Sometimes A New Car Might Be Better
One Of My Hoopties
Now hold on AF readers, don’t freak out at the title yet. You know a major reason I got to financial independence in my early 40’s was because I bought older used vehicles. The kind we used to call hoopties.
It’s true, those old vehicles did me right. Transportation costs are one of the big three and I saved enormous amounts of money for a long time with my hoopties.
Carfax knows a thing or two about used cars because they’ve sold a gazillion of them. Here’s what they say about depreciation:
The minute a person drives a new car off the lot it loses approximately 10 percent of its value. By the end of the first year, that car will lose an additional 10 percent on average.
But this number is not fixed. Cars with less brand-name appeal and few options can be hit much harder, depreciating by as much as 50 percent in some cases. So when you buy a car that’s less than two years old, be sure to know how much it has decreased in value.
Don’t be fooled into thinking depreciation slows much after the first year. The fact is, new cars continue to lose value for four more years, averaging a decline of 15-25 percent per year. On average, a new car will lose 60 percent of its total value over the first five years of its life.
Yikes. So yeah, cars depreciate pretty darn fast, but last longer than ever these days.
Back to the title of this post then. When is it better to buy new?
Well, if you’re in the market for a “lightly used” or late model used car, say 2 years old with low miles, it could be better to buy new according to this Jalopnik article.
So my title was just a wee-tad click baity. Meaning it might only be better to buy new instead of used in very specific circumstances.
After reading the Jalopink article, they cite the exact thing that happened to me with the exact vehicle! So I can vouch it’s true.
The Story
I’ve already fessed up once, I bought my first ever new vehicle in 2014. After I was financially independent. But I went in still looking to buy a used vehicle.
I had actually convinced myself that I’d never buy a new vehicle, ever. “Why spend the extra money and take the depreciation hit” I would think.
Not My Outback (Duh)
So being FI in my early 40’s and having driven hoopties my whole life (which really didn’t bother me much), I thought I’d get a 2-3 year old Subaru Outback. Maybe with 20-25k miles on it.
They have the reputation of lasting forever and they would do well holding all my bikes, boards, kayaks, and outdoor toys.
But after shopping around for months I found it was difficult. They didn’t lose too much of their value in comparison to other vehicles.
Those numbers cited above by Carmax weren’t really true for the Subaru’s. Eventually I found a 2 year old Outback that met my needs and only had about 18k miles on it. And the price was a bit lower than others in that category.
Turns out it was because it had a few scratches on the bumper. Like I give a frog’s fat ass. I mean, I’m going to be using this thing for what it’s for, outdoor sports. I get groceries on my bike.
But after expressing interest to buy it and talking with the guy at the dealership, he informed me that the current years models were already marked down, because the new ones were coming in next month.
Long story short, the 2 year old Outback with 18k miles was $22,200. The new one, freshly discounted, was $23,400. A $1200 difference.
Those numbers are very similar to the Outback example cited in the article, almost identical. Mine are slightly lower since my example was from 2 years earlier.
I get it, $1200 is still $1200, and nothing to sneeze at. But since I don’t drive much, maybe 5 or 6k miles a year, the numbers made sense for me.
In other words, it took me around 3 years to get to 18k miles (a little under). So that’s roughly three years of owning a newer vehicle with relatively little depreciation, at least compared to those Carmax numbers. The article cites another example using a Volkswagen GTI with similar numbers.
Pro-Tip: Don’t buy a Volkswagen unless you want to be lied to and cheated on. Speech over.
The Loan Guy
So this is the best part. After I committed to buying the new Outback and was filling out all of the stuff, they call “the finance guy” over.
I had already told the sales guy that I’d be paying cash and I wanted to put as much as I could on my credit card because, ya know, I’m smart and I like free stuff from credit card companies.
He was actually a very cool dude, not pushy at all, and didn’t really bat an eye when I said I’d be paying cash.
But then the finance guy sweeps in. He definitely had a bit more of a “Crazy Eddie’s Going out of Business!” vibe to him. I immediately thought “This isn’t going to go well….”
Here’s how it went:
Finance Guy: Let’s go over the different loan options so I can get you the best rate.
Me: I’m paying cash
Finance Guy: (slight pause) Okay, we have zero interest loans and I’d like to go over some of those options with you.
Me: I’m paying cash, I’m not financing
Finance Guy: (with an expression like he was just explained quantum physics but missed basic middle school science) But it’s a zero interest loan, so you don’t pay interest.
Me: (trying to be deadpan, but in a Stephen Wright comedian kind of way) I’m paying cash. When I pay cash, I don’t pay interest. It’s, ya know, cash.
Finance Guy: (looking increasingly defeated but as if he still had another trick up his sleeve) Ok, are you sure? I mean, I can get you zero interest, with no fees.
Me: (pointing to the sales guy and now making it visually clear with very deliberate facial expressions that he’s persona non grata and needs to leave now). We’re going to finish up with the paperwork, have a nice day.
The sales guy actually showed a bit of a wry smile, he won me over with that.
Us FI people who can plop down $23k for a vehicle must be unicorns to some.
In Closing
So yes AF readers, yours truly who rails against the cult of cars in America and preaches the virtues of older, used cars to get to FI did indeed buy a new vehicle. I had reached FI and it made sense for my life situation at the time.
I still strongly believe that in the majority of situations an older used car is the way to go to save maximum money and to accelerate your path to FI.
Your Turn – Has anyone else had a situation where a late model used car was really not too much less than a new one? Chime in!
Dave – Subaru’s are one brand that hold their value a lot greater than many other models. I have cousins who only drive Subaru’s and one of them has a car 20 years old! You pointed out the importance of looking at the make/model holding value and consumers need to do that.
We have experience with slightly older models being slightly less OR even greater cost than new. We live in the Southeast Texas area and we have had some unusual circumstances leading up to this upside down situation. Since 2015 we have had at least 3 flood events, the biggest by far being Hurricane Harvey, These events has totally screwed up the used car market, leading to big increases in costs. I have lost track of all the emails and letters from dealers who want my slightly used car and will pay top price!
I’ve heard about the scams that put flooded vehicles back on the market. With all of the floods and hurricanes lately it sounds like it’ll be a big problem going forward.
During the time I was still putting 500,000 miles on my used Mercedes diesel, I was incorporated and looking to use the tax law to get the government to help us get a great sport type SUV for my husband. It was the only time we ever bought a brand new car and I know you are going to laugh but it was a Volkswagon. Hey, 2005, I think they were not yet full liars, but working on it. If my business purchased a vehicle capable of pulling 6000 lbs gross weight, it was fully depreciable in my S Corp and I could accelerate it to write it off that year. Three years later, I closed my business and sold it to “us” as a huge loss. Like you say, that silly business owner (me) took all the decline in value and “we” got a great deal on a used Toaureg with less than 10,000 miles on it (yeah, I mostly still drove the beater!). And now it has the ummpf to pull our travel trailer.
The best part was during the negotiations, which was on a slow Wednesday and I haggled down to only $100 over their cost. They agreed because I financed half (only to pay it off in full the following month). When he pulled my credit, he just shook his head and asked why someone with my kind of excellent financial profile had to get that price so ridiculously low. Welcome to the FIRE world, Mr. Salesman!
Love it…. “You’re rich and have awesome credit, you should want to pay premium
You should have said “How do you think I got in this position in the first place?
I got an old Subaru to learn how to drive a stick shift on. I paid $500 and sold it for the same amount 2 years later. It worked out and now I can drive manual. 🙂
We got our current car new, a Mazda 5. It was discounted heavily due to a model change. I really don’t mind spending $1-2,000 more for a new car. If you buy at the right time, it’s not much more than a used car.
I looked at the Mazda 5’s, they’re pretty nice too!
We almost exclusively buy new and then hold the car for decades. Besides the cost gap you mentioned you can also get more favorable financing new then used. I’ve been known to take the 0 percent and build a cd ladder with the cash.
Good idea on the CD ladder, I just didn’t want a loan or to give yet another institution all of my life’s info and data.
Dave, that answered my question on why you didn’t take the 0% interest loan. I understand about all your life’s info and data.
Not recent, but my first car was new, a 2003 VW GTI!! Ha!
But still have it 177k miles on it. So I think it’s got its use. And it’ll stick around for a while longer.
But we bought a late model used car recently for the Mrs. Just curious why not take advantage of 0% and no fees? We could have paid cash but I found a 1.5% used car loan. So took advantage of it.
I hear ya, strictly financially speaking I could have taken the loan and invested. I was still high on becoming FI and frankly didn’t want to give yet another institution I had never done business with all of my personal info and data. Because they sell it and then I get more junk mail and all. Sounds silly but I’m pretty close-guarded with how wide I spread my exposure.
depreciation only matters if you sell it or total it. i like the idea of owning the best 2 years of a car’s life from brand new. it’s just like a stock or a fund to me in that you haven’t made any money on a stock until you sell. and even then it doesn’t mean anything until you spend the proceeds on something. i hope to get 5 more years out of our 2005 mazda with only 72k on the odometer.
Wow, 2005 with only 72k. I thought I drove low miles, that’s super-low!
So I’m curious had you gone with the 0% financing would it have really been no interest for the life of the loan with no fees on the same sales price of $23K? seems doubtful… But for the sake of argument let’s say that was the case, what is the financial argument for NOT taking the payments instead of paying all cash?
Great article!
Cheers!
Yes financially it would have been best to take the loan and invest. I frankly didn’t want to give yet another institution I had never done business with all of my personal info and data. Because they sell it and then I get more junk mail and all. Sounds silly but I’m pretty close-guarded with how wide I spread my exposure.
So yeah, not the best mathematical financial advice in that aspect, but I was already FI and wanted the digital privacy.
Thanks for stopping by!
Cars are our biggest mistake when it comes to saving money. Our list of new cars is as follows starting in 1983, Dodge Rampage, Honda Civic, Honda Civic #2, BMW 325, Chevy Silverado, Plymouth Grand Voyager, Dodge Caravan, Chrysler Town & Country, Ford Explorer, Ford Explorer #2, Ford Expedition, Toyota Highlander, Toyota Tacoma, Lexus 200T. It really is pretty embarrassing when you think about it. Lucky I did get company trucks at work for almost 20 years so that did help, but I’m sure if you total up this mess, the cost along with the interest we could have earned in the stock market would put us 1 Million ahead of where we are at now. Ah live and learn, young and dumb.
Wow, those were all new? You and my buddy Marc should get together for beers, I think he has you beat but not by much. Sounds like you’ve learned from the lesson and turned the corner!
Sadly yes they were all new. I just realized something, I have never bought a used car until I helped my daughters buy their first cars. Wow, I really didn’t set a very good example early on. I think I compensated for this with other things that we did that were more frugal, but this was a pretty big black hole.
We’ve all had our black holes, no shame in that!
Totally agree with you there there are some situations where buying new makes more sense (like yours). Though I technically bought my car used, it was only one year old and thus had not depreciated enough to where it would have been a good deal. Hoping mine lasts for a long time, though I do put quite a few miles on it each year with the amount of driving I do.
Your car is pretty sweet, as good as they’re making things these days that thing should last you a long long time!
My wife just bought a 2018 Outback. She will keep it for 10 years or 200k miles. I inherited her 2010 forester and will drive it for 4 years and about 100k mikes on it (including work miles). In my 20’s I bought cars for $2k and that was a major reason I reached FI at ago 40. Now my wife gets new cars and I take the hand-me-downs. It is definitely a win-win.
Ah the old 2k car, I sometimes miss it because it was fun to hunt that bargain down!
I’d definitely consider getting a new car when the time comes (please please please let that not be for several years) because I’m not worried about what a car is worth. I want to drive any car I have until it’s dead, so I don’t care about the blue book value. That only matters in the unlucky circumstance of having your car totaled.
We were lucky to get our current car for $14,000 despite it being a Honda Civic with only 20,000 miles on it. The paint job was all dinged up (who cares?) and it’d been on the lot a while, I think. I’d be more than happy to buy used if I can find something like that again (again, when the time comes) but if I can’t… New means a lot less headache about repairs for at least two or three years. So it has that going for it.
That Civic should last a long long time, they’re built well. And I agree about a ding on a car – I just can’t imagine caring about something like that.
That is a very good post, I have noticed talking to friends lately that ended up buying new that they really paid very little premium versus a one or two year used model. I had never believed that was possible but your post reinforces the case. I usually won’t buy less than a three year old model and my last new car bought earlier this year was a 2008 INFINITI for $7,000 so it isn’t likely I’ll step up to new any time soon but your point is well taken. Be careful buying a one or two year old car that you are really saving as much as you should.
Thanks for the kudos Steve, that 08 Infiniti should still have a ton of life left!
Subaru’s are great cars. Especially in the snow. Good thing you didn’t take frugality too far. Sometimes a good buy is just a good buy.
I’ve loved it so far, only a few very small problems that really don’t matter. It hauls my toys very adeptly!
I like buying new, and driving them 10 years. We do generally low mileage, but not 6000 low. We travel by car to visit friends and family, so that brings up the mileage to about 9k a year. That’s still pretty good. Our last 2 have been 0% for 5 or 6 years. We always buy at the end of the model year when they are trying to clear inventory. We do CD or t-bill ladders with the money.
I like new if I am going for 10 because of my concerns about the transmission and such. I know how we care for our cars. Its a piece of mind thing.
Here’s a story. I once tried to buy a car from a dealer when I was a young officer. I had just gotten my big 1Lt pay raise, and I wanted a car with AC. I go to a lot, looking for a good used car. First, though, I checked out the new ones on the lot. The Used salesman sees us, by now we were near a used 1 year old version of the car I wanted. I ask the guy for the price. He quoted me a price above the price of the new one. I call him on it. He says model differences explained it. I said no, same model. This was before internet phones. Needless to say, I then left.
9000 miles is still way lower than the average which is around 13k. “Model differences”…. yeah right
I bought a new F150 about two years ago. Older models with 100k+ miles were going for $18k-20k so I figured an extra $4k for 100,000 miles plus full knowledge of what it’s been through was worth it. I paid $24k for it. I did decide to finance since I would rather leave more money in the market. Surprised you didn’t enjoy the 0%!! 🙂
Wow, I didn’t know you could get an F150 for that low, thought they started in the upper 20’s.
I didn’t take the loan because I didn’t want to give all of my personal info and ss# to yet another institution I had never done business with before. Kinda silly, but I tend to be overprotective of my data in that regard.
I look back prior to 2014 when we bought brand new vehicles what seemed like every 2-3 years. Constantly trading in leases and upgrading and taking incentives but the depreciation was getting tacked onto the next vehicles lease somewhere. Finally in 2014 we clued in and traded off our new vehicles and also downsized them to economical cars….man the money I lost over those years.
I just bought a new (used) 5yr old car as you know, depreciation is done and I got great value for what I paid. Although I did take that loan as the vehicle is a Nissan Leaf and the 100% electric had the math working out that gas costs now offset the loan payment. Yes I know….I got a stupid loan but being FI and semi-retired I just don’t have the cash to plop on a vehicle and need to preserve my investments.
As for depreciation….dude, look at travel trailers ! Now that was the stupidest new purchase I have ever made, wow what I paid vs what I eventually sold it for is bonkers.
Your “former car life” sounds like my best buddies. He admits it now and has gotten better, but I still haven’t sold him on FI yet.
I really wish the tax incentives for electrics were bigger. We have them, but they could be bigger IMHO.
Lastly, didn’t realize trailers depreciated that much! Maybe when I’m an old camping-curmudgeon I’d consider one, but for now tents do me fine.
I used to race Motocross so we had a big toy hauler that we pulled to all the regional races each weekend. That is also why we had the big brand new trucks…living in an area of excess and bigger is better sneaks into your life in a bad way. That’s why the big move across the country and sell off of everything finding the MMM cult life 😉
Wow, “Chris Pastrana”… that’s pretty cool!
You made a great decision. This means more $ for cool gear. Now, you will fit in immediately with the Colorado 13ers trailheads as your next goal. I drive new company cars every 3 years (2018 Subaru Forester currently) and I pay a $100/month personal usage fee. They pay everything else. But, I have to deal with Corporate BS until I hit FIRE.
More money for gear – you’re on to me!
Yes, I fully realize that owning an Outback makes me a lemming amongst outdoorsy folks. But that’s my tribe 🙂
We had the same experience with a Subaru Forester in 2011. We had kid number two on the way and couldn’t put a car-seat behind the driver’s seat on our 2008 Fit. Looked around for Subie’s of that era, but due to how the $CDN had changed vs USD at the time and the financing on new models (no cash for a whole car only 4 years out of uni!), buying new was definitely cheaper than a lightly used Subie.
Fast forward a number of years and we finally managed to move to our dream town (Nelson), but to live there requires a bit of a commute. I bought a Leaf to minimize $/km, but unfortunately it is just about not cutting it anymore after 170,000 km and 20% battery degradation to cover my commute. Looking once again at a new electric car, since I refuse to commute by gas, and there just isn’t anything out on the used market that makes sense yet! Weird but true, buying a new EV will be cheaper $/km over the next ~8 years I plan to work then buying a used gas car. I think this is a once in a generation type event though – once EVs have spread across vehicle classes for a decade, buying used will once again be king!
We need to get more EVs on the market. Progress has been made, but to me it seems tenuous. Some companies like Ford are working on EVs, but then on the other hand they’re not even making gas sedans any more and going full-in on trucks and SUVs. The public gets what the public wants, and right now they want wasteful trucks and SUVs. And maybe sometimes EVs. Sad.
I bought my first car about a decade about and it’s still with me.
Someone could say that cars are biggest mistake when it comes to saving money, and it’s true. But what is it’s my hobby? I bought recently a Jeep JK and I’m crazy about it!
If your Jeep makes you happy then I say focus on it! As long as you’re saving and cutting elsewhere to make up for it you can still achieve FI for sure. Spend on what you love, cut the rest!
We bought new cars too. Two of them – Honda Accord and Honda Civic in 2014. Still going strong. Will probably hand one of them over to our son when he is 16 (6 more years to go) – We would be retired and won’t need two cars by then.
Those Hondas should run forever, great engines and very reliable. Sounds like you have a great plan!
If you replace the subject of this article with shoes or televisions (or pretty much any commodity) then the reaction would be “well duh!” So I never understand why people who buy new cars are seen in such a negative light. Sure, borrowing to buy a car may not be a wise decision but that, again, applies to all commodities – borrowing to buy the latest shoe fashion for example may also not be wise.
I am not very interested in cars but I buy new and I keep them until they become too expensive to repair. My personal view is some unsavoury things happen in cars and I want to know exactly what went on in my car. I bought my mini (great headroom for a small car) with cash around the time my daughter was born and she is about to learn to drive in it and when she passes I will give it to her to drive. Thanks for all the recommendations in the article and comments section of what car to buy next when that happens!
Cars hold a special place in American society, that’s why it’s different. For so many people it’s their public identity since it’s the costume they wear for most of their time getting around in public. Plus they’re a huge expense and depreciate so fast.
Glad you enjoyed it and thanks for stopping by!
We just got done buying a slightly used Toyota Sienna with all wheel drive, and apparently AWD Siennas are relatively rare. It’s the only mini-van made with AWD. In many instances we found that since they were so rare the dealerships were pricing them at a premium – making them only $1-2k less than brand new. It took us several months to finally find one that ticked all of our boxes, and that had a big enough price discount over new that it made sense. If I’m honest, I will admit that I was starting to get frustrated enough with the process that I was about to agree to buying a brand new one – something that I’ve never done, and swore I never would. In the end I think there are situations where buying new would make sense, but thankfully I haven’t found that situation yet. 🙂
Those Siennas last forever, great choice! Keep avoiding the new vehicle!