Things to consider when buying a new car

[Guest Post] Top 5 Things to Consider Before Buying a New Car

Gen Y Finance Guy Smart Spending 16 Comments

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I make decent money. And my wife makes decent money too. And yes we have a mortgage and kids and bills, but money isn’t really an issue for us on a month to month basis – we do OK. We aren’t rich by any means, but we’re definitely not poor.

And despite this, I drive a 2003 Honda Civic with 190,000+ miles on it. The windows aren’t tinted. It’s a four cylinder with a CD player that never has CD’s in it (because who has CD’s anymore?).  The upholstery is coming apart or detached in a number of areas.  There are stains from the kids on the back seats and I don’t exactly volunteer to drive when we go to lunch at work.  But this car has been good to me. I bought it with about 15 miles on it and traded in a Dodge truck that got a third of the miles out of a gallon of gas that this car gets.  With three kids, it’s not like this car is driven a lot on the weekends either.

Guess what the best part is about this car? It was paid off about 4 ½ years after I bought it. I haven’t had a car payment in YEARS.

But that is all about to change and I am not sure how I feel about it.  My oldest kid is driving now and needs a car because she’s involved with sports, church and being a teenager. I sure as hell am not going to go buy her a new car so I am on the hunt for a new car for myself.


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Now, over the years buying cars hasn’t been my favorite activity. My wife usually gets pretty mad at me during the process because of how resistant I am to the whole thing. I don’t want the payment so my number one question as I am looking at a car is, “How much per month?”  I don’t care about bells and whistles (maybe a little bit) but am most concerned with it getting great gas mileage and being something I can drive for a long time. Plus, if I can get the payment low enough, I can pay extra every month and pay it off early. I’ve done that with this car and every other car I’ve ever owned.

About six months ago my wife started telling me to buy a new car. My oldest has also been asking weekly when I was going to get a new car since she got her license around the same time. I resisted and resisted because I just didn’t want to deal with it. But I am finally there – I think it’s time.

I have been going back and forth over the past few months mostly because of the money. Part of me wants a nice car. I work hard for my money (try saying that without singing Donna Summer out loud) and so I feel like I “deserve” a nice car. I looked at getting a big truck or a nice SUV but just couldn’t fathom the payment. A friend of ours got a big GMC truck last month and pays $800 a month.

I just can’t do that. I would rather put money into savings, into paying my mortgage down or into retirement. Plus there’s the gas on a big vehicle.  When I bought my Civic, my payment was $265 and I think I get about 30-35 MPG still. The Odyssey my wife drives now was $490 a month when we bought it so $800 as a monthly payment was out of the question quickly. So then I considered getting another Civic. Let’s be honest, they’re GREAT cars and outside of the maintenance here and there, you can drive that thing forever (as I have proven).

I think I dragged my feet and over-thought it so much that I finally had to talk to someone else about it because I was just done discussing it in my head.  GYFG and I were talking about it this week and we thought of a couple different things to consider when getting ready to make a big purchase like this. Big purchases are inevitable, but I think there are some things you really need to consider when going through this process.

Top 5 things to consider when buying a new car

  1. Calculating what you can afford (GYFG here – I would say it a little differently: calculate what you can afford and then buy less than you can afford) – I think this is probably the most important part of the purchase process. I would go so far as to say it’s more important than deciding what to purchase.  If you don’t know what you can afford, you can’t choose your car.  Before I started working on purchasing a new car I decided that I wanted a payment at $500 or less.  I knew I could qualify for a much bigger loan if I wanted but like I said earlier, I just couldn’t bring myself to do it. I can get plenty of “car” for $500 and not have to make sacrifices with putting money away for my future. I also refuse to do something like put $20k down on a car and still have a $500 a month payment because I went out and got a $100k car (or something like that, you can do that math and figure all that out). And that leads me to the next point.
  1. Want versus need – I need a new mode of transportation. I want a Tesla or a Range Rover or a BIG four wheel drive truck that gets 5 miles to the gallon but looks really cool (GYFG here – A Tesla would be sickkkkkkkkk). I need a practical car that isn’t going to break the bank and can get me to work every day safely.  I want something that’s all leather, with a sun roof, with nice rims and that has a great sound system. See what I am getting at?  I think that for all of us here, we’re working towards our own freedom. We want to do what we want with our time and are working towards the ability to work on things we’re passionate about.  My choice here is pretty simple when I stop and think about what I really want – freedom from working at a job I HAVE to go to every day to pay my car payment. I WANT to purchase the car I NEED, not the car I WANT.
  1. Financing versus paying cash (GYFG here – I am usually in the “pay cash” camp. But with cheap money and the fact that you are buying less than you can afford, I think I am okay with financing in this instance.) – This is always an interesting debate with people. I’ve never paid cash for a car outright. I know a lot of people that have and swear it’s the only way to purchase a car because of depreciation.  I don’t believe I’ve ever paid anything more than 1.9% on a car and am pretty confident that I will be able to find something at that rate or even lower based on my credit score and the deals being offered now.  I will put some money down on whatever I buy but will end up financing the car and then will do my best to pay it off sooner.
  1. Buying new versus used – Since getting married, my wife and I have only owned a few different cars. Because we like driving cars for a long time I think purchasing new is the way to go. I have purchased certified pre-owned cars before. But because I want to purchase something and hold onto it for as long as I can, I want to know where it came from.  That being said, there are great deals out there on certified pre-owned and you can probably find something you can hold onto for a long time as well, but I like knowing that I have had the car since it came off the truck at the dealership and don’t worry as much about what might have happened to it previously.   However, if I was driving something a little newer and was going to go out and get a car for my oldest, I would have definitely bought something used knowing full well it would be a car she had for a few years at best.
  1. Buying warranties, gap insurance and theft protection – I know that people can get “had” during the financing process at the dealership. There are all kinds of upgrades and upsells they’re trying to sell you so they can make their money. Some of them are great deals and some aren’t so much.  When we purchased our most recent Odyssey, it was a certified pre-owned and I purchased the extended warranty to 120k miles. Let me tell you, that $2k has more than paid for itself since we got the van. We’ve had automatic door motors replaced, seatbelts replaced, and all kinds of stuff underneath the car I can’t even begin to remember that was replaced free of charge.  We park our cars in the garage at night and in pretty safe areas at work, so the theft protection device hasn’t ever been something I’ve considered.  More than anything though, I think it’s key to know what you’re going to do before you walk into the dealership.

There are a bunch of other things to be aware of as you’re going through this process and I won’t bore you with all of them. I’ve done my research on safety factors, cabin size, gas mileage, theft rates, etc.  But I think that at the end of the day, I just had to stop and ask myself, “What are you purchasing a new car for?”   I waited until I truly needed to do it versus going out and replacing a car every four years. I am willing to sacrifice a Tesla or a Range Rover today to know that I will be able to control my future that much faster by making a sound financial decision.

I truly believe and practice the belief that seemingly small and insignificant decisions I make on a daily basis will have a huge positive impact on my future and my family’s future.  Right now, my focus is on living life on my terms, and big payments on a fancy car that bring very little and fleeting joy is not worth the tradeoff of extra time in my FREEDOM plan.

(GYFG here – Dude! First of all, love the reference to the Slight Edge philosophy in your last sentence up there. I think you made the right decision and are looking at this the right way. We both know how quickly the euphoria of buying a new car fades anyways. Lastly, SO WHAT DID YOU END UP BUYING?)

I have a friend that is the GM of a Honda Dealership and he worked a little magic to get me a really good price on a 2015 Honda Accord Sport. It’s a nice looking car, gets good gas mileage and has decent power for a four cylinder.  The car even has a hookup for my phone which is a great perk I’ve lived without for years. The car will be paid off before the 5 years are up (I secured 0.9% financing) and will be the perfect first car for my son when he’s driving 8 years from now.

-Mr. CEO


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Gen Y Finance Guy

Hey, I’m Dom - the man behind the cartoon. You’ll notice that I sign off as "Gen Y Finance Guy" on all my posts, due to the fact that I write this blog anonymously (at least for now). I like to think of myself as the Chief Freedom Officer here of my little corner of the internet. In the real world, I’m a 30-something C-Suite executive. I am trying to humanize finance by sharing my own journey to Financial Freedom. I believe in total honesty and transparency. That is why before I ever started blogging, I decided that I would share all of my own financial stats. I do this not to brag, but instead to inspire motivate, and also to hold myself accountable. My goal is to be a beacon of hope, motivation, and inspiration, for you, the reader, by living life by example and sharing it all here on the blog. My sincere hope is that you will be able to learn from me - both from my successes and my failures! Read More

Comments 16

  1. I had a car loan when I bought a new to me used car from a dealership after I graduated college. NEVER AGAIN. I don’t need a car now as I live in Manhattan but when I move back out to the burbs, I’m buying a used car cash for $10k or less. One without bells and whistles, and that will get me from point A to B. I love cars, but I’ll just drive my friends and family’s fancy cars if I ever get the urge.

    1. FF, I REALLY considered that. I debated buying something in the $10k range because of that same reason but having three kids and wanting to know they were safe in something newer (safer) weighed on me.
      I have some friends that have beautiful cars….and low 401k/savings accounts. HAHA. I always enjoy them driving me somewhere.

      Thanks for the perspective,

  2. Congrats on the new ride! Love the thought process and having your son in mind.
    I have a client-facing job, and have found used entry-level luxury to be my sweet spot, especially if you are patient and really search for deals.

    1. That’s a great point. Part of why I lasted as long as I did in the Civic was because I went to the office and stayed there. No entertaining or going out to lunch, so it was purely a way back and forth.

  3. Mr. CEO, may I offer a thought for your consideration…if your wife has been mentioning this for six months, she has been thinking about it for 12. You must immediately thank her for urging you to do “the right thing”, that she is “a paragon of good judgment” and tell her that left to your own devices you would have driven it forever. Sometimes the discussion is not “about a vehicle” but about “respect.”

    My father had some wise words on this, especially describing his decision-process once he became a grown man with children. “It is worth it to buy a new car, because you don’t inherit someone else’s problems. Cars must be reliable, and the value is in provided utility. There is never a good time for a car to break down, especially when your family is using that car.”

    For myself, in 37 years of car ownership, I have owned four cars. Never had a payment.
    Make/Model Year Miles Driven Years Driven Bought Sold Miles/Year
    VW Bug 1968 115,000 7 850 850 Used 16,429
    VW Jetta 1985 330,000 14 10,700 1,500 New 23,571
    Honda Accord 1992 135,000 7 5,500 500 Used 19,286
    VW Jetta 2007 100,000 9 19,080 n/a New 11,111
    Totals 7952 680,000 37 $36,130 $2,850 18,378

    I don’t care about cars, and my only indulgence is the sound system. Which is awesome. Always. Bought two lifetime SXM subscriptions in 2009 and they paid for themselves in 3.3 years. I drive the cars until they stop, then donate them for the write-off and don’t hassle the towing, fixing, selling, registration transfer, etc. It has worked out that at the end of each car’s useful life, the sound system was worth at least twice what the car would sell for. Not sure that is a useful metric, but maybe someone will find it an interesting metric. My wife drives a nice car, very safe and comfortable. She can drive whatever she wants, but chooses to keep her vehicles for 10+ years. I once read the Motley Fool’s philosophy, that “you are not your car.” My brother wondered why I was driving a car with 330,000 miles on it, and the conversation went like this:

    Bro: “You know what, Dude? Why do you drive that beater? It looks like hell.”
    Me: “You know what, Bro? I am not my car.”
    Bro: “You know what, Dude? You are that car.”
    Me: –

    Point taken. Bro.

    1. GREAT insight JayCeezy! You’re right about the wife. Happy Wife, Happy Life! Thanks for the comment. I haven’t done as well as you with my cars yet but definitely am working towards it. I am proud of how well our Honda Odyssey runs with 125k miles on it! And my daughter is at 200k miles on the Civic now! If all goes well, we’ll see 300k on one of our cars.

  4. Usually, I’m in the “pay cash” camp that you mention. You make a good point, though, that if you can get an auto loan at less than the inflation rate, you’re basically getting free (or even better than free?) money. You also have to consider the rate of return you’d get on the cash you’d use for the car vs. taking out a loan, so it’s definitely a more complex choice than I’d initially assumed.

    1. Yeah that 0.9% offer makes it pretty tempting to just finance without even thinking about it…but we did…and still financed! HA

  5. I had a $500/month payment (1% interest) on my 4runner for 5 years. I definitely vowed never again and to stick in the sub $15k range for cars in the future, whether I financed or paid cash.

    Plus I’m hoping my Toyota has another 150,000 miles to go.

    1. Post
      Author

      Hey Adam – My wife and I both bought Hyundais and plan to keep them each at least 10 years. I have a 2011 Hyundai Sonata that has about 72,000 miles on it and is 4.5 years old. So by year 10 I should be pushing about 160,000 on this bad boy. I paid $28,000 cash for it. So the cost of use before any terminal value would be about $2,800/year.

      I am really not sure if I will buy new or used next time around.I really resonate with the advice that JayCeezy got from his dad below:

      “It is worth it to buy a new car, because you don’t inherit someone else’s problems. Cars must be reliable, and the value is in provided utility. There is never a good time for a car to break down, especially when your family is using that car.”

      But at the same time I realize that a certified used car could really save a lot of money and a lot of times it comes with the same warranty as the new car.

    2. I know I should be buying American cars, but I have had good luck with Honda and a lot of my friends have had Toyota’s over the years. Those things drive forever!!!! I hope you get to 300k!!

  6. I’ve always taken a very different approach to car buying. I try to figure out what the lowest amount I can pay for a reliable car is, and we buy that car. Typically, it seems like an 8-10 year old 4 door sedan with around 80-100K miles will yield some pretty sweet performance for another several years. The cost for this kind of car is often less than $7K. We are hoping we can push our 2005 Corolla for at least another 10 years, but we will see 🙂

  7. I love cars though not much. I don’t think I am in the capacity to buy a Ferrari, but surely I also earn decent money to buy a cool, safe European car.

    1. Chella thanks for your comment. I am glad you know where I was going with my post. I too would LOVE a Ferrari. But I think it’s good to get something that is safe and lasts! Have a great day!

  8. Good to hear from you Mr CEO, didn’t realise it was you til I read about the kid part, then realised that GYFG doesn’t have kids..

    Cool tips & considerations here.. For me it’s really about the purpose and understanding your why rather than attempting to impress the guy or people next door who you probably don’t like anyway 😉

    Cheers!

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