One of the cardinal rules of personal finance is to never buy a new car. I broke that rule.
In the debate over whether to buy a car new or used, two arguments generally trump all:
- A new car loses a large portion of its value the moment you drive it off the lot.
- Used cars are cheaper.
Until now, we have generally followed the “only buy used” rule in our marriage. The first car we bought together, a 2001 Saturn, purchased in 2002, was a lease return. So was the 2007 Prius we bought in 2009. Lease returns seemed to offer the best value. We received the benefit of buying a car depreciated in value, but the car wasn't beat up — and some of the original warranty was usually in effect.
All of that went out the window when we began looking at the Subaru Outback.
Trying to Buy a Used Car
At first, we went the used route. We had some things we wanted in the car, though. We had mileage requirements, and age requirements, and special package requirements. My husband has a job now, and we were ready to get a car we really wanted.
We've always wanted an Outback, so we began poking around. We actually didn't set our target price at first, because we wanted to get an idea of what an Outback would cost. We were surprised to discover how much used Outbacks cost. They seem to hold their value, and drivers really put on the miles. We set a reasonable price target and then began looking at dealerships.
When we test-drove a lease return in town, we discovered that the price for the car was higher than we wanted to pay. The dealer tried to get us with the old “what can you afford to pay each month” trick, and was quite disappointed when we kept going back to total cost. (When we ask for total cost, we ask for doc fees, sales tax, registration and everything else.) In the end, the dealer refused to budge on the price for the used car, and we found that similar used Outbacks were going for a similar price.
That's when we started looking at new cars.
Buying a New Car
Over at Find The Best Car Price.com, we discovered some tricks to negotiating a lower price on a new car. The main technique is to contact dealers with what you want, and get quotes from them — and then play the dealers off each other. Geoff, the owner of the site, points out that a new car is a commodity, and it's only worth what you are willing to pay for it.
Of course, that “worth it” is within reason. We applied Geoff's tips, though, and in the end, two different dealers (out of town) were vying for our business. The end result was that we bought a new car for almost $3,000 less than the in-town dealership wanted for the used car. We even called the local dealer back and told them what we'd found, giving them a chance to beat the new car price. The dealership decided sticking to its guns was more important than our business, so we went with the new car.
We did end up financing a portion of our purchase, but our down payment helped offset what we were paying. We rejected options for longer terms of 72 or 84 months, and instead picked a five-year loan with comfortable payments.
The interest rate is 1.9%, and I'm seriously thinking that I won't pay it off sooner, especially if the market begins its recovery in earnest. Why should I sink my capital into something that depreciates when I can make more money off a stock market recovery?
Why it Makes More Sense to Buy a New Car
One of the reasons that we were able to get a good value on a new car was due to the timing. We bought toward the end of the month — and the end of the year. On top of that, used cars are becoming scarce. Thanks to the recession, drivers are keeping their cars longer, and the hit that leasing took just after the financial crisis means that cars at the end of their three-year leases are hard to find.
Bottom line: Fewer used cars are available to choose from.
The new car turned out to be a better value for us because of what we were looking for. We got the features we wanted, along with lower mileage, and a full warranty. Because of the limited selection, we just couldn't find what we were looking for in the price range we wanted. And, because we tend to drive our cars to the ground, re-sell value isn't as important — longevity is more of an issue. Indeed, we aren't even selling the Saturn or trading it in. We're giving it to my husband's parents since they are in need of a second car in reasonably good shape.
What have you found? Can new cars be a better value?
Hey Miranda, So glad to hear everything worked out for you!
I really like the Outback and am considering getting one myself next summmer….I’ll certainly need to check back and see how you like it. They do have great residual values and the all-wheel drive without being as huge as an SUV is nice.
p.s. disappointing dealers is one of my favorite pastimes.
One of the reasons I like the Outback is that I go camping regularly. Having it would be great for my outdoorsy stuff, and, like you, I don’t really want a huge SUV. The Outback strikes just the right balance, I think.
I came to the same conclusion when shopping a few years ago. I bought a new 2004 Civic because there wasn’t a major price difference between that and a just-off-lease used Civic. Plus, I was teaching at the time, and I didn’t want to take unnecessary chances. I planned to keep the car until it cost more to maintain than it was worth, and I knew that would be a very long time with a Civic. Sometimes, real life gets in the way, and though we don’t intend resale value to be relevant, it ends up being important because vehicle needs or circumstances change. That hasn’t happened for me yet, and I still think my car is perfect for me.
We expect that we’ll have the Outback for years to come. And, really, we’d still be driving the Saturn instead if my husband’s parents didn’t need it. They only have one car, and that’s on its last legs, so we decided to move up our timetable a little bit.
Hi Miranda! Congrats on the Subaru, I would love to have one but buying a new car let alone financing one, would seriously go against my principles and of course the cardinal rule of personal finance. Besides, what would my readers think 😉 As much as I would love to have that AWD, my 1998 Honda Civic with almost 200k miles is paid, insurance is cheap and gets me back and forth to work just fine. One day I will get a Subaru, I just need to pay cash. Cash is king! Keep us posted on any issues you may have. Never owned a Subaru and would like to know how it works for you!
I’ll keep you posted on our Subaru adventures! Yeah, I think that you really have to do what works for you, and with your values. I’ve never been shy about the fact that we *gasp* finance our cars. You do what you’re comfortable with 🙂
Good choice.
This story is a good example of how some “rules of dumb” should not be followed religiously.
Another factor is time. I used to always buy used cars and it takes a lot more time to figure out the market for used cars and check out different cars in different locations.
Buying a new car takes a lot less time which is worth a lot to me.
That’s an interesting point, Mike! One of the things about buying new is that it is easier to find exactly what you want, much quicker. I didn’t think about the time factor, but, now that I think about it, you’re right. We spent less time looking this time around because we could get just what we wanted, rather than going all over the place trying to get something “good enough.”
We buy new. Lately interest rates have been ridiculously low for new cars but that hasn’t been the case for used cars. And it’s a great point that Mike makes – it’s difficult to know whether a used car is really worth that value. You have guides and such but no 2 used cars are the same. Even with reports like Carfax, you don’t know for sure that all repairs and accidents were reported.
Like others have said, we intend on driving our cars into the ground. With three kids we need the cars to work.
Not that you can’t get great value on a used car. It just hasn’t been the case for us.
Great, point about interest rates, Glen. We noticed, too, that the rates on used cars were higher than the great deals on new cars.
Only you know your personal finances the way you do. That rule is not an absolute. In fact, it’s not even a “true” rule. My “rule” is that it’s okay to buy new if it’s what you want, and if you’re not sacrificing other goals or tightening your belt to “afford the new car.” In other words, as long as you are not “preventing wealth” in the process, a new car is a go, I suppose.
That being said, generally, it’s always good to save $10,000 on a car if you can get the used model. Maybe you didn’t look hard enough for the savings. You bought what you and the husband wanted, and I gather that you feel good about it. THAT is really what matters. Enjoy your car. And hopefully it’ll last you for quite some time.
Thanks, Romeo 🙂 I agree that, largely, you should go with your own personal finance rules, doing what works best for you.
Awesome! an OB!
Did you ever get a chance to read our Subaru Outback Import Series? It is in the “All things auto” category (right side under our homepage banner). You might need to dig down a few pages – but we saved over $9300 importing our OB from NY State!
I haven’t. I’ll have to take a look at it. Glad to know I’m in good company!
We’ve bought new and we’ve bought used and it’s always come down to several factors. First, we don’t ever finance our cars. So when we were younger, used was totally the only option. As we saved over the years, we could afford to buy new if we wanted. The first new car we bought, we were able to get for less than dealer cost because a relative worked for the car company. The next new car we bought was a complete redesign of the model we wanted and it had the features we wanted–we couldn’t have bought the vehicle we wanted used. The most recent car we bought, we bought used because we could buy a 2-year-old car for 2/3 of the cost of new. So we don’t follow a specific rule, but we do look at our purchases well before deciding.
My brother sells cars and he says the best deals if you need to finance are new cars. The best deals overall are used with no financing. At least that’s his experience.
Great insights! Thanks for sharing your ideas. You’re right that, no matter what you do, it’s best to get a good deal, and shop around for what works best for you.
I recently purchased a used 2008 Lexus IS250. I paid about $27,000 for it with 32,000 miles on it. New they go for about $34000 + fees. However, in my state new cars are taxed at a higher rate then used cars, so that saved me a lot. I saved about $9000 by buying used over new.
Great story! And good for checking around to save money overall. Really, it depends on where you are, and what is being offered. Always do what works best for you 🙂
We always by new and pay cash (except for once when we got less than 1.5% financing. As we were making more than 1.5% on our investments at the time financing made sense to us.). But we try to find one year old “new” cars that haven’t been sold yet and/or have minimal mileage because they were used as lender cars by the dealer. We always get great deals.
Also, after we are finished with the test drive phase, we always figure out what we want to pay. Then we call ever dealer we know, and ask them if they have what we want. Someone always does. Then we tell them to have the paperwork ready for when we get there. We sign, give them our check, and are usually out the door within an hour. We’ve bought our last 4 cars this way. It works great for us.
Congrats on your new car!
This is great as the new car smell just can not be duplicated. Heck in your situation getting a new car for 3 grand less than the used is a no brainer. I will consider this negotiation tactic when I am ready to buy a car as my ride is about 13 years old. Thanks.
I noticed the same thing after shopping around for a couple months. buying a brand new 2012 ford focus came out a better deal thanks to fords rebates, dealer discounts, and special financing. Not to mention peace of mind of having a brand new car with a warranty and free maintence from the dealer for 2 years.
I was able to purchase my focuus for around $3k lower than msrp or about the same as a comparable used car with much more milage, higher interest rate and no warranty.