Trade in, or budget and save?

Dave Ramsey wants to weigh in...

Thinking about buying a new car?

Try this instead: Take your current car out for a drive, open the window, and repeatedly throw $100 bills out the window. Now that sounds dumb, doesn’t it? But when you buy a new car, you’re doing the same thing the moment you take it off the lot.

If you’re a millionaire, then feel free to go nuts and buy yourself a shiny, new car. But 98% of Americans simply can’t afford it. You’ll save a ton of money and heartache if you will just buy used!

So why are we making such a big deal about new cars? One word: depreciation. New cars lose 70% of their value in the first four years.

When you buy used, the original owner has already eaten the cost of depreciation. You, on the other hand, get a great four-year-old car for a great deal—one well below the expensive wholesale prices of new cars.

Let’s dig just a little deeper. Say that you are thinking about financing a new car with payments of $400 a month, just a little below the average car payment. Your current car is worth around $1,500. If you take that $400 and pay yourself, instead of the dealer, you’ll have a $4,000 paid-for-with-cash car in just 10 short months.

Sell your old car and you’ll have $1,500 to bank as you continue saving $400 a month. Ten months later, you have $5,500 for a used car. Repeat this process again, and you’ll have a $10,000 car just 30 months after you started saving. How much more sense does that make than buying a new car and watching its value drop like a rock?

Used car lots are overflowing. Millions of cars come from expired leases. For-sale-by-owner magazines are easy to find. Usually, the best deals come from individuals who are eager to get rid of their cars. They have one car to sell, not hundreds of cars like a dealer, so they will be more desperate to get the car out of their yard. Also, call some of the banks in your area and ask them how they dispose of their repossessions. Repo auctions are a great way to find good deals.

Before you buy a used car, make sure you come prepared. Know the value of the car you are considering. Visit websites like KBB, Edmunds and Carmax and do your research, especially if you are working with a dealer.

Remember, unless you’re a millionaire, you can’t afford a new car because you can’t take the hit in depreciation! The new car smell just isn’t worth it.

 

I bought my F150 brand new in 2003. It had 6 miles on it. Today it has 245,000 and still runs strong. Wife keeps hinting that I should buy a new truck to tow the trailer but I say why bother. I just borrow my in laws.

 

I keep personal vehicles till they completely die. So not worth the trade in. I tend to get all the left overs and buy the wife a new-used late model low mile car about every 7 to 10 years. As far a semi's go. Once they start to make a habit of visiting the shop they are gone.

 

Right now, both our pickups are paid for in cash. 92 F-150 (rusty), and 95 Ranger that we baby. I drive the F-150, because I only drive it to work and back, where it's parked all week. We plan to finance a certified Focus hatchback this summer, and pay it off within 36 months. That'll be kept until we need something bigger or 4wd, which I can't really plan for. Who knows how many times my GF may get pregnant....

If we can't find a suitable deal on a Focus, we're also considering a brand new Kia Soul, assuming the current deal they're running on them is satisfactory. Right now they're advertising $13,990. That's about what we budgeted for a used Focus, yet the lower miles on a Soul make sense. We're also eventually planning to buy one of the new Rangers when they're out in 2018, but probably not buying that until 19-20. That'll be my truck, driven very little, and probably kept for 15+ years.

 

My personal vehicle is also a farm truck. I buy good, used, trucks if I can find one that isn't crazy money. Unfortunately, used pickups seem to command ridiculous prices around here, so I have bought new before. Then I drive the wheels off of it. Dents, dings, scratches, piles of dog hair under the seat..... Shut up already, it's a truck.

Cars are almost always a much better buy used, unless you're ego is fragile and you can't face the neighbors after they got their new Tahoe...... On a 7 year loan.