New or Used Car
Today I welcome long time reader, commentator, and now contributor J, to discuss whether it’s smarter to purchase a new car or a used car. J is a self-storage business professional, lives in Massachusetts, and is soon to be finishing his bachelors in business administration.
J recently purchased a new ride straight off the lot (a 2008 model). Mrs. PT and I have been debating getting a new vehicle. We think it will be more convenient to have a safe, new, four-door for our baby, due next March. Last month we made a failed low-ball offer on a new Tahoe. We’ve since decided to stick with our current vehicles (which were both bought slightly used and financed at around 7%) till the baby arrives or till we find a steal of a deal.
Anyway, J and I started talking about the issue over email and he thought it might be a good idea to create a post out of our debate so YOU could join in on the discussion. We decided to have a little fun with it as you’ll see, but I think you’ll find we equally made our cases. Personal finance is “personal” for a reason, right?
J’s Pros For A New Car Purchase
PRO(J): Interest rate of 1.9%.
CON(PT): The rate may be low but your monthly payment is almost certainly going to be much higher. Not to mention off-the-lot depreciation. That’s money you could be using for retirement savings or your kid’s education.
PRO: 10-year, 100,000 mile powertrain warranty, 5-year, 50,000 mile bumper-to-bumper warranty (which I upgraded to 10-years, 100,000 miles)
CON: You’ll likely never recoup the cost of that extended warranty. Oh, and read the fine print on what “bumper-to-bumper” actually means.
PRO: Latest fuel efficiency built into engine.
CON: Gas prices are going to plummet as soon as we start drilling here in the U.S., release the reserves, and get those windmills up in West Texas. We’re already starting to see prices coming down. This fuel efficiency stuff is just a waste of money.
PRO: Newest safety features, such as tire pressure monitoring and electronic stability control, as well as enough airbags to make the car practically float in the water.
CON: Airbags are for whimps. More people are injured from them than protected. (okay, I just made that one up)
PRO: All the latest toys, like a built-in CD player that reads MP3’s, cruise control and stereo control right on the steering wheel, built-in XM satelite receiver (if I was willing to pay the monthly fee to activate it), and heated side mirrors (very important here in the Northeast).
CON: More “stuff” to worry about breaking. All those new gadgets are just things that won’t work in 5 years. Even though you have the warranty, you’ll still waste your life hauling that thing into the shop every month because the latest gadget is malfunctioning.
PRO: All I have to do is put in gas, change the oil every 3750 miles, and add washer fluid. The whole thing is new, after all.
CON: It’s new, sure. And your new insurance rates will reflect it. Talk about expensive.
PRO: I know how every ding, knick and scratch got there, as well as how the car has been treated from day 1.
CON: You mean you *worry* about every future ding, knick, and scratch. Aren’t there better things to care for and worry about than a hunk of metal?
PT’s Pros For A Used Car
PRO(PT): Less expensive. Reduced or non-existent payment. No new car depreciation to worry about.
CON(J): Try to remember that when the transmission goes…or the radiator…head gasket. Things just wear out over time, so add up those possible repairs (and loss of vehicle use while in shop), and weigh it against the depreciation. Example: my new car lost $8k when I drove it off the lot, but I had to sink $2500 into my paid off car in one month last July.
PRO: It’s time tested. By this point, you know it’s not a lemon (because you got the CarFax.com report).
CON: Very tested….on potholes, speedbumps, road construction, shopping plazas, numerous winters. Living in Massachusetts, winter is an important factor, as salt and sand wreak havoc on the underside.
PRO: Parts and systems are less complex and easy to fix yourself.
CON: Um…have you opened the hood of anything built after 2002? Shops have diagnostic computers for a really good reason these days.
PRO: Insurance will likely be cheaper. Oh, and if you own it, you control what your deductible is…not the financing company.
CON: Can’t argue with this one, but the deductable is another story. It depends who you finance it through, Hyundai let me set my own deductable.
PRO: You can park wherever you want. No worries about dings or scratches.
CON: Nothing a touch-up pen can’t handle (get it from the dealer with the car). Other than that, how else would you add “character” to it?
PRO: No guilt for have a big debt. Deep inside you’ll know you’re getting ahead financially.
CON: Yep, it hurts. Net worth in the red. Net worth much worse if you can’t get to work!
PRO: Cassette tape player, cigarette lighter, unintentional two-tone paint job, and a free workout from the manual windows and lack of power steering. Need I say more.
CON: Believe or not, I have cassettes I like, but no longer have anything to play them on! (Not about to swap the radio though). And if you’d like a free work-out, I can help you with that. Actually you can get paid for it if you want to work for me in self-storage. Then again, you could just mow the lawn now and then…
I want to thank J for allowing me to share our discussion and for being such a good sport. If you’d like to share your thoughts on Prime Time Money in the form of a guest post, please contact me.
While there is no one smartest way to purchase a car, here’s a good guideline you might should follow to find the smartest way for you:
If you’re going to buy new, you should generally try and pick a vehicle with high re-sale value, get it at a significant discount (I recommend Edmunds.com for price research), finance what you can’t put down at a very low percentage, and keep it for a long time (more than 5 years).
If you decide to buy used, get to know and trust the vehicle as much as possible before buying, stick with the high re-sale models, and try to avoid taking on too much debt because it will likely be at a higher rate of interest.
What’s your opinion on the new vs used car purchase? Which is smarter for YOU and why? Let us know in the comments below…Photo: by Bob Jagendorf (http://www.flickr.com/photos/bobjagendorf)