You probably just did a double take, didn’t you? I think that buying and owning a new car is often a better financial decision than driving an older car. How can I say that, you ask? It’s easy, when you look at the big picture.
Let’s say that you’re currently driving a 1997 Dodge Ram with 150,000 miles on the odometer. You get about 11 miles per gallon ( which is probably optimistic ), spend an average of $150 per month in repairs, and lose 2 days of work per month due to breakdowns.
At $3.00 per gallon, you’ll spend about $339 per month gassing up your truck. That’s based on the average of 15,000 miles per year, by the way. Insurance probably only runs you about $50. With gas, insurance and repairs, you’re spending just about $539, plus your lost wages every month to drive your truck is . Assuming you make a reasonable $15 per hour, that’s an additional $240 that your truck costs you, for a grand total of $779. A little much to drive around a 10 year old pickup truck, don’t you think?
How does a new car compare to the used truck? Let’s take a look and find out. There’s no need to buy a new truck – in fact, a compact car will do nicely. The Honda Civic comes to mind, in the sedan LX trim, with an automatic transmission. This car has an MSRP of about $18355, and it should be no problem to buy it for $18,000 plus TT&L. Figuring a good interest rate and 6.25 sales tax, you’re looking at about a $360 car payment for 60 months.
You should get about 30 miles per gallon in your new Civic. Based on the same driving habits, that’s $125 per month in gas. Insurance will cost you a bit more since you’ll need full coverage, so figure $100 per month. Since you’re driving a new car, you won’t be missing work anymore.
The total to drive a brand new Honda Civic is $585 per month, compared to $779 for your Dodge Ram. By choosing to drive a new car, you’re actually saving nearly $200 per month – not too shabby!
P.S. Also just wanted to note that the Civic LX is not a stripped-down model at all. It has an automatic transmission, power windows & locks, keyless entry, and air conditioning.
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Its a toss up; there are benefits and drawbacks to both and I have to say you make a pretty good argument for a new car. But what about getting a newer car, say a 2-3 year old car off a lease. That way you can take advantage of the argument presented and not having to pay as much for a car. Potentially you might save even more money!
Only problem is that you have a monthly payment for 6 years! And, you will end up paying quite a bit more than the original $18,000. Saving up and buying a slightly used (already with depreciation), reliable car with cash is a better deal in my book.
I have too many sore spots with this to not leave a reply.
First, with the Honda, you still have maintenance costs. You still have oil changes, etc. and you should always keep a fund running to pay for the eventual tune ups, new tires, new brakes, etc.
Second, I’ve known a lot of people that drive cars and trucks with 150K miles and they don’t miss 24 days of work a year because of it. This is way overestimated.
Third, as the previous poster said, you could probably get a car cheaper than a brand new one that would drive the monthly costs way down even further. New cars depreciate at least 20% the first year, so if we’re talking about ’saving’ money, why not take this cost off the books?
Fourth, the dig on the American auto industry is not so subtle. We have an American car that’s falling apart and costing us five weeks of work a year compared to the apparently infallible Japanese car that doesn’t need any maintenance or repair.
This is normally one of my favorite blogs but this post is making me consider whether or not to keep reading it at all.
Matt: That’s a very solid choice, and one that many take. The reason I didn’t go that route is this – when buying a used car ( even one that is only 2-3 years old ) you’re not really sure how it was taken care of. I.E. Was the oil changed, the fluids flushed at the regular intervals, etc. Also you could be looking at new tires and brakes if they were not cared for properly. If the car was maintained well, then this is an excellent choice that will save you thousands. You do miss out on the warranty, though.
Tina: You’re right – you do get the payment every month. However, you free yourself of nearly all repair costs – and any hefty unexpected repair bills. Replacing a transmission is no fun, for sure!
Michael: You’re right, I should have included maintenance costs in this comparison. However, I didn’t include them on either end, so it’s a wash. Figure $30 per month for maintenance should cover the Civic, and probably about the same for the Ram. Good catch though, can’t believe I missed it. With regards to tires & brakes, you can get a lot more than the average life out of these by simply taking care of them. Don’t slam on your brakes, don’t ride them, don’t go screeching around turns and do bad things to your tires, etc. If you take care of them, you shouldn’t even have to think about your tires & brakes for at least 5-6 years, if not longer.
I may have overestimated the time missed from work – it’s certainly no guarantee. But even if you miss a few days, some jobs are very intolerant of missed time, and you could end up losing your job. In my line of work, missing 2 days a year is grounds for termination – sometimes even one day will do the trick. An excuse of a car breakdown is not acceptable – the upper level management will ask why you don’t have reliable transportation.
I did not intend to dig on the American auto industry – in fact, I love American cars. Currently I own a Honda and Lincoln, and love both. Over my lifetime I’ve owned 4 Japanese ( Honda, Toyota, and Nissan ) and 4 American ( 3 Ford, 1 Lincoln ) cars. The only one with a major failure was the Toyota. None of the other cars experienced any major repairs during my ownership. However, I’m a fan of playing the odds, and the odds say that a Honda or Toyota is likely to give you less problems than a domestic car. It isn’t true in every case, for sure, but as I said, I like to go with the more likely scenario.
I’m sorry to hear that you may not read A Penny Saved anymore. I try to write posts that will help my readers in their quests towards better financial states. I’m not always on target ( sometimes I way off base, it happens. ) However, I’m still going to write posts that I think mean something, and will get my point across. If that means you won’t be coming around anymore, then I’m sorry. Hopefully you’ll stick around for a bit – it never hurts to have a different opinion around.
I don’t know about this. I would rather save my money up and look into buying a certified pre-owned car. I don’t want monthly payments. I mean if my older car does break down and I don’t have the money I can just park it and take the bus until I have the money. If I have a monthly payment that I owe then I have to pay it no matter what or I’ll be in big trouble. I’d rather do the research in finding a quality used car. I think I can find one that won’t cost $150 per month in repairs, but maybe $500 a year.
Family Savings – the bus is an option for some people, and can often save a good chunk of cash. But for a lot of folks, taking the bus everywhere would cause more inconvenience than it is worth. I couldn’t imagine having to take the bus to the grocery store, only to have to carry all of my groceries at one time to and from the bus stop.
With regards to the repairs, you’re right, some research can help lessen your risk of repairs. However, there’s always a risk, and it’s no fun having to drop $2500 to replace an engine that decides to putter out before it’s time.