Why I Bought a New Car Instead of a Used One

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This post comes from Len Penzo at partner site Len Penzo dot Com.

I finally relented and bought myself a new car.

I can understand why some of you may be scratching your head at my decision to buy new instead of used. Especially when the playbook of good personal finance habits clearly states — right there on page 31, paragraph 6, subsection 2a — that it’s better to buy a used car that is a couple of years old, thereby letting the original owner take the depreciation hit for driving it off the lot.

So, did I lose my mind? Was this another impulse purchase on my part? Have I suddenly moved to the dark side and become financially irresponsible?

No, no, and no.

Remember, despite the conventional wisdom, there are very few financial rules of thumb that are truly sacrosanct, applying to all people all the time.

After all, that’s why they call it personal finance. What makes sense for me might be completely unreasonable to you, if only because our financial situations are light-years apart.

In my case, there were more than a few reasons why I felt it made perfectly good sense to buy a new car instead of a used one. Here they are:

My savings accounts are fully funded. I have more than six months of savings in my emergency fund, and my smaller rainy-day fund is loaded and ready for the next minor crisis. Meanwhile, I’m continuing to make contributions to my retirement savings, which are also in good shape.

I’ve paid my dues. By driving my last car for well over a decade I was able to save more than $40,000 in car payments. That’s money that helped fund my savings accounts and retirement funds. It’s also a big reason why today …

I can afford it. I could have paid the dealer cash for the vehicle, but I decided to take out an auto loan instead because I got …

Ridiculously cheap financing. There’s a reason why it pays to maintain excellent credit scores: They give you the opportunity to borrow money at the lowest rates. In my case, I was able to secure a car loan at just 1.9 percent interest. Eventually, I’ll end up paying a little more than $1,000 on my note — over five years. By the way, this is a great example of how …

The Fed’s policies reward borrowers (and punish savers). As long as lenders continue to give the money away for a song — and I can afford the payments without impacting my other financial obligations — I’d be crazy not to take it.

I’ll be keeping the car for at least a decade. Holding my car for at least 10 years will help temper those painful depreciation costs I’ll be incurring over the next several years in exchange for the pleasure of driving my very own brand-new car.

Hopefully, I’ve convinced you that being financially responsible and buying a new car aren’t necessarily mutually exclusive. The truth is, financially responsible folks can sometimes get away with buying a new car — even though the conventional wisdom says that isn’t the most financially advantageous option.

Ultimately, the “right” decision is going to depend on the state of your personal finances.

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  • sam

    My last car purchase was for a 15 year old 4Runner and that was more than 2 years ago. It was $3,100 which is about what friends pay for sales tax on their cars. The vehicle runs great and I will easily drive it ten years. So far, I got new tires and front brakes on it. I knew about the tires going in. I can afford a new car but I don’t buy them. I love new cars and would love to have one of the new Corvettes. But I want to be responsible and sometimes that is just saying, “No!” I do invest in getting more training and in seminars that will help me in my work. The statement, “I’ve paid my dues,” makes me want to cry.

  • http://ecofrugality.blogspot.com/ Amy Livingston

    Here’s why my husband and I decided to buy our last car new instead of used: because it was cheaper. We’d heard the advice about buying used cars so often that we started out assuming this was the best way to save money–until we actually started crunching the numbers. The car we wanted, a Honda Fit with a stick shift, was about $15,000 new; the only one we could find used was two years old and cost $13,000. We generally keep cars until they’re at least 15 years old, so by buying the older Fit, we’d have been losing two years off the lifetime of the car (or more, if the previous owner wasn’t very scrupulous about maintaining it) to save only $2,000. In other words, the new Fit cost exactly the same on a per-year basis, plus it had more features (including some very useful safety features) and a three-year warranty. Buying used, in our case, made no sense–financial or otherwise. (And, of course, we paid cash for it.)

  • http://ecofrugality.blogspot.com/ Amy Livingston

    We bought our last car new for a very specific reason: it was cheaper.

    Like most frugal people, we’d heard the advice about only buying used cars many, many times, so we initially assumed that this was what we’d do–but when we actually started crunching the numbers, we found the advice didn’t hold true for us. The car we wanted (a Honda Fit) was $15K new; a two-year-old fit was $13K. Since we always keep cars until they’re at least 15 years old, the cost per year is the same for a new one–possibly less, if the original owners have taken more than 2 years off the car’s lifetime by driving it carelessly. And the new one has additional features (including some very useful safety features) and a 3-year warranty. Total no-brainer.

    The moral of the story: do the math! Your mileage may vary, so don’t just assume some piece of standard financial advice is true for you.