON’T do it at all. So, I stayed with no TV for three years, to save for a huge A** TV, and by that time, I got a brand new LCD! now, I am saving… Read more »
gaurav
gaurav
9 years 11 months ago

ramit, mindbogglingly brilliant (or finally someone who thinks like me!).

TME
9 years 10 months ago
I agree with a few things here. Of course if you don’t have much money on hand it you basically don’t have a choice. Either you buy new and good, or crappy and old. It would depend on your financial situation based on your long term income outlook. But what about buying a nearly new car. Something that has only been used for a year or so. You could save more than 10% off the cost of buying it brand spanking new, and still get the benefits of a reliable new car. Also, you could find more in depth reviews… Read more »
marcus
marcus
9 years 10 months ago

I bought my sister’s 1989 Civic from her for $1K, put in another $1K to bring it up to spec and have driven it for the last 5 years. I put 400+ miles/week on it and at 238K+ miles it still gets 35mpg & costs $325/year to insure. Other than tires, oil & gas I haven’t had to put another dime into it.

MxPx
MxPx
9 years 10 months ago

It’s best to buy a used car, esp. one that has just passed the warranty limits. The previous owner(s) have sunk all their cash in getting it routinely serviced (to maintain the warranty) and the vehicle has depreciated significantly in the meantime.

Ofcourse, you will check the service records before buying!

Jonathan
9 years 9 months ago

I recently read something I found interesting. Even if you buy a new car with cash, or 0% interest, you are still paying for that hefty new-car depreciation costs. It is generally smarter to buy a car that is a few years old instead.

But hey, if you have the money and want a brand spanking new car, then go for it. Just know that you’re paying much more to have it brand new.

Vinay
Vinay
9 years 9 months ago
Really nice post…but I believe there are other factors that come into play before deciding the new Vs old car decision… Someone like me who would really like to drive a old BMW/Lexus rather than a new camry/accord ( not that I have anything against these gr8 cars….just my personal preference and also I do care for the brand value)…one can get a really nice BMW for 20K – reallly haggled a lot for it – down from the offering price of 24K for a 2001/02 model….use it for a 3-4 years and it would fetch a decent resale value… Read more »
ziemek
9 years 8 months ago

You are not going to to keep your new car for as long as you think you are. especially not 10 years. unless you want to pass it down within the family. Why? because unless you are a total failure in your career (which doesn’t look like it) you will become rich and buy your mercedes far sooner then you had planned.

jutx
9 years 8 months ago

Guess people outgrow their cars sooner than they think they will…The first car after you start making some $$$ is most probably going to be new…Yea, I like the new car smell too!! The next upgrade has an 80% chance that it is a used car with extended warranty, low mileage, excellent maintenance….Now, after kids, a decent suburbia home, a business that is doing well, I want to definitely own a brand new trendy car. Its a lifecycle in itself…

Jill
9 years 8 months ago
I have bought 1 car in my 27 years, a 1999 Toyota Corolla. DH is 29 and bought 2000 Ford Focus. We paid $10k for my corolla and $14k for the focus brand spanking new. Now the Focus by NADA values and KBB with less miles is worth less my Corolla. Is there are reason for this? Yes. American cars are pieces of CRAP! So you spend a lot fixing them even new. No wonder they depreciate so fast! My car still fetchs $3-4k after 7 almost 8 years. Um, so what is my cost? Absolutely minimal. Toyotas and Hondas… Read more »
Rob
Rob
9 years 7 months ago

Wow. We truly have some ‘expert’ auto purchasers here. But they do make good points. My personal preference towards new cars is to buy either off lease or 1-3 year old trade-ins and get the extended warranty. Oh, and ALWAYS check Consumer Reports, and NEVER get anything but the three most reliable cars. As a general rule, you can’t go wrong with Hondas or Toyotas, and Japanese are built much better than domestics. ‘Face’ based society FTW!

Andy
Andy
9 years 7 months ago
Three years ago I was looking to get a new car. The old one was starting to show signs that it was on the way out so I called my brother ‘cause he deals in used cars wholesale. I’d always gotten my cars from Dave and drove them into the ground. When I told him that I wanted a newer used car in good condition he told me to just buy a new car. His position was that the money that people were getting for late model used cars was “insane”. To your list of reasons for buying a new… Read more »
EOY carbuyer
EOY carbuyer
9 years 7 months ago

I’ve done the analysis myself and agree with most of your points, especially when you factor in the used cost more to maintain on average (even for hondas and toyotas). Only factor you forgot was the opportunity cost of money if you have it invested somewhere else. I’m comparing new accord to used one and the delta is about $8000K, then if you compound the incremental delta less the resale values over life of the car for me it ended up being its close to $11K.

Kaycee
9 years 7 months ago
Ramit — Great post, really. As an owner of a performance auto shop, the debate can go both ways. It truly depends on you, more than anything else. Currently I drive a 1991 Honda Prelude. It has 190k miles. It runs like the day it rolled off the assembly line. That said, myself and my employees know how to take care of this car. When I bought it for $310 in the spring of ’05, it was a piece. But with time and effort it is worth nearly 5,000 (no, you wont find that on KBB, but it’s custom (not… Read more »
Paul
Paul
9 years 7 months ago
I think if you compare apples to apples, then yes, buying used is always cheaper, with the exception being Collectables and Antiques, where obviously the value increases beyond the purchase price, and will never be cheaper to buy used. But if You buy a car brand spanking new, unless it is a model’s introductory year, I can by that same car used, for less. I can get the same low financing that you can, I can put down the same down payment as you, and I can own it for the same term, and it will always cost me less… Read more »
Chris Sells
9 years 6 months ago

“Used” doesn’t have to mean “5 years old.” I’m a big fan of 1+ years old used cars just to avoid the drive-it-off-the-lot fee, while still keeping the bulk of the value of the life of the car.

Prasad
Prasad
9 years 6 months ago
@ Chris In some cases 1 year old cars sell for a few hundred less that the current year. Sometimes they sell at the same price. As far as the new vs. used debate goes, that’s something different to the topic of this post – cost vs. value. Some tips from my experience (I recently bought new): – *do not pay more than invoice.* Sure the dealers will cry about it, but one of them will cave – regardless of how hot the car is, and how fast they fly off yards. – “I have money/finance and can buy a… Read more »
Ryan
9 years 6 months ago
Just having the basic understanding of how a car works. If you are going to make such a big financial decision on something you should at least be able to look under the hood of your car and make be able to make some simple diagnostics. Not saying you have to be a mechanic but being to just identify problems has the potential to save you thousands of dollars over the course of your driving career. My car history: 6 Units of auto shop at community college = $72 1988 Toyota Corolla = $800 After 2 years of driving the… Read more »
Tim
Tim
9 years 6 months ago
I love this guy! I am a used car salesman. I love the idea this guy has that if you are a bad negotiator, that you should bring a hardball negotiator with you. Yippee! I play good cop, bad cop six days a week. How many days per week do you play, and more importantly how many days a week does your hardball negotiator play the game. If the the negotiator is a “closer” in a sales department, this advice may stand up, but otherwise you could find yourself in serious jeopardy when it comes time to trade your new… Read more »
shane
shane
9 years 6 months ago
I agree with Ramit in his idea that used cars aren’t always the only or best bet. It varies by model and brand significantly. Some models depreciate greatly and others have a very high resale value. I also bought a new vehicle recently and ran the math and it did not in any way make sense to buy used even though I wanted to on a number of models. New models have safety features such as side-impact/curtain airbags and vehicle stability control that aren’t available on older models. I was looking at toyota tacomas and an excellent condition 1-3 year… Read more »
mike
mike
9 years 6 months ago
Hi Ramit – just found your website tonight and enjoyed reading your posts, especially this one and all the comments. The thing that strikes me most is that people are missing possibly the two bigger ‘meta’ lessons here. The first is (as you’ve mentioned elsewhere on your blog): It’s okay to spend money on things that make you happy. What’s the rate of return on a trip to Europe? Horrible, right? But a $ is a $ is a $ so if someone is really trying to become rich they would never rationally make that trip. So why can’t a… Read more »
Nano
Nano
9 years 5 months ago

Love your website!

To me, I’d never consider a used car because of one reason: I don’t trust the seller. Yes, there are many people who take care of their cars, regular maintenance and stuff. But there are many others don’t do these things. I just don’t trust anyone whom I’ve never met~

JD
10 months 1 day ago

You are so right especially people who know they are not going to keep the car they bought (used/new) no where close to 10 years, they are going to do only the bear minimum maintenance so they can offload to the subsequent buyer. I am not against buying used but their high savings is not what it seems to be especially if don’t know a good mechanic. Also not all models depreciate 50% in the first or second year.

Ahmed Hagger
9 years 5 months ago
I am doing a research on cost vs. value, and found your article, I definately agree with your views as in “Treat your car like a stock and plan to hold it for a long, long time. This is hard because we’re judged on how new our car is. But with each year you drive your car payment-free, you’re saving tons of money”. “And it only gets better as you drive the car longer with no payments. In other words, you save more in non-payments than the car depreciates”. and I have seen live examples of it, all what it… Read more »
frank
frank
9 years 4 months ago
Yes a used car can cost about 30-70% less than new car would, in my opinion the new car is worth the extra money because you are the only one that has driven the car plus no serious maintenance for at 100,000 miles, i know i have lost a lot of money on my new car but hey it is worth the extra cost, a piece mind is worth more than a price to me, even though a used cars sells about 15 million a year in the united states one one of the two million new car buyers in… Read more »
mark
mark
9 years 4 months ago
Everyone’s got an opinion on this I suppose, but I’d just like to say that my (and my wife’s) used cars were our second best financial decision since being out of college a couple of years ago (our home purchase being #1). We paid a grand total of 4,000 cash for a 96 blazer and a 98 buick (each one previous owner, of which both were in their 60’s or higher). Three years and over 100,000 miles combined later, and only roughly $500 worth of repairs, I am satisfied by not having a car payment and not needing full coverage… Read more »
Enzo
Enzo
9 years 4 months ago
Quick update if I might. Went and signed the papers today. A $35,000 stickered F150 bought today negotiated to $30,250. less Manufacturers rebates of $4500, a $420 rebate from the dealer to cover the first 3 months “interest” (I will of course, pay the truck off as soon as I take delivery and pocket the $420), and a $1,100 rebate from CitiCard Drivers Edge (like airmiles but BETTER, its CASH) brings my actual out-of-pocket expense to $24,230. If I drive this truck for 11 years like my ’97, and get $8,000 for it used, like my ’97, my cost of… Read more »
Graham Barker
9 years 3 months ago
I bought a brand new car in 1986 and have never regretted it. Why? Because 21 years and 385000km later (about 240k miles) I’m still driving the same car, and still happy with it, and saving money. The car is a Nissan Pulsar, bought in Australia. In its day it was a solid reliable vehicle, and by buying it new I made sure that I was its only owner. That meant I could be absolutely certain it was well maintained and driven sensibly from day one, and I think that has a lot to do with its long life. Contrary… Read more »
Nootau
Nootau
9 years 3 months ago
first let me give some background, i am 28, and purchased a 1990 honda Accord with 143k on the clock for $2550 3.5 years ago. The honda has treated me well, and the lack of payment has felt so great that i am afraid to purchase another car! Currently the car has 180k, driver side door is stuck, and the bumper is falling off (held up by string…literally). Now, this car has not given me any trouble other than a “Main Relay” issue that was repaired with $190 bucks. Everything else has been normal wear and tear. 3.5 years later,… Read more »
Joan Parent
Joan Parent
9 years 2 months ago
In April of this year I purchased a new 2006 Honda Civic Hybrid with a navigation system, Low Jack warning system and a satellite radio program for approximately $25,000 including tax and fees. It was not my intention to get all those bells and whistles, but the car seemed to be a good deal so I purchased it. This week I discovered that the car had been previously purchased, had been driven for 3 days, had broken down and was returned for a 2007 model. My model has been recalled for that problem. h. The past history of the car… Read more »
Nick
Nick
8 years 9 months ago

silly. if you are buying a new car just for the smell, buy new car smell in a can like I do.

http://www.lanescarproducts.com/newcarscent.html

Doug
Doug
8 years 9 months ago
For such a smart kid so interested in personal finance, you made a really stupid decision buying a new car, and the rationlizations (new car smell?!?!) are just that. While it is a necessity for the vast majority, a car is probably the worst way to spend your money. They really are so well made today that getting a lemon is the exception rather then the rule. Find a low mileage Honda that’s no less then 3 years old. Take it to a mechanic and have it inspected (they even have inspection services that will come to the vehicle). Getcherself… Read more »
Christian
Christian
8 years 9 months ago
wow, now I don’t really know what to think about your advice. I was reading some of your things and I don’t think you can speak for the average college students generation. I have other problems in grad school than worrying about a new Benz or Honda (or everything else that cost more than a $20000). But maybe thats different at Stanford, maybe the standards are a little higher. But don’t think you are actually able to give any serious money advices for the average student who has to work part time for $8 an hours to be able to… Read more »
Imran Ahmad
8 years 9 months ago

This article makes no sense….you bought a primarily for reliability? If you look at the statistical difference in reliability between a 3yr old used honda accord and a brand new one is marginal. So your argument is invalid….first and last time im reading this blog

anonymous
anonymous
8 years 9 months ago

if your worried about repair costs of a used vehicle, you can buy an aftermarket extended warranty and still save a huge percentage off new. Lets face it, 3 years old with reasonable mileage still drives as new. This formula provides the best value of reliability:cost. Buying a warranty for a honda may not make as much sense as buying one for a domestic, but you see the picture. Run the numbers and youll find cost of ownership is considerabley lower per year.

james
james
8 years 9 months ago
Maybe used isn’t always better. For example, I’d never buy a used jag, mercedes or bmw unless it was a second car because those vehicles have poor reliability and they’re very expensive to repair, I wouldn’t want something to go wrong and have to pay top dollar to have the car repaired ASAP. But you bought a Honda, one of the most reliable cars on the planet. You could have bought a 2-3 year old Honda and saved 10+ grand and it’d probably be just as reliable as a new Honda. For example, I bought my 3-year old Toyota Avalon… Read more »
langston drew
langston drew
8 years 9 months ago

Why pay Consumer Reports or the fightingchance for information that’s free? Besides pricing info at kbb, there’s so much free info at edmunds.com you can spend months there reading and getting invoice prices.

blugardenia
8 years 8 months ago

when the day is done, whatever decision you make, as long as you are happy with it, that’s justification enough for me. it’s your car and your payments to deal with. i am confident that your new purchase isn’t running you broke, so it ties in with your article on spending $5,000 on shoes, etc. congrats on your new car, Ramit!

Kiwi
Kiwi
8 years 8 months ago
I remember when the author for “The Color of Money” article tried to rationalize her purchase of two new cars. She was sinking deeply in trying to explain why she thought it was such a great idea. I tried her read her column after that, but admitedly had lost a little respect for her. She just didn’t make sense. On a positive note, you recognize in your explanation that new vs. used is a decision (partially based on vanity) that does cost more overall for a new car vs. used (though doesn’t have to be a huge difference if you… Read more »
Kearn
Kearn
8 years 6 months ago
“If you’re buying a Dodge Neon, your resale value is going to suck and you’re going to be angry every day of your life.” As a long time owner of a used Dodge Neon -and I think I speak for all long time owners of Dodge Neons here- I couldn’t agree more. I recently traded in my ’96 Neon, I got $300 for it, which is exactly the price of the scrap metal it contains. I traded in for a new Honda Civic, for pretty much all of the same reasons you mention. What most financial sites miss in their… Read more »
Joshua
Joshua
8 years 6 months ago
Since you bought the car new, at least plan to drive it for a long time…not just 8 years. After all, you bought a [hopefully] good car. Your “buy a good car” is just as valid for a used car. I bought a 1993 Honda Accord in January 2006 with 193,000 miles on it for $2,000 cash. I’ve driven it for 38,000 miles in the last two years and have spent a total of $1,700 in repairs ($1,100 planned at 200,000 miles, e.g., timing belt, tune-up, rotors, etc.). Total cost of ownership: $158 a month (plus gas/oil changes, etc.), 9… Read more »
Flow Tate
Flow Tate
8 years 5 months ago
Dude, your advice is ridiculous. How much time did you spend on writing this? When you buy a good used car, you save. Car after car, you will save in the long run. Good used cars last just as long, and you aren’t paying top dollar. The minute you drive a car off the lot it loses value. You should be advising people to research the local solid good used car dealers. There are so many of these around every city. They have a reputation. Rewarding yourself with a brand new car is not going to teach anyone how to… Read more »
judy
judy
8 years 3 months ago
I never buy used cars. I bought my first car in the 70’s. I sold some stock that I’d had since I was a child and bought a Plymouth Valient. I kept it for 10 years and without car payments I had enough put by for a new VW Rabbit. Buying a used car takes time which I don’t care to spend. My practice has been to buy new cars but as infrequently as possible. If you keep a car a long time the difference is small. I am always driving a used car but it is one that I… Read more »
George
George
8 years 2 months ago
Ramit, I agree with your reasoning on a new car. Bought a Nissan Pathfinder back in 2002. 2.9% financing over 5 years. Paid it off early, thanks to company stock options. Been driving it for 1 1/2 years now payment-free. Plan to keep this for about 10 years or run it into the ground. Another thing to keep in mind is if you have kids. My wife and I had our first child last year. By having no car payments, my wife is able to stay home with Baby and not have to go to work.
Suzanne
Suzanne
8 years 2 months ago

My stepson sent this to me to “prove” that new is better than used, and let me tell you, this proves NOTHING. What a ridiculous rationale to buy a new car! I remain unconvinced, and think this country should eliminate as many cars as possible. We should make our cities car-free. Cars are ugly, polluting monstrocities that are much more trouble than they are worth. Is it any wonder that Americans are in debt up to their eyeballs and obese to boot? They buy new cars every couple of years and never walk anywhere.

Zain
Zain
8 years 2 months ago
Wow, I’m amazed by how long this thread has run (2+ years! Ramit , do you still drive the Accord?). I came upon this site as I’m currently deliberating whether to buy a new Miata (love the power retractable hard-top) or a used 325i. This thread hasn’t really helped me one bit ;-), and I think everyone’s missing one point here from basic market theory: If new cars are more expensive to buy/own than old cars (and most people seem to feel they are, as I do), then it is only because market forces have determined a fair premium for… Read more »
Aaron
Aaron
8 years 2 months ago
We are a one car family in a cold climate so it’s important that our vehicle be very reliable. When our (used) minivan was totaled in a wreck a couple of years ago, we had little time to find another one. So we ended up buying new (even though all of our earlier vehicles were used). And that worked out fine for us. A lot of the posters assume that most people have lots of time to find that perfect reliable used car. But that’s not necessarily true! And I think some kinds of vehicles (such as minivans) tend to… Read more »
Monthly-payment phobe
Monthly-payment phobe
8 years 2 months ago
Since I started law school with $0 income, or make that -a propective $150K debt, I came back to the States and bought a $1,500 car in which I had to put about $1,500 of work over a 2 year period. Basically, I bought a beater (Subaru beaters are the best). However, I leave the country a lot and I can’t be commited to (nor can I afford) a 5-year monthly payment of $200-$300 dollars. In my experience you should either buy a beater, or a new/almost new car. The middle ones make no economic sense. People make fun of… Read more »
Jerry Dill
8 years 1 month ago
I think this is a funny article. The reason is because I too bought a new car and I just recently graduated from college. You make an excellent point that a new car is a great investment. I plan on keeping my car for at least 6 years (just a random figure). This way I will save on maintenance and cost of repairs for at least the time being. I also love my car. Your right the intrinsic value is an important part of a car (I love the new car smell as well… Is that wrong?).
Justin Marks
8 years 1 month ago

One thing I would say to those who are looking at purchasing a used car would be to make sure the car has at least some form of a warranty. When I bought my VW Jetta (WHICH I ABSOLUTELY LOVE, BTW), I made them give me a warranty (3 months/3000 miles). The second day I had it, the transmission effed up and the Honda dealership I bought it from (yeah, don’t ask) was forced to pay for a brand new transmission (2000+).

April
April
8 years 1 month ago

Ramit–if you don’t give a flip about cars one way or another (like me), what about buying one that’s a year old? Seems like you take the edge off the new car price and still get a dependable vehicle.

Also, I liked Suzanne’s comments. Cars=fat people. I’m selling my car and cancelling my gym membership today.

Jennifer
8 years 1 month ago
I came to this conclusion myself at the end of last year. Everyone argued with me when I sold my 8 year old tricked out Passat in mint condition to buy a new car. Just the cost of repairs in the offing would equal the car payments in a matter of months. That doesn’t take into consideration reliability (and the peace of mind that comes with it),or fuel-cost savings that can come with a newer, more efficient engine (and the Passat required 91 octane for it’s high-compression engine). Apart from the new car smell, the best thing is I never… Read more »
Cindy
Cindy
8 years 1 month ago

I totally agree with you Ramit. We have a lot of kids, so we hand-me-down cars, computers, furniture,etc.. through the ranks, especially while they are in college. But as soon as they are get that after-college “real job”… we go with them to the new car dealer. The reliability and warranty are price-less, along with Road side assistance and other bonuses they tack on.

Sally
Sally
8 years 24 days ago

I have to ask…why do Indian people hate coupes?

Manoj
Manoj
7 years 10 months ago
Insightful post Ramith. I drive a ’00 Honda Civic which I purchased last year. I’ve driven this car a LOT and it is still surviving. I got the car for $5000, few months after the purchase – the A/C stopped working, I had to put in $1000 to fix it. Few weeks after that, a truck rammed into my car from the side and caused quite a lot of damage to the body of the car. Insurance covered the damage, but I paid $500 deductible(for no fault of mine..argh!). The accident has automatically reduced the value of the car by… Read more »
Erin
Erin
7 years 10 months ago
I agree that a new can be more cost effective than used. I drive an average of 30,000 miles a year. It took me two years to find a car that could replace my 1995 2 door. In 2004, I finally decided on a Toyota Corolla S for $2000 under invoice and 0% interest for 60 months. My strongest decision factor was MPG. My husband prefers used cars, and I am the angry one when we put money into it for repairs. He will calculate the cost to prove to me we are still saving with used vs new. When… Read more »
JHR
JHR
7 years 9 months ago

Apples to apples: I just bought an 06 BMW 750Li used (about 2-3 years old) for 40K. New, the same car with all the options is closer to 90K, and drives as close to new as I care about.

So… after saving 50K (more than 50%) of the cost of the new car for a car I fully intend to drive another 10+ years (my last one I drove for 15 years).

This is the only option that makes *financial* sense and I still have an awesome car.

BK2U
BK2U
7 years 8 months ago
I just bought a new ’08 Toyota Sienna Limited with all the bells and whistles. I got a $2500 rebate for model year-end from Toyota, paid the invoice price, got a reasonably fair price for my trade (an ’02 Honda Odyssey with 97,500 miles on it), and tons of extras that I didn’t have to pay a dime for because the dealer needed to dump this car so badly. But why would I trade in my Odyssey, which was running fine and never cost me a dime in other-than-routine maintenance? I was afraid I’d never get a better chance to… Read more »
Bloggeries
7 years 7 months ago
I bought a C230K but from 2000 last year. Spent more then on comparable cars and I have had to put work in. Thing for me is. If I go away on vacation for 2 years (extreme example) I’m cool. My car sits and its ready for me when I come back. Buying quality lasts longer as well as a whole. I mean I have ~130,000KM I have a long way to go. I see your logic. I’m just against payments because it’s a form of slavery IMO. Just like my phone contract. Do I want an Iphone? YES YES… Read more »
Bill
7 years 7 months ago
You can justify anything you really want. This is a perfect example. Show me any study/facts that indicate a new car is a better “value” and costs less in the long run than purchasing a 1-4 year old used vehicle. And make sure you include the interest you pay on the new DEBT you incur while I drive the same vehicle debt free because I paid cash and let some other guy take the depreciation hit who just HAD to have a new vehicle because he justified it and who also justified buying a car he couldn’t pay cash for… Read more »
Rachel
7 years 7 months ago
I agree with you here. I also bought a Honda Civic (I know it’s not an Accord) this year new. I’m 22 and I just did not want to go through the hassle of possibly buying a car with hidden problems. I also knew that I wanted a car I will drive for a very very long time. I figured in my industry as a consultant it also pays to make sure you look at least presentable to others, so riding a ghetto car was not an option. I believe people who are complaining that you are extravagant for buying… Read more »
David
David
7 years 6 months ago

We were in the market for decent used cars over the summer.

In our area, there was hardly any supply of decent 2-3 yr old honda/toyotas. We looked for weeks and found nothing. We widened the scope and took a look at 3 different 3-4 year old hondas at a decent dealership. Their condition was ridiculous.

On the way out, I noticed the Honda Fit was selling new for only $1,000 – $2,000 more. We bought the Fit and love it.

Gary
Gary
7 years 6 months ago
There are better ways to do this if you know the car business:Way #1: The dealer demo.This is a cream puff, immaculately maintained and because it’s a dealer demo sells as a “used” car, but has a “full new-car” warranty PLUS, all the new car garbage (loose screws, fixes, etc.) have already been done. Savings can range 30% easy.Way #2: The off-lease beauty.Major rental companies like Avis are the largest purchasers of motor vehicles in the USA. They turn their fleet over every 8-14 months, keep full records of all repairs including service, accidents, paint chips, whatever, and buy all… Read more »
Josie
Josie
7 years 6 months ago

Now you know TWO people who like their VW Jetta. Actually, I LOVE mine. It’s 10 years old and still running great. Much more fun to drive than my Honda, which I also like. Lots more pick-up, too.

Jon Thompson
Jon Thompson
7 years 5 months ago
Three people that love their Jetta. I have a 2007 Wolfsburg that I bought with 35 miles on it (10 of which I put on in a test drive.) It is the finest car that I have driven. I’ve had a count of one warranty issue (airbag controller needed replaced.) It’s a little small for the baby seat, but will be fine once my littleun is too big to sit backwards. NEVER buy a former rental. Those things may look nice, but will be a mess under the hood. They’re beaten, and beaten, and beaten. That’s why the rental companies… Read more »
James T.
James T.
7 years 4 months ago
I’ve always wondered if Toyota or Honda has better marketing than other brands because their cars have a reputation of reliability. However, I’ve owned only Toyotas and Hondas all these years, and they are very reliable. If you buy them used, they normally cost almost as much as a new one. The unknown factor is the previous driver(s). Did they drive the vehicle roughly? If you have intellectual skills, it is better to buy new so that you can contribute to the advancement of society because you will not be restricted by the reliability of your vehicle. If you are… Read more »
Ken
Ken
7 years 26 days ago
I find it amusing that Ramit will say “to apply a broad rule that “used is the best” is idiotic” and yet makes the same broad comments that renting (vs buying) a house is “the best”. His overall argument for buying a new car is “value”…and gives a few examples demonstrating that, yet cannot comprehend that someone could make the same argument of ‘value’ in talking about buying a house. Also, in his blogs he almost brags that he applies ‘cold reason and logic’ and elminates all emotion from financial decisions. If that were true, he would admit that buying… Read more »
Casinospt
Casinospt
6 years 11 months ago

You are so “human” that it makes me sick.

Manish
6 years 11 months ago

This goes well with understanding the difference of value and Price .

I bought a mobile phone at Rs 800 ($16) for my home , just to use it for days use . The value it provided my was much more than $50 i would say .

This is a nice read on the topic : http://jagoinvestor.com/2008/10/price-vs-value.html

Manish

Zero
Zero
1 year 1 month ago

“And it only gets better as you drive the car longer with no payments. In other words, you save more in non-payments than the car depreciates.”

Bwahahah, please, please, stop, I can’t take any more, my sides are splitting.

I don’t think ‘saving money’ means what you think it means.

Suckers buy new cars, you didn’t find this out until after you bought yours, then you found out, then you got angry and felt stupid.

That’s why this article exists.

aarohikapoor
1 year 23 days ago

We should point out that the person who leased has escaped the repair and maintenance costs that car owners typically encounter with aging cars. Meanwhile, the car buyer has to pay for routine maintenance, which is usually just oil changes and tire rotation, as well as paying at least for new tires and brakes, which would cost about $1,000.

Simon Templado
Simon Templado
11 months 15 days ago

Yes, yes. You bought a new car because you are in your 20’s. I know, I know. We all have been young and stupid and have had our asses totally owned. We wanted a excuse to look good when we knew no other way to do so. Wait till you learn finance and look back in your older years!

David
10 months 23 days ago
I have bought a car in early twenty five and I decided the model of Benz class. The look of the car is so genuine but the price is too high. Compared the price of different dealers and saw a big difference in the price after finalizing the dealer I have buy the car with 20% discount with the original price and save the enough money by using your tricks and ideas. Firstly I want to buy the second hand car of the Mercedes model but in the final I change my mood because there is small difference between the… Read more »
E
E
9 months 27 days ago

People give this garbage “peace of mind” excuse all the time. This is ridiculous. If spending more money gives you peace of mind then your mind is messed up. For any rational person, it would be silly to pay more money for something when it adds absolutely no value. Buying new doesn’t give you more value. In fact, looking at it from any angle shows that buying new destroys value. If you want a new car, lease it. That’s the cheaper option, but still a bad decision versus buying used.

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9 months 19 days ago

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Md.Mainul Islam Raju
8 months 11 days ago

I’m agree with u. your decision was right. Money is not a factor here. As u have bought a new car hopefully u are going to get a tremendous output from it…. 🙂

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8 months 10 days ago

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Fred
Fred
8 months 9 days ago
When the people who are smugly ridiculing new car buyers offer to choose a used car for me that’s reliable, back it up with a personal (legally binding) guarantee, and give me free transportation to and from car repair shops (on call, immediately as needed), I’ll consider buying a used car. Until then, I’ll continue to buy reliable inexpensive new cars, without financing, and drive them for many many years. I get 3 years of warranty coverage, years of hassle free new-car driving, I never get stuck with a lemon because some dishonest seller lies, and – over the life… Read more »
chelle
chelle
8 months 9 days ago

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7 months 25 days ago

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Zane
Zane
7 months 24 days ago
The elephant in the room that nobody ever mentions is how used cars are frequently abused. Imagine what a new car can go in a very short time with a bad owner – tons of door dings and scratches; never washed or waxed; skipped oil changes; zero preventative maintenance; engine problems for overheating due to low antifreeze; ripped seat covers and headliner; blown speakers; scratched wheels from too many curb checks; misaligned wheels, leaking shocks, and damaged exhaust from being careless around potholes; stupid Tool stickers on the bumpers and windows; dog hair, mud, spilled beverages/food; rancid air freshener smell… Read more »
Evgeniy
7 months 24 days ago

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George@floorjackkiller
7 months 22 days ago

For me, cars are a practical thing, though, not an item of desire or status. what I eagerly look forward to is a nice car of my own choosing that does the least harm to the environment.

Clinton Skakun
Clinton Skakun
7 months 20 days ago
I’ve driven used cars since I could drive. Peace of mind and reliability was never an option since I never had an extra 15,000k or the credit to pay for a new car. I had stuff break down a lot, only because I was too lazy to do basic oil changes and diagnostics. Other than that my life was never put in danger because of it, and I never lost 15k worth of time or paid 15k in repairs. Can’t justify that amount of money going to waste, aside from just wanting a new car (which is fine). Honestly, for… Read more »
The Canadian Wheels
7 months 18 days ago

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Kheng
Kheng
6 months 6 days ago
I compared a new honda civic 2015 1.8vti auto and a preowned (Old) 2012 1.8vti auto. New: 25K Old: 15K Rough Calculations only on the cost to purchase the car: New: 8K Deposit cash payment + 325 monthly loan (5 years) = 29K investment over 5 years. After five years: Sold for 8K = 19.5K investment over 5 years or 3.9K/year Old: 15K cash payment After five years (8 y/o): Sold for 3K = 12K Investment over 5 years or 2.4k/year Difference New Vs Old: 7.5k over 5 years or 1.5k/year. Ultimately, New or old car will roughly cost you… Read more »
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If I have enough money. I will choose to buy new car. As you have written, reliability will be my primary concern. It is good to think that car as an investment.

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Neil
Neil
3 months 1 day ago
Wow, I brought a Honda Accord 2002 for $4500 in April 2014. Been using it for 2 years now, might have spent $700 or so in repairs (oil change, wipers, tyre rotation and some other fixes). But I still feel , I made the right choice. I don’t worry about my car getting scratched , don’t care if some friend is driving my car , or while parking in some shady neighborhood. In short, it saves me a ton of worry. And even if I sell the car in another couple of years I should be able to get (give… Read more »
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Let me remind you though that new cars are not at all a good investment. Don’t forget therefore for instance that the average British spends totally with its car around 70£ per week, 280£ per month and 3400£ per year, just for its automobile. These costs are insurance, fuel, vehicle inspection, vehicle excise duty, car finance, depreciation, maintenance, repairs and improvements, parking, tolls, traffic tickets and washing. This total cost might reach 500£ per month but most people disregard it because they pay such expenditures during different periods within the year. Do yourself your calculation at AUTOCOSTS.INFO and you might… Read more »
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