When Mer and I first met I was 22 years old. At the time, I was a poor university student, obsessed with all things material and downright impressed by Mer’s cool set of wheels. We met in the month of April and Mer had just purchased his first vehicle: a brand new SUV. He treated that truck like his baby. He washed it weekly and pampered it like a proud papa would. To the outside world it looked awesome, impressive even but what no one knew was the ugly truth that that truck was costing Mer nearly 700$ a month for 5 years. Holy hell – that’s a ton of money right?
Frugal math tells me that the truck with interest cost Mer nearly $42 000!!
I think the notion of buying a brand new car is something of a right of passage for a young adult right? Your first car in some respects is a right of passage into adulthood and bestows freedom and adult responsibility for perhaps the first time. But, what freedom are you actually acquiring for yourself when you’re obligating yourself to hefty monthly payments for a good part of your immediate future?
That truck stuck around for nearly 10 years. Once he finished paying it off (5 years after we’d met) he opted to keep it and “drive it into the ground” so that we could avoid committing ourselves to a new costly car payment. During that time, we got married and moved into our first apartment as a couple and our bills started to pile up and a new car payment was simply out of the question. Eventually, we did trade in the truck against a smaller fuel efficient 4 door sedan. It might seem crazy but financially it made more sense. The truck was starting to break down requiring costly repairs and fueling it was becoming extremely pricey with rising gas prices. At one point when gas was at its highest we were spending around 100$ to fill it up each time. Mer commuted a good distance to work and back so keeping the truck running was actually costing us more than it would to replace the truck with a used fuel efficient car.
This time, we opted to buy a new used car. We went into this transaction with the mindset that we wanted to buy a reliable, fuel efficient used family vehicle. Our goal was actually to spend 30% less than what we knew we could afford. Essentially we applied the principle of buy less car than you can afford when test driving and perusing potential vehicles.
Why buying used is the only way to go
New cars are a horrible investment of your money: did you know that in the first year of owning a new vehicle it depreciates by nearly 22%. So if we employ some frugal math a car that you paid 25k for will only be worth 19500$. Scarier still is that once your car loan is up say 5 years later the car has probably lost more than half its value. So, that brand spanking new set of wheels you paid 25k for is probably only worth 12 500$. So if we analyze this even further it means that roughly halfway through your car loan you’re essentially flushing your monthly payment down the toilet because by the midway mark you’ve essentially paid in what the car will be worth to you at the end of the term.
Warranties will expire well before you pay off the car: According to consumer reports the average car loan is 60 months or 5 years. Most cars however only provide you bumper to bumper warranties for 36 months or 3 years leaving you with a hefty car payment for 2 years and absolutely no warranty to cover issues that might arise. Most people claim that they buy a new car to avoid the headaches associated with a “used” car. Sure, some used cars are lemons but so are some new ones and ultimately it’s a risk you take whether you buy new or used.
Used cars are simply a better value for your money: Let’s get one thing clear. Cars are a waste of money but a necessary evil for anyone who has a long commute. They make our lives easier and although we could all technically use public transportation or other means (hi bicycle) to get to where we need to go having a car has become somewhat of a necessary to the average north American family. Buying used not only saves you a heap ton of money but can allow you to reap the benefits of a nearly new car at a fraction of the cost. Our frugal advice would be to shop for a car that is in the 3-4 year age range so that it likely has had only one owner, was covered by warranty and has low mileage. Remember the depreciation talk above, well hunting for a car in this age range almost guarantees that the bulk of the depreciation was assumed by that first guy who bought the thing brand new.
Buying a brand new car is one of those things that I think everyone does once at some point in their life. You get this brand spanking new vehicle and by the time you’ve paid for it you hopefully realize that you’ve wasted a ton of money on a vehicle that you could have easily bought used. We’re a frugal family so we’ll never buy another new vehicle – we’ve been there and done that and learned the hard way (hello 42k truck) that an expensive vehicle and consequently hefty monthly car payment don’t enrich our lives in any tangible way.
Like this post? Pin it to pinterest!
Now tell me, have you ever bought a new car? Would you do it again?