I’ve never bought a used vehicle before! But this woman outlines a really good argument for why I should, and how it will save me tons of car payments. Her track record of spending just $85/month on her vehicles over the last 16 years is amazing! cheap cars | family vehicle | used cars | buying your first car| buying tips | car things | #cars #savemoney #vehicle #collegelife #cheap #family | https://www.frugalconfessions.com/cars/new-car-vs-used-car-why-we-will-buy-used.php

Wondering should you buy new or used cars? I’d like to show you our own history with buying used versus when we bought new to help you decide.

Should you buy new or used cars?

For us, I can easily and decisively say that all of the new cars we purchase in the future will be used.

This post may contain affiliate links - it's how we keep the lights on around here. Here's our policy.

In fact, all of the cars I’ve ever purchased in my entire life have been beater cars – only recently did we purchase a moderately-priced used car with 66,000 miles on it (the least amount of miles I’ve ever seen!).

But perhaps you’re used to having a monthly car payment. Or perhaps you’re very concerned about your car’s reliability, and certain that a used car will break down on you.

Let’s discuss a few reasons why you want to buy used instead of new, with a few digits + personal experience to back it up.

Vehicle Purchase as a Percentage of Income

My father has always told me that a car is meant to get you from Point A to Point B. That is sound advice. The purpose of a car is not to be an extension of our homes (although we are spending much longer commuting than we used to), to show off to coworkers and friends, or to produce concert-quality music through the speakers; the purpose of a car is to safely deliver you to your destination.

Just to strengthen my resolve in not wishing to purchase a new vehicle, I have researched new car prices and its percentage of household income in the United States, versus used car prices as a percentage of household income.

Below I’ve listed the top 5 selling cars for 2017 as well as their MSRP price. The list is a little vague in specific car (for example, what bells and whistles were included?), so I chose the lowest priced car in each category I could find.

  1. Nissan Altima ($22,500)
  2. Honda Accord ($22,455)
  3. Toyota Corolla Sedan ($18,500)
  4. Toyota Camry ($23,070)
  5. Honda Civic ($18,740)

The median household income in the United States in 2017 was $60,336. That means that the least expensive car listed above (Number 3 at $18,500) is 30.6% of a household’s annual income, pre-taxes.

Over 30%! In case you weren’t aware, this is the MAXIMUM amount of your income you should be spending on your housing, not on a vehicle.

The most expensive car in the list (Number 4 at $23,070) is 38.2% of a household’s annual income, pre-taxes. Since most people do not purchase their cars in cash, let’s take a look at the percentage of household income on a monthly basis – because that really means something to us, right? Using the median income minus 15% for federal taxes, monthly take home pay comes to approximately $4,273.80 (this will vary by household and state). An estimated monthly payment on the cheapest car above at 4% interest for 36 months is $546. This is approximately 12.8% of the median monthly budget. The most expensive car on the list at the same loan terms would be at $681, or approximately 15.9% of the median monthly budget.

And guess what? This cost doesn’t include the gas you need to put into the car, the insurance you pay each month (and this will be higher than a used car), or any other maintenance.

Now, what if you spent just $7,000 on a used vehicle, with 66,000 miles on it (this is what we paid for our 2009 Ford Focus last year)? Now you’re looking at jus 11.6% of your household income (and if you paid it off monthly, instead of in case, you’re looking at a monthly car payment of just $207, or just 4.8% of your monthly cash flow.

That’s close to Financial Samurai’s 1/10th rule (limit your vehicle purchase price to just 10% of your annual gross income for radical wealth growth).

That leaves a lot more room to save for retirement and other pursuits!

Disadvantages of Buying a New Car

Most people understand the advantages of buying a new car – that you’ll look great driving it around, everything works, you likely have many, many miles to go before you need to do serious services to it, and you have greater reliability.

So, let’s instead focus on the disadvantages of buying a new car.

Disadvantage #1: You Take the Car Depreciation Hit

With a used car, the first owner takes the most of the car depreciation hit. But if you are the first owner…well then, you’ll have to just take this one on the chin. Most cars depreciate in value the moment you start driving them on the highway by an astounding 10%, followed by another 10% in the first year alone. CarFax reports that you typically lose another 15-25% in value each year, over the next four years.

Hint: It’s a great idea to be on the buying end after all that depreciation has come off!

Disadvantage #2: You’ll Likely Take on a Loan

If you can pay for your new car in cash, then my hats off to you! That is great. But most people will need a car loan to cover the cost, which means they’ll not only have to pay interest on top of the cost, but they’ll have to insure the care with full coverage (which costs more).

Not to say that you shouldn’t use comprehensive insurance; but it’s nice to have the choice if you want to instead of it being stipulated because you don’t technically own the car (the bank does).

Disadvantage #3: Higher Insurance Costs

Speaking of more insurance costs, your plan will cost more anyway because there’s a direct relationship between the value of your car and the insurance premium you’ll pay.

Advantages of Buying a Used Car

Now, let’s look at some of the advantages of buying a used car.

Advantage #1: Lower Insurance Costs

It follows that if the value of your car is lower, the cost of your insurance premiums is lower. In fact, you might just choose to self-insure – keeping enough in an emergency fund or car maintenance account in the event of an accident – and just carry liability only insurance to cover you in the event that you injure another person or another car.

Advantage #2: You Don’t Need to Worry about Small Blemishes

With a new car, you’re starting from the best. So, every little scratch or dent is going to be like a punch to your gut. But with an older car? Well, they already have a little “character”. If something else happens that is minor? You probably won’t sweat it.

Advantage #3: Lower or No Interest Payments

With used cars, you can either afford to pay for them in cash, or your loan is lower anyway so you’ll be paying less in interest overall.

Is it Worth Buying a New Car? Our Own Experience.

Now I want to share with you our own experience with buying a new car versus a used card.

You see, my husband bought himself a brand-new Ford Mustang in 2007 as his gift to himself for getting out of the Navy.

We paid off the rest of his $22,000 loan in 2010.

The car lasted for 10 years (it would have lasted us longer, but it flooded in a flash flood here in Houston, just three weeks after our other car flooded in Hurricane Harvey).

Here’s some states for you:

  • Insurance Cost More: His car cost us more to insure (because it would have cost an insurance company more to replace). Also, since it was not a beater car, we kept Comprehensive Insurance on it.
  • We Paid Interest: I’m not sure how much interest was paid on this car overall. We paid the loan off just 3 years after he got it. His interest rate was at 4.5%, so an estimated amount of interest paid using an online calculator shows $1,559.56 (hint: two of the beater cars I’ve purchased in the past cost less than this).
  • We Received an Insurance Claim Payout: Due to the flooding, and due to us having comprehensive insurance coverage, we received around $5,800 check from the insurance company.
  • It was a Gas Guzzler: Unfortunately, I have no specific stats to share with you. But I promise you he had to fill the tank up WAY more than I wanted him to!

Given all this information, I can estimate that to run this vehicle, it cost a total of $1,775.95/year (and that doesn’t take into account the extra gas or the extra insurance costs to us compared with a beater car).

Granted, if we could have held onto the Mustang for several more years – which had been our plan – then we probably would’ve gotten that number down some.

So, if you purchase a new car and hold onto it for 15-20 years? Well, now you’re talking. Of course, at that point, you’ll be driving a beater car, anyway!

When you compare this with the beater cars we’ve purchased from between $1,500 – $3,500 that have taken me through the last 16 years…you start to get the picture. Even with extra repairs on the beater cars, I know we’ve come out ahead money-wise with them versus the new car we hung onto for 10 years.

Car Cost How Long it Lasted
One of those late 1980s burgundy vans Free (family car passed down to me) 3 Weeks (oil leaked out and something melted)
Buick $1200 3 years (head gasket blew)
Chevy Cavalier $1500 6 years (transmission)
Nissan Frontier $3500 1.5 years (needs new engine)
Chevy Cavalier $3200 6 years
Mitsubishi Lancer $3500 5 months (flooded, and our insurance claim payment was almost as much as we paid for the car)

Let’s say we add $3,500 worth of repairs to the amount of cash that I paid for the vehicles above. This comes to a grand total of $16,400, which is approximately $85.42 per month (over the last 16 years).

Yeah!

Since my income has swung wildly from mucking horse stalls to minimum wage to entry-level worker to environmental investigator to full-time blogger in the last 18 years of my life, I do not know what percentage it was of my income; obviously, it's a very small percentage for any person's income.

While owning a used vehicle comes with its own perils—possible breakdowns, not knowing the vehicle’s history, typically no warranty (unless purchasing through certain places), not having that new car smell—it is usually a much cheaper route to get you from Point A to Point B. Because of this, if and when we decide to get our second vehicle, it will be another used car.

Do you purchase new or used vehicles? What has made you decide one way or the other?

36 replies
  1. Shawanda
    Shawanda says:

    You’ve had a really good track record with inexpensive, old cars. You should write a blog post about how you determine which used vehicle to buy.

    I bought my car new in March 2007. At the time, I was okay with going into debt to buy a car, but I paid it off by the end of 2008. Since I had my heart set on a Honda Civic, the difference in interest rates charged on used cars as compared to new ones was big enough for me to conclude it made more sense to buy new.

    If I had it to do all over again, I’d probably go used. I’m going to drive my current vehicle as long as possible. Hopefully, I’ll get at least 20 years out of it. 🙂

    • Amanda L Grossman
      Amanda L Grossman says:

      Hello! That is great that you purchased a new vehicle and paid it off in a year and a half. I hope it lasts for 20 years–then it will be worth it! Thank you for sharing your experience.

  2. No Debt MBA
    No Debt MBA says:

    Used. My current car is a Japanese fuel sipper bought for $5k five years ago and still going strong. When gas prices were high it had actually appreciated significantly in value!

  3. Michelle
    Michelle says:

    Our current truck was bought NEW nine years ago. We went thru several used vehicles in the four years leading up to the new purchase (trade ins/deer/mechanical issues/need for two vehicles due to work situations). My husband has a company provided work truck so we didn’t need three vehicles for a two person household so we traded the two used ones in on the new truck.

    He gets a really great discount thru his company for buying new. Since we’re a one personal vehicle household, it just makes sense for us to buy new and drive it for years.

  4. krantcents
    krantcents says:

    I always bought new cars and drove them forever. My current cars (2 Hondas)are 16 and 14 years old. They could last forever, but I think I will replace them during the next year.

  5. Squirrelers
    Squirrelers says:

    What a great track record! Not sure if you’ve mentioned it before, but I thought you had some great luck with cars for very little money. This brings that to light, $6200 for 11 years! Well done!

    I have to say, I did chuckle when I saw the first car as being “free”, and then seeing that it fell apart after 3 weeks. Reminds me of my Dad’s old saying, “there’s no such thing as a free lunch” 🙂

    My last vehicle I bought used. I paid cash, and haven’t looked back. For me, it was really the aversion of taking out a loan that convinced me. I have done that before, and I despised the 3 years I paid on a prior vehicle.

    Of course right about now, some used cars can be quite pricey. Not the same value as 5 or 6 years ago, it seems. If there was a time for me to switch to buying a new car vs used, it would be now. Either way, I’d try to avoid loans.

    • Amanda L Grossman
      Amanda L Grossman says:

      Hahahaha! Yeah–my parents were really angry with me because I should have known that the oil leaks and that I need to check it out. The problem is that it takes two people to do so on that van (you couldn’t open the hood by yourself because of the way it was–someone had to be holding in the button), and I kept asking my brother and Dad to help and they never got around to it. Then BAM! Stuck on the side of the road.

    • Amanda L Grossman
      Amanda L Grossman says:

      The good news is we have money to pay cash for a car (after we got out of non-mortgage debt last year we made a vow to pay cash for everything or to pay on the credit card for reward points and then pay it all off before the grace period ends). So we’re fine there–just don’t want to spend the money!

  6. Jon - Free Money Wisdom
    Jon - Free Money Wisdom says:

    I am impressed! Good job. I totally agree with you and your father. A car is to get you from point A to point B. However, I am not at all opposed to buying a nicer car that will last you years. I would NEVER buy a new car …. heck, they depreciate right after you drive it off the lot. Great post!

  7. Olivia
    Olivia says:

    We’ve always bought used and will probably continue to do so. Our current car is 10 years old (purchased 4 years ago). Still no major problems. We hope to keep it for some time yet. We save and pay cash. That gives all kinds of negotiating power.

    We calculate value by figuring purchase price plus major repairs divided by years owned. So far it’s been pretty good.

  8. Christopher
    Christopher says:

    I think it gets overlooked in many cases that cars break down. To not plan for this eventuality is just plain dumb. Whether your car is 1 year old or 20 years old, eventually SOMETHING will go out, or wear out. What’s interesting is that on the newer vehicles, with so many components being controlled electronically there are more ways for a car to break down and frankly they’re more expensive. The older cars had more mechanical-only controlled systems which meant if your A/C went out, it was just the A/C, not maybe 1 of 12 components or sensors. I’m not saying the older cars were better but you need to plan on having some money set aside for one major repair when you but a car (eg. the transmission).

    • Amanda L Grossman
      Amanda L Grossman says:

      Hello Christopher!

      Yup–we learned our lesson from last time and we have enough mnoney set aside above our emergency fund to cover the repairs or to get another car. Just don’t want to spend the money…guess we’ll see what we decide.

  9. Little House
    Little House says:

    I’ve purchased both new and used. Our current car was purchased new 6 years ago and we intend to drive it into the ground. Thankfully, it’s a Honda and my husband takes really good care of it so it should last a good 6-10 years more.

    I’m all for purchasing used cars as long as they aren’t constantly breaking down. An excellent resource for choosing a good, used car is Consumer Reports. They publish a used car issue every year and go through a list of pros and cons for each vehicle. That might help you narrow down your search. Good luck!

  10. Jackie
    Jackie says:

    I had a 15-year-old used car given to me when I turned 16, which was an awesome car. It was pretty much a project car for my dad, so it took us about a year to get it running. Then I sold it two years later and bought a brand-new car. THAT car was a complete lemon, and nothing but costly troubles. I sold that as soon as I had it paid off and bought a 1-year-old car (the same car I still have today, 20 years later.) I have no plans to ever buy a brand-new car again, and hopefully I won’t need a different used car for a good long time.

  11. retirebyforty
    retirebyforty says:

    Wow, great track record on your car buying history. We spent way more money than you did. I got a new vehicle last time because we absolutely need reliability. We share one car and a break down would be extremely inconvenient.

  12. Pre Workout
    Pre Workout says:

    I don’t mind buying a used car. Let someone else pay those high prices. The only thing I want my automobiles to do is to have low maintenance, high gas mileage, and get me from point A to point B and back again. I do think, however, that the older you go the higher initial maintenance may be. But I can tell you – bought a brand new GM model car, I won’t say which one. But this was 8 years ago – as soon as I pay it off…the transmission goes out, after 150,000 miles. Total maintenance is roughly $3,000 on it. Friends have bought brand new BMW’s and Mercedes…their annual maintenance runs anywhere between $2,000 to $4,000. But hey, they do have cars that have nice German emblems on them. At least the car I had helped out my credit score though!

  13. Myra Smith
    Myra Smith says:

    Looks like buying an used car have always worked for you and this post demonstrates why buying an used car can be a better deal than buying a new one but I have really bad luck with 2nd hand things. 🙁

    • Amanda
      Amanda says:

      Drats! I’m sorry to hear that Myra. One really great tip is to get a third-party inspection on any used vehicle you want to purchase.

  14. Dolph Hoover
    Dolph Hoover says:

    Hello Amanda! Very useful post you have here. 4 out of 5 of my father’s vehicle purchases were all used cars and I find it great that there are likeminded people who are resourceful enough to plan alternatives before their cars give up on them. I hope to get updated more from your site. You’re doing great!

  15. Jack White
    Jack White says:

    I am more of a truck man myself. I have been using a Ford F series for a while and it has been running. I think that the more rugged the build of the car, the better performance, it keeps up with over the years. If you re going to get used, I would recommend something that is built to take a beating.

  16. Freddy Palander
    Freddy Palander says:

    I’ve bought both new and used cars. When I buy used, I tend to stick with the cars that have a reputation for being reliable – Honda’s and Toyota’s. In both cases, the used car was trouble free and lasted me close to 200,000 miles.

  17. Jason Strong
    Jason Strong says:

    The only cars that I have ever driven have been used cars. There are a lot of people who don’t like the idea of getting a used car, but after you have it checked out and test driven, you’ll see that they are just as good as brand new one’s. You save thousands of dollars, and you still get to drive a car around that’s almost brand new.

  18. Kenneth Gladman
    Kenneth Gladman says:

    Great advice that a car is just to get you from point A to point B. I will often get caught up “falling in love” with a certain car. Yes new cars feel great to drive off the lot, but the money saved on used is worth it for me. I recently purchased a used Civic and am very happy. Thanks for the post.

  19. Hazel Owens
    Hazel Owens says:

    I totally agree with your father’s saying that a car is simply meant as transportation. I haven’t ever bought a new car, and I don’t plan to in the future. Cars and trucks lose value as soon as they’re driven out of the dealership, so buying a used car, even if it’s less than a year old, is almost always going to be cheaper than buying new. Thanks for the article.

  20. Andrew Spencer
    Andrew Spencer says:

    It is always ideal to try something first before buying it. Used vehicles, most especially, should be test-driven first before purchasing them.
    Good article. Must read for car buyers.

Trackbacks & Pingbacks

  1. It’s Thanksgiving, and there was much to be Thankful for After My Recent Car … | News News and News says:

    […] about six inches up from the impact), and our trusty mechanic had me back on the road in two days. I have never carried collision insurance on my used vehicles because it does not seem worth it to me as each car has cost between $1,000-$3,000 and I always […]

  2. […] about six inches up from the impact), and our trusty mechanic had me back on the road in two days. I have never carried collision insurance on my used vehicles because it does not seem worth it to me as each car has cost between $1,000-$3,000 and I always […]

  3. […] New Car Vs. Used Car: Why We Will Buy Used by Amanda Grossman at Frugal Confessions […]

Comments are closed.