Snowdog

My car is dying. I can't decide if I'm going to repair it or cut my losses, but I need new wheels. I don't have money saved for a purchase. Looking at economy class utilitarian cars.

Used: Cheaper. Bank financing available at higher interest rates for reasonable terms (60 month)

New: Expensive. Large drop in value from taxes and dealer fees when I drive it off the lot. But, 0 or 0.9% financing at 60 months for various domestic and imports.

Question: New or Used. Everyone says its silly to buy new, but it seems that the value lost is more than made up with by the warrantee and the higher cost over 5 years of financing something used. In a perfect world I'd be able to buy a decent used car outright. But if youre looking at a used car with 5.8-7.5% financing vs a new car at 0-0.9% finanacing, does it make sense to buy new?

QuasiMondo

I always find the question of depreciation to be moot, especially if you have no reasonable intention of selling car anytime soon. By soon, I mean within the next 5-10 years.

If you're going to hold on to the car for the long run, buy new. You get a warranty, and you get that fresh car smell.

Of course, you should also consider certified pre-owned. Warrantied with no worries about depreciation. Best of both worlds.

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Willravel

What kind of car do you have and in what way is it dying?

Fotzlid

question concering certified pre-owned:
I see a lot of multi-point inspections mentioned and a few mentions of "reconditioning". What does the "reconditioning" entail? To me, reconditioning could be using armor-all on the raditator hose to make it look new. Do they actually replace worn parts or just tell you which ones are in bad shape?

It seems to me that this is just another way for the dealers to jack up the prices of the cars.

The_Jazz

In my world of insurance, "reconditioning" of machinery (and I would make an educated guess that it includes cars) means that all moving parts are checked for wear. Any that need to be are replaced, and the entire assembly is cleaned. It is not in "new" condition, but it is supposed to be in top condition compared to any similar machines made in the same time frame.

Then again, this could mean something completely different in the auto world, and I would never know, so don't take this as the gospel.

As far as new vs. used, if you are worried about depreciation, buy the newest used car you can find. My brother-in-law just bought an 04 Acura with 30,000 miles in great condition for under $20,000. There are deals out there, especially now.

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miko

If you buy used from a dealer and it's CPO'd, you get a better warranty than a non CPO'd car from the same dealer. It's all about the warranty. All their cars should be going through the same check list and reconditioning process. If a part is in bad shape and blows on you, it will be replaced under warranty. Read the fine print though to make sure you know exactly what is and what isn't covered.

Daemon1313

It's really a personal preference thing. The main points have already been hit on. In particular, I agree with QuasiMondo. As long as you keep a new car for a reasonable amount of time, the initial depreciation is not a major factor. Some cars are worse than others though so look into how much the car depreciates before you buy. For example, in the first year a 2008 Hybrid GMC Yukon for example loses around $20k in value vs a 2008 Lexus RX 400h which loses around $7k.

As far as CPO goes, it really dosn't make the car any better. Typically they undergo the exact same inspection and "reconditioning" as a non-CPO car. The benefit of a good CPO is the dealer stands behind the car more with an extended warranty and sometimes other benefits. CPO costs more than used though.

Personally I only buy cars new. The better financing, better selection and security knowing what has been done to the car out weighs the other issues for me.

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Willravel

You could always buy an old Geo Metro and make it electric for like $7k. What's more economical than 200 mpg equivalent?

Snowdog

I have a '96 sunfire sedan with 217,000 km on it. The c-v joints click, the suspension should be replaced, and I occasionally need to start in 2nd gear. It wouldn't start half a dozen times this winter and it doesn't get that cold here. It is dying. My parents and I bought it together 10 years ago and it has lasted me longer than expected. I've been out of my own for 8 years now and need a reliable car for driving to work, but I'm not wealthy.

The problem is, even at dealers with used cars (certified or not), the financing rates are always higher on the used car. Yes, lots of new cars have high rates too, but I'm not looking at those cars for that specific reason.

Regarding the electric metro: I'm not a hippy and I'm happy with mid-30s mpg. A metro wasn't a safe car at highway speeds with a conventional engine. Let me know when you drive a homemade electric car as your daily driver.

Martian

It's foolish to buy a brand new car. Depreciation can be an advantage, rather than a disadvantage.

I don't have a lot of money, so I always look for maximum value. Very old cars cost more in repair and maintenance, whereas brand new cars cost more up front. I've seen several studies that claim that the depreciation on a car is always greatest within the first three years. Therefore, it seems to me that in order to get maximum value the best option in terms of age is 3-5 years. You can let some other sucker take the huge depreciation hit and then turn his loss into your advantage by buying a car that is almost new and still in great shape for typically about half the cost.

Dealers aren't the only option when it comes to financing. Have you looked into what the rates would be like at a bank? It's to your advantage to shop around. Also, don't get suckered in by a teaser rate.

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Snowdog

Thats the thing; the first step I took when I decided it was time for a new(er) car was I talked to my guy at the bank. We talked about borrowing against the mortgage, but they don't like to do that for a depreciating asset.

From the bank I can get a prime+1.5% financing for a new car or prime+2.5% for a used car (as of right now, prime is 5.250%), on 60 month terms.
The only dealer I've talked to about used car financing said they start at 5.8 for 36 month and go to 7.5+ for 60 month or longer terms.

Right now, dodge, ford, nissan, and mazda all have 0% financing on new cars I would happily drive.

As far as I can tell, a three year old car isn't half the price of a new car, its about 75% and the warranty is mostly expired. Insurance rates don't seem to drop off much until that car is at least 5 years old (using a website to compare a 2009-08-07-06-05 honda civic).

My frame of mind right now, as well, is that I'm looking at more in repairs for my current car than it is worth. I've done all the regular maintence when it should have been done. I know when the new car is 10 years old it won't be on warrantee either, but I'm scared to buy a used car and have an surprise major repair come up in two years.

Fotzlid

If you can make that car last 10 years, a new Hyundai should last you the rest of your life. Especially since they offer such a long term warrenty.

Those 0% rates are typically for 24 months or less. 60 month loans are around 5% for most dealers last time I looked.

Personally, I'd go with a new car over a used one.

Snowdog

I'll swing an import if I can and I like to make things last for as long as possible.

I've been trying to compare apples to apples; it may not be the best car-selection method but I've been looking at the msrp price range at 60 months. Lots of companies have great rates up to 36 months, but that puts the monthly payment higher than I'm comfortable with. I have a short list of models with 0 or 0.9% over 60 months.

I can't get any hard ruling on the amount of depreciation and it is hard to put a realistic dollar value on warantee. I can put a dollar value of financing a $11k used car at 6.5% vs a $15k new car at 0%

Fotzlid

Whats on the short list?

Snowdog

All mazdas are at 0% financing. A mazda3 or sport would be nice, but may be out of my reach.

Ford focus and dodge caliber; no financing info online but the local paper has multiples of both dealers offering 0% at 60, 1.9 at 72 and 2.8 at 84.

Kia/Hyundai have 0% (and 0 down) on their entire lineup. An elantra maybe?

Nissan Versa, or maybe Sentra, are at 0.9% at 60 months.

Martian

Civics aren't as greatly affected by depreciation as other models. I don't know why that is.

A brand new Hyundai Tiburon GT has an MSRP of $25 595, according to car guide. A 2004 with ~30 000 miles seems to go for about $15 000, although that varies a little bit obviously. The best warranty I was able to find offered 7 years or 120 000, which is quite competitive with any warranty offered on a new vehicle. Assume simple interest for sake of simplicity and we end up with a ballpark of ($15 000 + (7.5% *5)) or $20 625, which is nearly $5000 cheaper long-term. A 2006 GS appears to go for about $16 000 vs $19 000 on a brand new one. If financed at 7.5% the 2006 will cost more. I was unable to find any 2005's in my market during preliminary searches. The calculations look broadly similar across other makes and models. In one particularly dramatic example, I was able to find a 2006 Malibu that was $15 000 with 27 000 miles, which is less than half the $33 500 MSRP of a new model in the same trim level.

Keep in mind that I'm assuming a $25 000-$30 000 price range, and that the difference is more dramatic as you go up the price scale. A brand new Kia that costs $15 000 probably isn't going to depreciate as much, since it doesn't have very far to go to begin with.

Also keep in mind that I tend to approach vehicle purchases without financing in mind. I am not particularly wealthy, but I've found that I have been able to keep a sufficient amount of money set aside so that when I needed a new car I could purchase it outright. This is most likely because I don't have to make any payments towards financing and therefore get to keep more of my money. This is apparently not your situation, however you might consider keeping the Sunfire on the road as long as possible and putting the money that would otherwise go towards car payments into a savings account, which will allow you to make a larger down payment when you do finally purchase your car and thus pay less interest. Set a specific date for yourself; next September if you can manage it, or maybe immediately before renewing your registration. However, be prepared to abandon that date if the Sunfire gives up the ghost prematurely. In other words, drive it 'till it dies, then use whatever you've managed to save up in the interim as leverage to get yourself the best deal possible.

__________________
I wake up in the morning more tired than before I slept
I get through cryin' and I'm sadder than before I wept
I get through thinkin' now, and the thoughts have left my head
I get through speakin' and I can't remember, not a word that I said

- Ben Harper, Show Me A Little Shame

powerclown

Is leasing an option? You can get into a brand new base model Mazda3 for around $250/mo nothing down, 27 month lease, 12k miles/yr.

Snowdog

Yeah, I understand about saving. I know I'm new around here and anonymous posters are assumed to be young and foolish. I'm not. I saved for a large deposit and got a mortgage, I have 6-8 months of living expenses saved up, I have been making small RSP contributions since I got my degree.

My car could quit tomorrow. I've decided I'm not going to dump any more money into it. I have about 2000 that I've been putting aside into a car savings fund. I always was of the frame of mind that you should buy a decent used car. If I had 12-15k ready to go, that is what I would do. I'd rather finance comfortable payments then dip into my savings.

But now that I'm researching it, the whole "you lose 30% of the the value of a new car the second you drive it off the lot" is bull. You lose tax value and whatever dealer prep charges they can stick you with. It seems steeper for the first 36 months or so, then it is a pretty linear and shallow depreciation.

It does depend on what car you buy how much value it drops, and the numbers can go either way depending on how you manipulate them. I contend that under my conditions- financing new at 0% vs financing used at at higher rate, there isn't a clear choice. NPV, estimating future values, comes out roughly even. On paper, you spend a little bit more on a newer car; but in the end that extra expense went into car depreciation instead of the bank's interest charges and you have a car that is 5 years old instead of 8-10 years old that is paid off.

A lease isn't really an option; it'd be cheaper in the short term but the whole concept seems flawed to me.