Buying a Vehicle: Is New or Used a Better Deal, or Should I Fix My Old Car?
In need of a new car? This Flashback Friday post will help you decide which is better for you: new, used, or fixing your "trusty" old car.
We have all been there… hands on the steering wheel, head hung in desperation while your faithful old car engine smokes and sputters.
Your mind is reeling with questions: How do I get off of this street? Will I get towed if I leave it here? How much is this going to cost? Can I fix it myself? You’ve had this car for years and have so many great memories involving this annoying little money sucker of a car.
The A-ha Moment
Wait! This is it!!! This is the moment where I can completely justify buying a new car, with a brand new loan payment. After all, I can’t trade this car in, and that last repair nearly wiped me out. Ah, finally, the stability and affordability of a new car.
This should surely be less stressful, more predictable, and cheaper than driving that old beater. Well, I am facing that situation right now, and have been for the past month.
My wife’s old car, which is now mine, started lurching and sputtering and smoking up the hill… I knew I was in for it the minute it started. My vehicle was dying and it was dying quickly.
Thoughts of repair bills and used car salesmen started whirling in my head before I even pulled over.
The pros and cons
I sat down and thought long and hard about the pros and cons of a new (to me) vehicle versus fixing the old Saturn.
Here are several things to consider when deciding to repair or replace:
- Cost of Ownership: Used versus New. As you can see from this Consumer Reports diagram, the cost of ownership of a brand new vehicle is shockingly high for the first two years of ownership. Much of this is due to purchase price, taxes, title fees, and interest paid on an auto loan. Nevertheless, this is an easy call. Used car ownership clearly wins in a landslide over that new car. Purchasing a car that is two years old or more will save consumers significant money. Also, a two year old vehicle may still have a warranty, or perhaps even some free scheduled maintenance, saving even more money along the way.
- Insurance costs: Newer vehicles cost more to repair, therefore they cost more to insure. On top of that, if you have a lien or leased vehicle, you may be required by your lender to carry more insurance than you need or is required by law. Again, the used car wins out easily here. The score so far is: used vehicle 2, new vehicle zero.
- Cost of Repairs: The average cost of repairs seems to be between $1000 and $1200 per year per vehicle owned. This means you can plan to spend $80 to $100 just keeping your ride on the road! New cars may come with fancy roadside assistance packages or satellite communication systems (usually for a monthly fee!) or even worry free scheduled maintenance… but remember: new cars also come with an AVERAGE car payment of $379 a month, and are much harder to work on than older, simpler engines. However, to be fair, based on cost of repairs alone, new car wins. Two to one, used car.
- Convenience/ Inconvenience Factor: Admittedly, the inconvenience of a break down can be…untimely…annoying…even unsafe. The bottom line is that a break down can easily add $200 to a repair bill. Not to mention the stress, lost time, and added pressure that being late can add to any part of your day. New cars rarely break down as often as their used counterparts. New 2, used also has 2.
- Taxes and tabs: Many states “reward” drivers of newer vehicles with higher licensing costs. Since most sales tax is a percentage based calculation, the sales tax on a new vehicle is obviously much higher than an older, cheaper used car. In my state, I can save $200 a year on tabs for a car older than eight years old. That is nearly $20 a month on its own. Used 3, new still only 2.
Do I repair the old car or buy new?
Now here’s how I looked at things when I was choosing whether to repair my vehicle or shop for a new used car. I figured the cost of a rebuilt engine to be about $1000 installed. Now add $150 for all the purchases you are not thinking about.
That is $1200 or $100 a month for 12 months. Remember, a new vehicle payment averages $379 a month for 60 months! Let’s say the extra insurance costs on this new vehicle are only $21 a month more. I could immediately shell out $3000 a year in repairs, cabs, buses, and tow trucks and STILL save $1000 a year!
Buying a new car may be fun, it may be alluring due to great marketing campaigns, and it may feel better, but buying used and maintaining/repairing that vehicle is clearly the right choice for saving money on transportation costs. If all this feels too expensive, a bus pass is usually less than $50 a month, but that’s just my two cents.
Still feeling lost and unsure what to do? Call LSS Financial Counseling today at 1.888.577.2227 or visit our website. Our financial counselors can help you create your individual budget and see how a new car payment will fit into your budget. We offer services in-person, over the phone or online.
By Malcolm Johannessen. Subscribe to Sense and Centsibility to get notification by email when a new blog topic has been posted by one of our other amazing experts.