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?