Penny wise or pound foolish?

[jIM_Ohio]

JimOhio,

You are probably right as I have come to learn to never question your arthimetic.

Again, I am just trying to space out car purchases as much as possible. I would be bummed to purchase a new car and then, bam, have the transmission go on the older car or something but I suppose that is what an EF is fer. . .

Scanner- for us it worked out like this:

Get a new car for $1100/mo over 36 months
Get same model used (3 years old) for $800/mo over 36 months.

The length of car payments is the same
The difference is $300*36 months=$10k (meaning used car is 10k cheaper).

Assuming the used car kicks the bucket 3 years before the new one (same model, both should be on road for same length-right)...

a 2006 model lasting 12 years will die in 2018 (we get 9 of the 12 years)
a 2009 model lasting 12 years will die in 2021 (we get all 12 of the years)

The question I ask- is it worth it for me to spend 10k more to avoid a car payment in 2018? Youir price might be higher or lower than 10k... just plug your numbers in and make the decision.

When you finance for longer you will see a few things make this favor the used car more:

1) interest rates for new cars under 3 years of financing are usually real low, but 5+ year financing rates might be higher than used car rates.

2) for some cars, the 10k difference is amplified larger- for example hyndai or GM-Ford-Chrysler will have closer to a 15k difference on a 35k SUVs and probably 7-8k on a 20k sedan- meaning the larger depreciation favors the used car. Honda and Toyota have less depreciation over 3 years, so the new car is favored in same scenario.

3) cash flow is greater with used car in short term- if a person needs to maximize cash flow now, used car is the decision regardless of above (because less cash is coming out of account now).

[Scanner]

I guess you are also assuming $0 down. . .we tend to put 25-50% (usually 50%) down on our cars.

[jIM_Ohio]

I guess you are also assuming $0 down. . .we tend to put 25-50% (usually 50%) down on our cars.

Scanner- I generally do not put money down if I secure 2.9 or 3.9% type financing.

That should not change equation much (the different in payments should still be about the same whether there was a down payment or not, and my analysis is comparing the difference in total price I pay for the used car vs new car).

If you had 15k to pay for a car (assuming you would buy a new one for 30k or a used one for about 23k).

You then plug the numbers into a financing calculator
assuming used car is 3 years older than new car

35k financed at 36 months at 3.9%- this will last x years $1115/mo
25k financed at 36 months at 4.9%- this will last x-3 years $808/mo

difference is 11052 over 3 years.

35k-15k down is 20k financed at 3.9% lasting x years $640/mo
25k-15k down is 10k financed at 4.9% lasting x-3 years $323/mo

difference is $11412 over 3 years (difference is higher with down payment).

Is 3 years using a car worth an extra $11412 to you? It is to me.

2 big reasons in your situation (putting money down and buying new)-
if you are saving the down payment, this gives you 3 more years to save the 15k to put down on the next car.

I doubt you would spend $11400 on car repairs (transmission or body work) on a new car over 12 years. Unless something was really wrong. Whatever was not spent goes towards the 15k cash for the new car in 3 more years. Meaning if you budget now to put 15k down, I am suggesting you can budget 26k over 12 years to savings to the car- either as the down payment in 12 years or car repairs. If you bought used you would have 9 years to save the same 26k.

[disneysteve]

Assuming the used car kicks the bucket 3 years before the new one (same model, both should be on road for same length-right)...

That depends on mileage.

Let's say that you typically drive 15,000 miles/year. Buy a new car and after 3 years, it will have 45,000 miles on it. What if instead of new, you were able to find a 3-year-old model that only had 25,000 or 30,000 miles on it? That means the used car has only gotten about 2 years' worth of usage based on your average. All things being equal, the used car would last an additional year.

As I mentioned in another thread, we bought a new van in 2000. It was wrecked in 2002. We replaced it with a used 2000 van but the used one had 8,000 fewer miles than the one we had wrecked. Even though it was 2 years old, it was like turning back the clock 3/4 of a year for us, so in a way, it was only just over 1 year old based on mileage.

[LivingAlmostLarge]

Nice steve. I think I'd love a new car. But I doubt it's in our future. Right now our cars are 9 and 10 years old. I've gotten little savings for a new car, so I think used is what we will do.