Important Things to Consider When Shopping For a Car and When It's Okay To Buy a New One

[brod]

(TLDR - The best thing you can do financially when shopping for a car is to buy a reliable used car)

If reading isn't your thing, here's a video I made covering the same subject

Buying a car is an important financial decision, which is why it absolutely never makes financial sense to buy a new car. If you’re in the market for a car, we want to give you six tips that will help you save big in the long run when you buy your next car.

1. The purpose of a car is to get you from A to B. Paying for anything extra (i.e. heated seats, improved audio, larger rims) does not change the core functionality of a car.
2. All vehicles are a depreciating asset which means your car will love value every single year. Yes, classic cars exist that appreciate, but those are the exception rather than the rule.
3. Never finance a depreciating asset. Especially when you’re young, you’ll be paying exorbitant interest rates!
4. Don’t forget routine upkeep (oil changes, tire rotations, etc…)
5. Warranties are great if they are included with your purchase, but never buy an extended warranty. 6. There are 13 primary factors used to compute what an insurance company will charge you for their service. They are geographical location, age, gender, marital status, years of driving experience, driving record, claims record, credit history, previous insurance coverage, vehicle type, miles driven annually, coverages, and deductibles.

With all those various items in mind, does it ever make sense to buy a new car? From a financial standpoint, no it is never makes financial sense to buy a new vehicle. This isn’t to say that you never should. Dave Ramsey has a rule on buying new cars that I really like, it’s that you shouldn’t buy a new car until you’re net worth is over $1 million dollars. The reasoning is that once you’ve hit that threshold, the amount of money lost to depreciation is small enough that you can financially take the hit. It’s the same principle as going out to eat at a really expensive restaurant. It doesn’t financially make sense to spend $100 on a steak when you could cook at home for a fraction of the price. But that doesn’t mean you should never go out to eat, it just needs to be in moderation.

Here are some articles to provide more depth in specific areas:

Car Depreciation https://www.carfax.com/blog/car-depre...

Average Auto Loan Rates https://cars.usnews.com/cars-trucks/a...

Change Your Oil! https://www.allproservicenter.com/don...

Warranty Claims https://www.warrantyweek.com/archive/...

Insurance Factors https://www.insure.com/car-insurance/...

 

[painti01r]

@brod It's not even the depreciation on the new car that's the problem, it's things like registration and insurance, too.

Everyone always says "oh I can't buy an older car because if it breaks down I can't afford to fix it."

What they don't take into consideration is that they're probably paying $700-$800 a year more for registration and insurance on the new car (especially if it's financed) than they would on the older car. $800 a year is quite a bit of money to put into repairs in a vehicle every single year, so where's the logic in an older car being "more expensive to maintain?"

I like to think of cars in inventory terms. Just about every single car you can find since the 1990s should get you 200,000 miles fairly worry free. The average person drives about 13,000 miles a year, at 60mph that's about 35 minutes a day.

So when you buy a brand new car, you're getting 200k in "mileage inventory." You consume 13,000 of it per year. So that's over 15 years worth of excess inventory you're purchasing! Name one other item where anyone would tell you that purchasing a 15 year supply is a good use of money. Pro tip: You can't

Perfect efficiency would mean having 0 miles left at the end of the year. But perfect efficiency doesn't take into account being human and the hassle of replacing a car every year. So Somewhere in the 3-7 year range is where I aim. It isn't perfect, but it's certainly better than 15 years worth.

I drive 15,000 miles a year, so that means I look for cars with somewhere between 95,000 and 155k miles on them. I don't consider new cars as even being an option because I have no need for that amount of excess mileage. If I was an uber driver driving 40k miles a year, then sure, a new car makes perfect sense. That would be five years worth of mileage and well within a reasonable range.

But for someone who drives 13,000-15,000 miles a year it just doesn't make sense from an inventory management perspective to purchase a car with