Money Mic: Why I Would Never Buy a New Car

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People have a lot of opinions about money.

In our “Money Mic” series, we hand over the podium to someone with a strong opinion on a financial topic. These are their views, not ours, but we welcome your responses.

Today, LearnVest Financial Planner Sophia Bera, CFP® tells us why she would never spend money on a new car—even though she lives in Minnesota and drives every day.

Dreaming about an exotic vacation? Tired of that $3,000 credit card balance? Wishing for a home renovation?

Maybe the reason you’re having trouble affording those things is because of your car.

After reading Zac Bissonnette’s new book, “How to Be Richer, Smarter and Better Looking Than Your Parents,” I don’t understand why so many people feel compelled to own cars they can’t afford. In it, he writes that the average monthly payment on a new car is $479, and that doesn’t even count the gas and insurance.

If you ask me, that’s crazy!

Dr. Thomas Stanley, who co-authored “The Millionaire Next Door“ and wrote “Millionaire Women Next Door,” has been studying millionaires for years. In his research, he found that the most popular car make among millionaires is a Toyota. Bet you didn’t guess that one! Bissonnette found similar results–in his book he says, “Most drivers of luxury cars aren’t rich, and most rich people don’t drive luxury cars.”

I Still Drive the Car I Got at Age 16

I drive the only car I’ve ever owned, a 1997 Toyota Corolla I’ve had since I was 16. It was a used car when I got it, and it now has almost 200,000 miles on it. I’m hoping it makes it to 250,000! My husband bought a 1998 hail-damaged Honda Civic with 60,000 miles on it for less than $5,000. That was seven years ago, and he’s still driving it. Yes, he bought a car that was hail-damaged. But it’s been an extremely reliable vehicle. He paid it off in nine months and hasn’t had a car payment since.

People sometimes forget about all the fun things you can do when you don’t have a car payment. My husband and I love to travel, and we choose to drive really cheap cars so that we can save money every month for a yearly vacation.  We’ve been to amazing places all over the world. Last year we went to Thailand for two weeks, and we’ve visited Argentina, Italy, Mexico and Puerto Rico.

The thing is, we wouldn’t be able to travel as much if either of us had a car payment. And money is all about choices.

In our case, traveling feeds our souls, so we choose to do it. If that means we drive unimpressive vehicles, that’s okay with us. (We also max out our Roth IRAs each year, for those who are curious.)

The Average U.S. Household Can’t Afford This!

I can’t imagine spending almost $500 a month on a car. The average American household, which makes about $51,000 per year, can’t afford to spend that much. Many financial experts recommend that you keep your car-related expenses (car payment, gas & insurance) under 20% of your net pay, but if you’re buying a $30,000 car on a $51,000 salary, then you could be spending around 25% of your net pay on car-related expenses.

At LearnVest, we recommend devoting 50% of your budget to essentials, which includes not only your transportation costs but also your housing, utilities and groceries. If you’re spending 25% of your overall budget on car payments, that only leaves you 25% for your home and food.

By the way, if you’re one of those people looking to cut back in other places so you can achieve your financial goals, LearnVest came up with Cut Your Costs Bootcamp, a ten-day email program to help you save more money around the house, on utilities and, yes, even on your transportation costs.

You Could Do Something Way Better With That Money

When I suggest that people sock away $416 a month to max out their Roth IRA, some think that sounds like a ton of money. But many of those same people view a $400-to-$500-a-month car payment as a necessity.

It isn’t.

Saving for retirement should be the priority, not driving a nice car. If instead of outlandish car payments, you maxed out your Roth IRA every year for 40 years and earned 7% interest, you’d retire with over a million dollars!

(Want to get started saving for retirement? Our retirement checklist will help you out.)

The problem is that so many 20-somethings get caught in the car-buying trap, then have a car payment for the rest of their lives. Or they get sucked into leasing a vehicle so they can drive an even nicer car. Don’t be one of those people. Keeping up with the Joneses is ultimately pointless, as even the wealthiest among us feel poor sometimes.

An even better option: Buy your next car with cash.

If you have a monthly car payment, you’re wasting money on financing costs that could otherwise be going into your emergency fund or your retirement accounts each month. According to Forbes, the average new car costs $30,303 in 2012. If you financed 100% of a new 2012 car over six years with a 5% interest rate, your payment would be $488 per month. You will have paid $4,835 in interest over the life of the loan.

So your $30,000 car would end up costing you $35,138. That’s $5,000+ you could have put to good use elsewhere.

If you “must” finance a car, check out something in the $5,000-$15,000 range and try to finance it in half the time (three years). But to my mind, you can get a car for a few thousand dollars, and you may be surprised how long it can last.

How to Get Out of the Trap

What can you do instead? Trade in your car for a less expensive one and cut your car payment in half. If you traded in your $30,000 vehicle for one that cost half as much, you’d already owe $15,000 less. Consider doing that first. Then pay extra on your loan. Once your car is paid off, keep saving the amount you used to spend on your car payment so you can pay cash for your next vehicle.

The next time you’re shopping for a new vehicle, ask yourself: Do you want to drive an impressive car, or do you want to be a millionaire?

I guess you already know what I chose.

Sophia Bera is a Certified Financial Planner® on the LearnVest team. She lives with her husband in Minnesota.

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LearnVest Planning Services is a registered investment adviser and subsidiary of LearnVest, Inc. that provides financial plans for its clients. Information shown is for illustrative purposes only and is not intended as investment, legal or tax planning advice. Please consult a financial adviser, attorney or tax specialist for advice specific to your financial situation. Unless specifically identified as such, the people interviewed in this piece are neither clients, employees nor affiliates of LearnVest Planning Services, and the views expressed are their own. LearnVest Planning Services and any third parties listed in this message are separate and unaffiliated and are not responsible for each other’s products, services or policies.

  • Caroline Baltimoe

    I thought I would never buy a new car. Then when I needed to buy my first car on an extremely tight budget, the used cars that I found were either too big with very bad gas mileage, need a lot of repairs, or were about to need them. Then I saw the Toyota Yaris that had just arrived on the market. The basic model with stick shift (which I prefer anyway) and no electric windows or locks was so affordable that with no down payment, my monthly payment is $262. The mpg is so great (38mpg) that I only go to to the gas station twice a month. And I have a comfortable, reliable car, with working a/c, sterea, mp3 plug in, airbags, etc… I will be done paying for it next month, and when I checked it’s resale value, it’s pratically the same price I paid for it!
    So I would say that my little Yaris is the exception to never buying a new car.

    • ranavain

      Where on earth are you living that you couldn’t find a used Civic that costs less than a new Yaris and didn’t need immediate repair? Craigslist is lousy with used cars that would have cost half as much with the same gas mileage and no need for repair… I’m very confused by your comment!

    • ranavain

      Where on earth are you living that you couldn’t find a used Civic that costs less than a new Yaris and didn’t need immediate repair? Craigslist is lousy with used cars that would have cost half as much with the same gas mileage and no need for repair… I’m very confused by your comment!

    • ranavain

       Though I will concede that the Yaris is a great car, it’s still better to buy a model that’s a couple years old, since cars do most of their depreciation immediately (though Toyotas, Hondas, etc depreciate much less quickly, as you’ve found).

    • ranavain

       Though I will concede that the Yaris is a great car, it’s still better to buy a model that’s a couple years old, since cars do most of their depreciation immediately (though Toyotas, Hondas, etc depreciate much less quickly, as you’ve found).

    • AD

      “Cash for Clunkers” effect.

    • ksgirl73

      I got a Corolla for $267 per month so it doesn’t just apply to the Yaris, it’s about how you budget your money.

  • Andrea

    Can you suggest some good budget car options? 

    • ranavain

       Civics and Accords are always a good deal. They cost a little more upfront, but will drive forever. You can easily find year 2000 models in the $5000 range that will drive another 100,000 miles at least. If $5000 is outside your price range, you can find a 90′s one for even less that, again, will drive forever. Those sorts of cars, like the author’s Corolla, will usually be good well past 200,000 miles, with decent maintenance.

    • ranavain

       Civics and Accords are always a good deal. They cost a little more upfront, but will drive forever. You can easily find year 2000 models in the $5000 range that will drive another 100,000 miles at least. If $5000 is outside your price range, you can find a 90′s one for even less that, again, will drive forever. Those sorts of cars, like the author’s Corolla, will usually be good well past 200,000 miles, with decent maintenance.

  • robin

    New cars can be a good deal if you shop correctly.  Since I have 3 kids, we are restricted to cars that seat 5 comfortably.  My husband also has a 100 mile commute roundtrip.  We have looked at used cars and used cars are still pricey at 50K miles. We have found its better to buy new inexpensive cars or vans.  There is no point to buying a $40K toyota van when we could by a MPV for $20K.   We drive them until they die. One of our favorite cars we bought before we had children was a  mazda 323. It started to give up its ghost at 256Kmiles.  We bought it new for $7400. 
    Shop at the end of the year, the best deals are abundant then. 

  • robin

    New cars can be a good deal if you shop correctly.  Since I have 3 kids, we are restricted to cars that seat 5 comfortably.  My husband also has a 100 mile commute roundtrip.  We have looked at used cars and used cars are still pricey at 50K miles. We have found its better to buy new inexpensive cars or vans.  There is no point to buying a $40K toyota van when we could by a MPV for $20K.   We drive them until they die. One of our favorite cars we bought before we had children was a  mazda 323. It started to give up its ghost at 256Kmiles.  We bought it new for $7400. 
    Shop at the end of the year, the best deals are abundant then. 

  • kathayra

    The article kinda rubbed me the wrong way. I found it very assuming. I recently bought a new car and it ate me up inside for awhile because my family has never bought new cars, always used. The old Chevy was 12 years old and starting to fall apart (repairs were starting to = new car payment). So I started looking for a Hyundai with better gas mileage than I was currently getting and a good warranty. When I went to get a used car the price was maybe $1000 off what a new car would have cost me. Needless to say I went new and got the whole 10yr warranty so I can run this car into the ground like I did the last one. 

    However the down payment was over 1/2 the price of the car, the financing was .9% interest (because the car was new, used would have been more) and it will be paid off in 36 months. This means I have about a $365 car payment, but not because the car was so expensive, or my down payment wasn’t enough, because I am going to pay it off as quickly as possible. I will probably pay at least $400 a month on it. 

    I believe the message in the article wholeheartedly (esp when talking about luxury vehicles), I just think the statistics in this article are misleading and the assumption to not get a new or newer car is not one size fits all. 

    My new gas mileage is saving me at least $25 a week now. I now feel safer knowing my car isn’t going to give out on me on a road trip, and I believe I made a good choice. I would offer that everyone needs to just use their head. Save for a down payment as your car starts to age, get a better finance rate than the above mentioned 5%, don’t buy more car than you can afford. and treat your car as transportation not an accessory.

    I wish the article had been a little more inclusive on how to consider options for when to upgrade your old car, and what to look at in a new or newer car to save money.

  • kathayra

    The article kinda rubbed me the wrong way. I found it very assuming. I recently bought a new car and it ate me up inside for awhile because my family has never bought new cars, always used. The old Chevy was 12 years old and starting to fall apart (repairs were starting to = new car payment). So I started looking for a Hyundai with better gas mileage than I was currently getting and a good warranty. When I went to get a used car the price was maybe $1000 off what a new car would have cost me. Needless to say I went new and got the whole 10yr warranty so I can run this car into the ground like I did the last one. 

    However the down payment was over 1/2 the price of the car, the financing was .9% interest (because the car was new, used would have been more) and it will be paid off in 36 months. This means I have about a $365 car payment, but not because the car was so expensive, or my down payment wasn’t enough, because I am going to pay it off as quickly as possible. I will probably pay at least $400 a month on it. 

    I believe the message in the article wholeheartedly (esp when talking about luxury vehicles), I just think the statistics in this article are misleading and the assumption to not get a new or newer car is not one size fits all. 

    My new gas mileage is saving me at least $25 a week now. I now feel safer knowing my car isn’t going to give out on me on a road trip, and I believe I made a good choice. I would offer that everyone needs to just use their head. Save for a down payment as your car starts to age, get a better finance rate than the above mentioned 5%, don’t buy more car than you can afford. and treat your car as transportation not an accessory.

    I wish the article had been a little more inclusive on how to consider options for when to upgrade your old car, and what to look at in a new or newer car to save money.

  • Shion Atlasia

    I also didn’t think I’d buy a new car, but I bought a brand new Hyundai Accent for just over 17k. I’ve got 40mph and a 10 year warranty. I didn’t have to worry about paying for any surprise repairs for at least five years, and my gas bill was cut by over half. I intend to drive it into the ground like I did with my first car. I’m sure you can buy a car that runs for 5k, but what convinced me was not having to constantly worry about having to replace almost everything on a used car, wind up stranded, or with a huge repair bill you haven’t budgeted for, which happens several times inevitably even on a good used car…As a single young woman that doesn’t live in the best neighborhoods or near the most honest mechanics, it’s something to consider.

    • gmaw1313

      Have you looked at the overall cost of the new car? Insurance? Oil changes? Tires? Your warranty is limited by mileage is this your primary car?

  • Lucy

    I bought a new car for the first time at the end of last year.  However, I was lucky enough to have my future in-laws gift me $5,000 for a down payment.  I got a 2012 Mazda 2 (basic trim package, no frills) and qualified for 0% financing and got free oil changes for the life of the car. My car payment is only $190 per month.  It is possible to buy a new car on a budget if you really stick to what you can afford and don’t feel the need to pay extra for a bunch of fancy extras.

  • Deborah Carr

    I would have agreed with the article 3 years ago – but there has been a weird effect on used car prices due to the long recession. I just helped my daughter buy a new car last week.  We went into the process looking for a reliable used car since she will be moving after she graduates in August.  What we found was that in today’s market, used cars are almost as expensive as new.  We decided on a Hundai Accent new (mpg 38/40) with a 10 year warranty for $16,000.   5 year old used Accents (mpg 32/36) were averaging $13,000 with 5 years left on the warranty.  She expects to drive it at least 10 years, the car she shared with her sister is a 1994 Toyota Camry and mom and dad drive 1998 and 2000 models.  We could have paid cash for the car and had her pay us back once she starts her job.  But, that would not lead her to be building a credit history which is essential. I know there is risk to us if she decides to be irresponsible, but I have to trust she learned our values and I can always take it out of her christmas/birthday gifts for the next 30 years! 

    • http://twitter.com/SenseofCents Michelle

       This is exactly what we’ve been finding this week. New and used aren’t much of a difference, but with new I can get something with 0 miles, not wonder how the person before me drove it, and ask for perks.

  • ranavain

     I’m fascinated by this idea that the recession has dramatically changed car prices. I would have thought it would bring prices down! But there’s a lot of details to this whole thing. Interesting!

    • hard working and going under

      I’m not fascinated by it, I’m horrified.
      Back in 95 I bought a new vehicle. I could afford the payments because my job paid a fair wage. 14 yrs later with wages no longer keeping up with inflation I found myself more and more struggling. 2 years ago my once new vehicle bit the dust. I could only afford a beater with over 150K on it for $1500. It was a fair price. Now that car is on its last legs and I need something. anything. My job depends on it. But now used cars with 150K on them are going for $5,000 and up. WTF am I supposed to do? Its like our Goodwill. I used to get clothes there for cheap. Now I can’t afford to buy at Goodwill because they are almost as expensive as a regular store. Its not fascinating. It sucks.

  • Joanne

    We have used consumer reports used car buying guide for our cars.  We then have gone to car lots that do not specialize in the vehicles they are selling, such as our grand voyager purchased on a lot that specialized in foreign models.  It was a trade-in and the lot wanted to sell it quickly.  We also have purchased at the end of the ideal buying season when the weather was cold, and at the same time at the end of the month.  We have also gone to small lots privately owned and recommended by people we trust.  These lots don’t finance and appreciate cash.  We have run our vehicles into the ground, had few repairs, and then sold our car to lots wanting the vehicles for parts and scrap metal.  We’ve done very well using these methods, and paying cash.

  • http://twitter.com/SenseofCents Michelle

    This post came at an interesting time for me. We are buying a new car this Saturday. We’re going with new just because a new Jeep Wrangler is less expensive than a used Jeep. We are trading in our other Jeep Wrangler and received a 1.99% interest rate (which we are hoping that the dealership will try to beat our bank also with that).

    To me, it’s really not that bad of a deal. Our payments will be around $300 a month and that’s less than 5% of our monthly after-tax income.

    • JenInBoston

      The article made specific mention of “average” US household incomes. Your family is in the fortunate position of earning over 200% of average, so it’s not such a big deal for you because you should have a good deal of money left over even *after* you pay all your monthly expenses.

  • ranavain

    I think there’s one important lesson that people aren’t seeing that is only mentioned in brief in the article… People, pay cash for your car! Any financing deal is a bad deal, because you’re paying for the privilege of paying for a rapidly depreciating asset.

    Even in the case of the daughter needing to build credit, I’d still say get a credit card and pay the balance off each month. With a car payment, you have that large (I’d say even $100 is large) monthly payment regardless of what happens to your finances OR the car. At least with a credit card, if you lose your job or something you just stop using it. But my friend ended up needing a new car, got a pretty decent monthly payment (like $250), then totaled the car (not even her fault) like a month later and had to get another one. But the payment doesn’t go away. She now has TWO car payments, and they cost something like $600 a month. And only one crappy car to show for it.

    Avoid taking on debt that requires you to pay every single month for something you NEED (as many people do need cars to get to work and such).

    • Eyce

      For the record, when it comes to your credit. Credit cards are worth a lot less points than an installment loan (car payment). I am at a point in my life with my credit (fixing it up and thrilled with the results), that to really get the score I want I will have to take on some type of mortgage. Adding credit card debt will have little significance after I reach a certain score. Since I don’t want to be stuck in one place, I believe I will get an investment property. Basically, what I’m trying to say is, you cant generalize and say that car payments are BAD. The moment I paid off my car, my credit score DROPPED! Because I wasn’t showing that I could pay off any debt. Before anyone takes out loan of any kind, I would suggest taking a look at your unique circumstances, credit score, and strategy for the future. It will differ for everyone. If I had no car payment, I’d be stuck like chuck credit score wise.

      • Amber Rose

        You can still get a car loan for a car around $7,000 or $8,000. If you put a down payment of say $3000 your payments would be very small so you could easily pay more and if you have a 3 year loan pay it off in 1yr and your credit will sky rocket. Its not that difficult to figure out. This is what I do. I dont buy clunkers but I dont buy brand new either. I buy cars that will last me, at the VERY least, a good 5 yrs or more. So any money you would be paying on a car payment, put in a savings account for upkeep, tires etc. By the time you need a new one you will have had this car payed off for years and money in the bank for a down payment on another. Actually with the money I save my bf and I both have 2 cars each. I have my “fun” sporty 1992 toyota celica with very low miles that I drive in the summer and only paid $2000. It is in excellent condition and doesnt even have half the miles on it that most people get out of the car in its lifetime as well as a 2008 Honda Civic as a commuter car. He also has his “fun” car and his everyday driver.

    • heather doute

      My husband and I are buying a new car this week – our first. We are trading in and ponying up more than half for a down payment. Our monthly will only be about $200 which is well within our budget. Over the next year we will pay the car off in full.  My 12 (had for 10) year old car is falling apart and I can either trade it in for $3000 or pay $2500 to have everything fixed that needs done. Its a Subaru so we’ve definitely gotten our money out of it. We are currently buying a Kia Soul Exclaim as I know too many people that work for Honda that drive other vehicles – even with their discount.

      Because of the recession and issues within the car industry used cars are selling for a premium and this should be factored into an individuals needs. By the time my warranty runs out on the new car most will have put $3 – 4k into their used cars and often more. There are many factors to be considered when buying used that is not just mileage and gas. Insurance is higher, the engine has more wear, as do the shocks, struts, brakes, axle, bearings and drive train. Things that can be more expensive to repair than buying a new vehicle. $200 a month is easier to come up with than $2000 for a new engine or more. 

      Buying new also gets me a great discount on my auto insurance, enough to offset my monthly payment.

      Your friend should never have two car payments with the right insurance. They would have paid off the first car and given her the value of the new car to buy a replacement. Always buy full coverage insurance, that way if the other person is not or under-insured you’re still covered. 

    • mske

      If a large enough down payment is put on a new car, and the proper amount of insurance is carried on the new vehicle,one would not end up paying for a car that was totaled in an accident.

  • Jane Hopke

    If you’re going to credit the authors of a book, please make sure you credit BOTH authors.  William Danko was the co-author of “The Millionaire Next Door.”  Dr. Danko is a professor emeritus of marketing from the University at Albany.

    • LibbyKane

      Thanks so much for catching that! This piece was written in the author’s own words, but we’ve updated it to reflect that Dr. Stanley isn’t the sole author of “The Millionaire Next Door.”

  • LReplogle

    I think your advice is a bit out of date.  Right now, the market is driving up used car prices so much so that it was cheaper for me to buy a new car and I got a 7 year warranty with 0% interest.  Therefore you cannot say used cars are better as a blanket statement, you need to check the current market conditions before giving advice next time.

  • ranavain

    If you plan to buy a used car, here’s the #1 resource I use: http://www.carsurvey.org. It has user submitted reviews by make, model and year. What’s great about this is that you can compare the number of good, bad and neutral reviews, and get a good idea of what kinds of things go wrong with that particular car (for instance, I learned that the car I was buying needed premium fuel. NEEDED premium fuel, or it would destroy the car. That is useful info that the seller did not tell me, because it turned out they didn’t know and had been destroying the car with non-premium fuel for some time before selling it to me).

    Especially if you’re looking to go very cheap (sub $3000), there are TONS of reviews on older cars there. 

  • Kmacdoula

    We don’t purchase “NEW” either. We learned LONG ago, as soon as you drive off the LOT the car’s value diminishes greatly. We have always tried to buy our cars at LEAST two years old. Currently we own a ’98 and a ’95.Our goal for our next car is to save up, so we are hoping to pay cash for the next one.
    We too have used Consumer Reports as a guide in buying our “Used” cars. It has been an extremely valuable resource!

  • Kmacdoula

    I also read somewhere last week that the “Average person” is keeping there car MUCH longer because of the recession. Somewhere near 8-10 years… I thought that was a significant change!

  • Lorie

    I paid off the car I bought in August 2001 within one year. As soon as I finished, I started saving $150 a month for the next car. In February 2011, I upped my monthly saving to $200. I also put on average $75 – $100 extra in my new car savings per month (when I see what’s left over at the end of the month). By December of this year I will have a little over $30,000 saved for my next car (and that’s with the low interest rates of the last several years). It can be done! You don’t have to have a car payment!

    • http://www.amateurvagrant.com/ Rae

      Hmm. I think you did an amazing job saving all that money, but there’s nothing else besides a car that you would want to spend $30,000 on? You could literally take six months off work and go anywhere in the world; a year if you planned really well. 

    • MsKe

      Congratulations! Use that 30K how you want to, you saved it up, it’s yours to spend on a new car or anything else.

  • LeAnne

     I don’t think an expensive car is a necessity, but I disagree with a lot of the article. 

    Some of us have extremely long commutes, and a comfortable and safe car is very important.  I spend a great portion of my week in my car, so I feel it’s important that I feel happy driving it.  I also don’t want to be stranded alone a long way from home if it breaks down. 

    There are many downsides to buying used, especially if you buy one that appears to be in good condition but ends up being a lemon.  Since lemon laws don’t apply to used cars, you could be screwed.  Maintenance and repairs can begin to add up on older cars, and you’re much more likely to have to drain your emergency fund with an older car.  I’m still driving my car that I bought used 7 years ago, and although it
    isn’t the best, I plan on driving it until it begins to fall apart.  6 months after I bought the car (that had passed inspection), the engine seized.  Thankfully, it was still under warranty, or I would have had to pay for the $8,500 repair completely out of pocket. 

    Also, interest rates on new cars are much lower than on used.  So, if you’re buying an inexpensive new car, you’ll pay much less in interest.   I think it’s admirable to have enough cash to purchase the car, but I don’t think that’s the best idea in all situations.  We bought a new car for my husband and decided to finance, because we were offered 0% interest.  By investing the money rather than putting it down, we get to compound returns over 5 years. 

    Lastly, because of the Cash for Clunkers initiative, the price for used cars skyrocketed.  Used car prices are up from 10% to 33% over what they used to be.  Why would someone spend so much for a used car with higher interest rates and much higher risk when you could just buy a cheap new car?

    • lyzl

      I disagree. You are overestimating the risks of buying used. Plus, paying full price for a new car just doesn’t make economic sense since the car losing a lot of it’s value the moment you drive it off the lot. Buying a car that was used as a lease vehicle often means you get a car that is still relatively new, but won’t depreciate so much in value since it’s used. And I think the financing issue doesn’t hold water here, since financing should be a moot point. The smarting thing to do is to save money and buy cash for your car.  We both have long commutes and were a one car family for 3 years before we bought a second car. So it can be done.

      • robin

        >We both have long commutes and were a one car family for 3 years before we bought a second car. So it can be done<

        Not if you drive in different directions within the same time frame.  And/or if you have children that must be picked up at daycare by 5 or 6pm.

        • lyzl

          I think it’s a matter of priorities and what you want to save for. Saving for a car, for us is worth it. Because again, it makes no sense to go into debt for a depreciating asset.

          Also, carpooling. Public transportation. I live in Iowa, we made it work.

      • LeAnne

        Financing isn’t a moot point.  Even if you have the cash, if you can finance for 0%, it makes sense to invest the money and get the loan unless you’re irresponsible with payments or your credit can’t handle it.

        It is possible to buy a good used car, but you are not protected if your car ends up being horrible.  Buying used is always a gamble unless the car is still under warranty. 

        • lyzl

          “Investing” in a depreciating asset, is not investing.

          • MsKe

            Investing the cash that would be used for 1 lump sum payment, versus financing at 0% over 5 years, and investing the lump sum in CDs, bonds or other instruments is actually investing in the literal sense of the word.

        • Sheila

          Also the repeated on time payments will help boost your credit score.

  • http://profiles.google.com/kabachman Katie Bachman

    please delete this comment i don’t want it posted with my full name and email!

  • fauwl

    Immediately after graduating college, I bought a brand new Altima.  Shortly after, my sister bought a used Altima for about half of what I paid for mine.  Initially, I was kicking myself for “wasting” so much money.  A few short months later though, my sister’s car needed serious repairs that totalled over $4,000.  Sure my monthly payments may be higher, but it is definitely worth it to avoid getting an unexpected bill for $4K!  I think the decision to buy new vs. used depends on a lot of variables and as a young professional, the security and peace of mind of a new car has meant a lot to me.

    • Wmh024

      I was in the same boat with a 2004 Ford Explorer, I had no choice but to buy new.  It wasn’t worth the amount of repairs it needed.

    • http://kimberrleigh.com/ Kimberrleigh

      I agree! I just bought my car brand new, and I’m relocating (driving to my future home!) for my new job. It didn’t make sense for me to buy something used that could be unreliable. I’d rather have piece of mind for a few years that, knock on wood, I won’t have repairs!

    • Glitterspark37

      Does anyone here realize that you can buy a slightly used car with not a lot of miles on it that STILL has a warranty covering it? I keep seeing all of these comments about not wanting to pay for possible repairs on used vehicles…but if you actually do your homework, you would know that there are a lot of used vehicles that come with their remaining warranties!

      My SO just bought a car 3 weeks ago; bought it one year old with I think 30,000 miles on it, and it still has the remaining warranty up to 100,000 miles! And by buying that used car, he saved over $6,000 if not more! How can you possibly lose in that scenario? I just don’t see how buying new, with the immediate depreciation off the lot, is ever better than buying used. The cost for used cars may have gone up, but they are NOT as much as new cars and you can get just as many perks. At least, we do, because I’m pretty tough on the negotiations and do a crap ton of homework before I even get to the lot :)

      • Sheila

        The one I bought had a certified warranty from the manufacturer, but that didn’t help me any.  It still had more problems than it was worth.  Not to mention that sales are down on new cars now meaning that you can actually get a really good deal on a new one that will last you much longer.

        • Glitterspark37

          Well I’m sorry that happened to you. I guess that just has never been my experience. The car we bought is on the top of the list from Consumer Reports (Hyundai Sonata) and they have the best warranties in the industry. We saved a ton of money (over $6k on what is normally, what, a $24,000 car – not the base model – so we saved 25%?) by buying one year used and will still have 70,000 miles left on the warranty (same warranty as if bought new). And that was just 3 weeks ago – so this theory about costs leveling out between new and used cars wasn’t our experience, after we did research to know what car to get (reliability + reasonable cost) and where to get it (cars.com helped us find the dealerships with the best deals on that car). We are in Chicago burbs, btw. 

  • lyzl

    I agree! It never makes sense to pay full price for a depreciating asset. If you want the car that badly, wait a year until the next model is out and get the previous model used.

  • http://www.amateurvagrant.com/ Rae

    Sophie, you’re so smart! I bought a used car and my payments are less, and I did a little bit of homework and bought a certified pre-owed 2007 Ford Focus because it had good ratings. Knock on wood, I’ve never had a problem with it, but as soon as my credit card is paid off, I can easily start doubling up on payments, and I’m gonna keep it as long as it runs (but props to you and your husband for being even more thrifty!). Anyway, buying a less expensive, smaller car has meant lower cheaper insurance and less money for gas, too (on top of lower payments). I can’t wait to go to Taiwan with all the money I’m saving, and this bad boy will be paid off in like 18 months, which is still 18 months earlier than the life of my loan. :D

  • Meshreck00

    I have not had a car payment since 1973. The money saved just on interest  and insurance has allowed me to pay cash for my cars over the years. And I always buy used. Not having a car payment works wonders for your finances. I may not have the nicest car on the block but it always gets me where I need to go and back home again. Isn’t that what a car is for anyway?

  • Eglos1986

    My fiance and I were in two seperate accidents that totaled our 2 good beater cars. They worked great even though mine was an 87 ford escort and his was a 90 something monte carlo. We werent given much to replace them so we got two more beaters that were terrible. At the same time they started to have major problems. We didn’t have any moeny saved, so we had to buy a used a vehicle. We now have one car, which is only a bit difficult, and we pay 250 a month for it. We have had no problems with it, which is wonderful because we were constantly repairing the ones before it. Yeah it is tight one our budget, but we didnt have much of a choice. The money we save on gas and no repairs with the new one makes the payment less of a dent in our budget.

  • Vanessagomezc

    LOVED the article! 100% true! Thanks to the fact that I do not have a car payment I was able to quit my job and becomes self-employed!

  • Emilyray10

    I remember that car, Sophia! Thanks for the tips!! I love this website.

  • Stargazyrr

    I agree… but only to a point.  It is financially irresponsible to take on any kind of debt that you can’t afford, like a car payment. No argument there.
    I bought a new car in 2004 and made payments on it for 5 years.  I plan on driving that sucker into the ground.  It wasn’t a luxury car by any means, but by buying it new, I knew that it came with no hidden mechanical problems, no big repairs in the foreseeable future, and I knew that as long as I was the one maintaining it, the maintenance would be timely and appropriate.  I grew up with my mom having various used cars that she bought from dishonest people and then she’d take her vehicle to an even more dishonest mechanic when they broke down.  We were constantly in a state of worry that the car wouldn’t start or get us to our destination on any given day.  We didn’t have an honest mechanic or even a family member/friend that was able to repair them for us. 
    While buying a new vehicle isn’t the cheapest way to go, for me it was worth it for the peace of mind.  And I intend to keep this car running as long as possible to get my money’s worth.

  • Gsimms22

    If ytu’re buying a dependable car, i.e., one of the top rated cars by Consumer Reports, a used car is the way to go.

    A friend recently bought a year old Nissan Maxima with 24,000 miles for 30% off it’s list price.

    My problem is finding a used car with reasonable miles at a reasonable cost.

    I was finding 2 year old cars with 40,000 miles with $2000 OFF the price I could buy a new one for.

    My last two vehicles have been new. I get what I want and drive them for 10 years,.

    • robin

      I totally agree.  Used cars are just not a good deal, especially vans are rediculous. 

    • Mrs Ashley

      I agree I looked around for about 6 months and didn’t see the value of buying a newer used car. Used works well if you’re cool with driving and older car (beside my new car our other vehicle is a 14 yr old Crystler we got for $1800 and it does the job).

    • Missclairethebear

      I ended up buying a new car recently for the same reason. I never thought I would buy a new car, but when many used cars were actually MORE expensive instead of less expensive (once I added in 2-year financing) it just didn’t make sense. Also the new car I got gets 10 miles per gallon better gas mileage than the older models of the same car, so I will make up the $2000 difference in gas savings in about 4 years (according to the EPA gas savings calculator).

  • Kimberrleigh

    I just bought a brand new car. But before you rip my face off, let me explain. The car I was driving was my parents 2000 Pontiac Grand Am. Reliable, until the end when everything went wrong in less than a month. I just graduated college with both my Bachelors and Masters degrees (in 4.5 years and at 22 years old) AND a full-time job with complete benefits.

    This job requires me to relocate over 700 miles from home (I’ll be driving when I move). I needed a car. I need a reliable car. I’ve had my heart set on the car I bought for over a year. I saved up and put $4000 down on it.
    I can afford a $400+ car payment. Yes, I love to travel. But I love my car too. I wanted to spend $24,000 on a car. Just how someone can spend $6,000+ on a vacation. I wasn’t irresponsible in my purchase and I plan to be driving that car for at least 10 years. I have a job (which I’m grateful in this economy!) so I can afford the payments without ruining my lifestyle.

    I think this article (I know it was personal opinion) was a little too biased. There are huge advantages to buying a new car. Even used cars can be expensive, not just sticker price but mechanically.

  • Shelby B Perdue

    I just bought my first car and paid cash for it. I drove it off the lot paid for with 6 miles on it! My husband and I saved every penny for two years, sold my car when we moved across the county, and shared a car for 11 months. I trembled when I wrote the check. I’m sure Fiona (my car’s name, as she is a member of the family) will be around for many year. Oh and I just turned 28 last month…

  • Kgal1298

    To be fair I love what your saying, but in my case it didn’t work. I needed to get a car in LA because I had lived here for two years using public transit, which killed me when I was going to interviews (I mean it’s LA and buses and trains would take 4 hours to get to Santa Monica). Anyway my issue was my credit was bad, but I got lucky because I had a friend willing to give me his old 96 toyota. Well he got it out here by some miracle of god and I was like no if I’m going to have a car I don’t want a junker with rust all over it and in need of a ton of new parts. So I sold it to a friend and my friend who brought the car out was nice enough to co-sign, but because of my bad credit and my inability to put a lot down it was biting tooth nail. I ended up with a 350 payment without insurance. My insurance is around a $100 thankgod, but still it sucks. I hate paying it. It’s a 2010 model used in good shape and will last me a long time. I just wish I knew how to get my payments down and get it paid off sooner because on top of the payment and insurance you have LA gas prices. I think my goal in this case is to keep the car in good shape and eventually pay it off, but still it sucks because when buying a car you need to take your credit into account and 20 somethings especially sometimes don’t have the credit to get a good deal. I guess for me it worked out, but I did learn a lot in the process and I will most definitely never lease a car. 

  • princess

    I love my new car. No offense to this writer but some people would rather drive a new BMW (me, and I’m 23) than something I had when I was 16. If you can afford it, and you like it.. then what’s the problem? I guess I just felt like this article was putting people down for liking nicer things :/ …again, if you can afford it and it’s what you want then work towards it and get it!

    • Ellie

      Congrats on working hard to earn what you want!  I think this article is to help those who aren’t in as great of a spot as you to feel OK about not being able to have what folks like you have.  
      Thanks for being an example of what can be done by such a young age!

    • Gsimms22

      Being able to afford it is the key.

      For you, does this mean you can make the monthly payment or have you neglected life insurance, disabiltity insurance, medical insurance, and retirement funding?

    • Pikeman

      Princess,

      Are you totally funding a retirement account such as an IRA or 401(k)?  Do you have an emergency fund of at least 6 months of expenses?  Are you debt free (at least of high interest debt)?  Do you plan to have children (and send them to college)?  Determining whether you can afford the car payment involves looking at/saving for your future goals as well as your present.

      One more thing…Due to the power of compound interest, if instead of making a $600/month car payment, you were putting that money into a tax-deferred retirement account, after a few years (maybe 10) you could then stop funding your retirement and buy all the toys you wanted.  The trick with saving is to start as soon as possible.

      • drv

        She’s 23 and not thinking about retirement, because she’s never going to get old:) I don’t think it’s reasonable to tell a young person to not live now so they could live later. And given that many people saw half of their retirement savings tank a few years ago, it seems that there needs to be more of a balance. There is a value to living life now. I know of two women that died of cancer at 31. Your advice seems over-cautious.

  • Ellie

    I own a 95 Mustang that I purchased in 99 (45k miles).  It now has roughly 185k miles on it and still going strong.  I’ve most (about 95% of ) the repair/maintenance receipts on the car since I’ve owned it.  In 2011 I put them into a spread sheet and realized since I purchased the car I only put in $8200 into the car.  That includes a new transmission from 7 years ago.  That’s about $684/year.  I do buy parts to put on the car that have a lifetime warranty and I’ve (i.e. my brother) replaced some parts 2-3 times for free.  Not everyone has a family member who can replace some minor parts, so if you figure the labor I saved, it average just over $1k/year in regular maintenance/repair.  I stay on top of my repairs and get some parts fixed as part of a PM plan.  My professional mechanic laughs at me and tells me “No one does that!”, but I do and I am planning on driving it until 2015.  

    In the mean time, I put away 5-10% of my take home pay for my future car.  I just started this fund this year, so by 2015 I will have a hefty down payment on a super awesome car or totally enough to buy a reliable car. Who knows what I will want to do in 3 years, but I’ll have some cash to not worry. 

  • gg

    I had a 99 Jeep Grand Cherokee and drove until the wheels almost fell off but I wouldn’t take it on long journeys predicting that it would blow up on the side of the road and I’d be left with a very expensive repair and towing bill.
    Last year I bought a 2011 BMW; I had saved $15k towards it and chose one which had been a demo car from the dealership so it was $10k off the list price and got a loan at 2% interest on the remainder.
    It has a 100,000 mile 10 year warranty for major repairs and five year warranty for smaller repairs.
    I would drive it anywhere knowing that it is safe and reliable and it will look and feel fantastic for at least the next 9 years.

    • gg

       Oh, and I pay extra towards the loan so it will be paid off in less than 3 years. I could have bought an older car with more miles and for less money but since I have no other debt, I invest/save more than have my salary every month and I will drive it for ~10 years I consider it to be a good buy.

      • Ellie

        Sounds like a great compromise since you’ve already been saving and have a good plan on paying it off w/o inuring much interest. 

  • Betsy

    When I ended up spending hundreds (sometimes 500-1000) every month/few month in repairs, it became ridiculous for me to own an old junker. I have NO ONE in my life who knows how to do car repairs, so I can’t afford to drive an older car that needs regular repair. The warranty just ran out on my used car so now I’m nervous again, but luckily this one hasn’t need any major repairs…yet.

    • pamorama

      I agree. I think the author has a good point, but with the interest rates on new cars so much lower than used, warranties making owning most cars virtually free for 3+ years, and with car repairs being so expensive, as well as breakdowns being a dangerous possibility, I disagree that buying used, or continuing to drive a used car (that will undoubtedly need expensive repairs at some point) is always the best bet. Buying a car one can afford, at the best time of year to do so, buying inventory (as opposed to “ordering” what you want), and driving a hard bargain are really the most financially sound options, IMO.

  • Gsimms22

    As I recall the four top cars for durabiltiy according to Consumer Reports were:

    Nissan Altima
    Toyota Camry
    Honda Accord
    Ford Fusion

    I suggest you look at these dependable cars for starters.

    • Glitterspark37

      Actually, not the Camry anymore. Hyundai Sonata tops that list now.

  • Amber

    My car was new when I bought it.  I got a great interest rate (less than 2%) and paid it off in 2 years.  Best thing I ever did.  I had two used cars before that and they were constantly in the shop.  Apparently I had bought someone else’s problem.  I was so happy to buy a car that I knew no one else had mistreated first.  My Mazda now has 110,000 miles on it; she gets great gas mileage, never needs work, and next year I can get a permanent license on her!  She is 9 years old and all mine. 

  • Mrs Ashley

    I just bought a new Prius at a 1.99% interest rate from my credit union. I have been driving clunckers for years and think that buying new was prudent for my situation especially considering the great rate. I have an old gas guzzling Crystler that runs great and I bought for $1,800 three years ago, and the other car is a pickup my husband has had since he was 17. Since I commute 50 miles per day in Los Angeles ,and the truck was coming up on needing major work, we needed to get something else. The peace of mind that comes with buying new when you have a commute is a huge value. Plus I know I’ll recoupe the premium on the car as I plan on driving it for like twenty years.

  • binx

    I drove the same car I had received as a present when I turned 16 all the way up to my college graduation (in May).  The old car was dangerous.  With graduating from college, I felt that I was starting a new chapter in life.  I made the decision to buy a brand spankin new car and do not regret it one bit.  While this is your personal opinion that buying a new car is financially irresponsible, for me it was not.  I can afford it and it means something special to me knowing I drove around a clunker for so many years and was able to make such a large purchase decision on my own terms.  So basically I guess the purpose of this comment is to say that it just depends on how much emphasis you put on something like this.  For you and your husband you all like to travel so driving a newer vehicle doesn’t outweigh the benefits of taking vacations and traveling.  For me, it was about the fact that I now drive a safe, dependable car that is nice.  It is also symbolic of the new chapter of my life I have started since graduating college (new “big girl” job, etc).  Just my 2 cents on the subject because I know I am not financially irresponsible, it was one of the best decisions I’ve made! :)

  • Guest

    I live in a very urban area (and by that I mean ONLY on-street parking and on very old/small streets) so I have never wanted a new car.  In fact, every car I’ve ever owned was bought at 7yo.  Problem is, it’s getting harder to find good used cars.  My father just gave us his 2001 Toyota Corolla (which had only 23K miles on it!), which our 20yo uses.  We have a 2001 Buick Century, which I <3.  But I am concerned since it's now 11yo; despite having replaced the transmission once, I keep expecting something else major to go wrong.  Every few years I try to do some research about good used models, just in case, but I'm finding it difficult finding cars under 10K that aren't real small tsk.  The short list on here is all very small vehicles…

  • BethSh

    My most recent new car now has 91.000 miles on it, and has been paid off for two years.  When repairs outweigh payments, we buy a new car, always as inexpensively as possible, then drive them for 7 to 10 years.  In the western US, where public transportation tends to be a joke, and where I usually drive far enough for work that I put 25.000 miles on per year, someone else’s problem is not a headache I need.  I love small, inexpensive, non-gas guzzling cars and when my current car bites the dust, I look forward to my new hybred.  Hopefully that is still a few years down the road, but it is well worth the 300-350 a month in payments I normally make.  

  • Michelle

    I disagree because every situation differs. I have a child in a wheelchair and can’t afford to ever have the car break down because I rely in it
    On the flip side I also have great credit and got my car at 1% interest
    I will always but new as long as its little to no interest and the payment fits into my budget. If I were alone I would but used but for my situation used cars are not reliable enough for my son

  • Mandyleigh129

    I had the car my parents bought for me for $4500 when I was 16 up until last year and the last two years were constant headaches, calling AAA from the side of the road and $500-1000 repairs, which drained my savings account to almost nothing. I decided to lease and was lucky that my junker was worth $500 in a trade-in, plus I was within three years of graduation so Nissan leased to me at a great rate, plus another $500 bonus cash special they were having and $500 for the recent grad program. I only pay a little over $200 for my Sentra, get EXCELLENT gas mileage (only fill up…MAYBE twice a month, though I use public transportation too) and get free maintenance for the first two years plus the three year warranty on it. I can afford it and I know some say leasing is throwing money down the drain since I don’t “own” the car and can’t put a ton of miles on it, but I’ll own someday and I don’t need tons of miles….for now, leasing is working out for me and is affordable for me right now. Plus in MA I can pay the sales tax broken up monthly instead of one lump sum, which is what I would have had to do if I had purchased. I never again want to deal with the stress of a crap old junker.

  • http://profile.yahoo.com/YKKVRLOX3JPLQ7E4WXTR7PJ2LA Melissa

    I feel like the purpose of the article is not to criticize people who buy new cars, but to bring to people’s attention that they may be unnecessarily spending money on areas that may not be their top priority.  I think it’s great to remind people that some of their expenses aren’t necessary, and that you can readjust your budget to fit your wants and goals.

  • Grrrlx

    Costco has a great used-car service! I will get my next car from them when my current one dies! (my current one is a VW Jetta V6 that is 10.5 years old and has 104K on it) 

  • Vernielaube

    I’m driving a 15 year old Camry air 130 K miles. I have kept up the maintenance religiously, and it purrs like a kitten. I recently had the minor dents taken out and repainted (about $500) so is respectable looking! Thought about a new car, but can’t budget the extra expense. I bought a motor scooter to use in town that gets 60 mpg. Am a happy camper

    • Msvdpal

      I drive a 3 year old SUV that I bought new.  It has over 67K on it.   I drive this vehicle literaly everywhere.  I live 20 miles, one way, from my job. How can you have a 15 year old car with only 130K miles on it?  You must not drive it much.

      • http://twitter.com/SenseofCents Michelle

         I drive a lot too for work and school. My 4 year old car that I bought brand new (and is paid off) already has 80K miles!

  • Peter678

    Great that you got a car as a gift! Never happened to me! I have bought new car-the interest rate was 0%! Used car market is very tight right now- that “cash for clunkers” program actually helped to dry up the number of good used cars available. Dealers HAD to pour a disabling goo into the engines so that these cars could not be re-sold, even tho many of them would have been perfectly useable. And if you do have to finance, the rates are much higher on used cars right now. You need to balance things out-if old car is eating up too much in repairs or unsafe, you’ll new (different) wheels. Just make choice that fits your situation.

  • Sparks

    My husband bought his car this year – it was just off a one-year lease and he got it for a steal! It is a really nice car but he needs a really nice car since he drives a lot and has a one-hour commute each way to and from work. I insist he have something comfortable and reliable. Not necessarily new.