I thought now would be a good time for me to publish this blog entry, as it ties-in with my post from Monday, Mistakes for Young People to Avoid - Car Hopping. I feel that this is very important information, and usually gets looked over when people are in the market for a different vehicle.
Is your car reaching near 200,000 miles? Is yours just crapping out? Did you happen to purchase an American car back when American cars were just not so... Reliable? Read on to discover some tips that will help you get through that whole car buying process that many people dread... Or that others find too exciting to be smart about it.
Yes, BUY USED. Never purchase a brand new car. There literally is an instant depreciation in value when you drive that squeaky clean brand new car off the lot. It is about 10%, give or take, which could be like throwing your down payment out the window.
Take, for instance, the 2003 MINI Cooper S that I mentioned in my post from Monday. I financed that car for $15,000, in 2007. The sticker was $23,000, so we will use that figure. With all the factory options that that MINI had, it retailed in 2003 at $38,000. That is a pretty HUGE difference. A difference of $15,000, to be precise.
'But what about miles?' you may ask. You're right - a lot of miles can build up in four years. In fact, the average American drives 12,500 miles annually, or 50,000 in four years. But guess what? That is not many miles for today's vehicles. Today's vehicles will last into and possibly beyond 200,000 miles. If you follow the 12,500 miles/year statistic, that is 16 years! Also, my MINI had only 8800 miles when I purchased it, or about 2,200 miles annually. So, yes, those gems are out there! I was practically the only owner!
Follow the 4 Year Policy
Statistically, all of the major depreciation of car value happens in the first three-to-four years. Let's examine this.
Let's take a look at our personal vehicle. We purchased our 2007 Ford Focus S 5-speed manual with 30,000 miles on it. It retails at $11,435. A brand new, unused 2011 Ford Focus S has its MSRP set at $17,295. That is a $5,860 savings, or 34%! Consider the difference! Also, if you think it's just age, a used 2011 Ford Focus S goes for about $15,345. Instant negative equity!
Here is a great resource. I absolutely love Edmunds! Depreciation Infographic: How Fast Does My New Car Lose Valu...
Keep in mind that each car depreciates differently. Here is an article detailing a few Top 10 lists for best and worst depreciation values.
Save Even More - Salvage Titles
Now, remember how I said that my wife's and my 2007 Focus retails at over $11,000? We did not pay $11,000... We got the car at $5,500, from a consignment dealership. We put $1,972 down, financing the rest at $126/mo. How did we do this?
Our Focus has what you would call, a 'Salvage Title'. This may also be called a 'Restructured Title', or a 'Rebuilt Title'. This means the vehicle was involved in an accident (or theft) in which the vehicle suffered severe damage - according to the insurance company. It generally tends to be that the costs to repair are 50-80% of the vehicle's retail value. Thankfully, body work is very expensive, which means that you can have your hands on a reliable vehicle that has only suffered cosmetic damage. And chances are that you will not even notice any cosmetic flaws! On our Focus, the front grille is a hint lopsided, a corner of the rear bumper is not latched on all the way, and that's just about it. Really, only things you notice if you pay very close attention to details. But this is something you should do when looking at cars in the first place.
This brings me to my next point...
Have an Inspection Done
Before you buy your new used vehicle, one of the most important steps is having the vehicle inspected by a shop that you trust. I have heard that some will do this for free, and then offer discounts on further business, but I have not encountered this. I have seen $15-80 inspections, all of which were about the same, and all very inclusive. They will tell you what needs done before you buy it, what will need done soon after you buy it, and their opinion of whether or not you should buy it at all. A good idea - if you don't know where else to go - is to go straight to the dealership that sells that brand of cars.
A key point in the car purchasing process.
What about my factory warranty?
You may say that the money spent on a new car is worth the extra cost because of the factory warranties. Well, consider this...
Most vehicles do not require a major repair until around 100,000 miles or five years. The best warranty in America right now is 100,000 miles/10 years, whichever comes first. Chances are that a big repair will come after that 100,000 miles. Typically, though, today's vehicles should last well into the 200,000's, only needing sub-$100 (sub-$500 for tires and brakes) repairs, that really should be considered part of your maintenance regimen and budgeted for, as I am sure they are on the manufacturer's maintenance schedule. These types of repairs/maintenance costs will include things like: re-timing or replacement of timing belt (becoming a thing of the past with timing chains becoming more affordable and reliable) @ 100k, new tires @ 60k (not covered on factory warranty), new brakes at 150k miles, new windshield wipers every 10k-20k miles (not covered), oil changes every 5,000 miles (not covered, but required to maintain warranty - may be performed free or discounted where you bought your car, dealer specific), new spark plugs every 40k miles (not typically covered), alignment every 50k miles or when changing tires (not typically covered, but may be required to maintain warranty), etc. Many warrantees only cover manufacturer malfunctions. So, really, they are not worth the extra costs.
Note: Keep in mind that these are generalizations. I know that more expensive vehicle manufacturers - MINI, for instance - offer an extended factory warranty (MINI's is up to 100,000 miles) that costs a little under $2,000, that cover engine timing, oil changes, alignments, wheel/tire installations (not the tires themselves), etc. So, remember, it is up to you whether or not these warranties are worth it. Also keep in mind that NOT ALL warrantees transfer to second owners. MINI's, however, does. Hyundai's, for example, does NOT.
Number one rule about trading in your current vehicle... Do not trade-in a vehicle that you owe anything on. This would most likely send your auto loan into negative equity. Who wants to own one car, and pay for two, like I am currently doing.
Down-payments are one sure-fire way to avoid negative equity. The more you put down, the less you owe, the lower your interest rate, the fewer months needing financed, and the lower your monthly payments. A good rule of thumb for down-payments is about 10-20%. The more, the better.
As you have seen, buying a four-year old or newer (in some cases, older) used vehicle is most always in your best interest when comparing to buying brand new.
Time for a New Car?
July 8th, 2011 at 08:49 am