Should You Buy a New or Used Car? – Some Tips on How to Decide

It may clang and bang, but your despised old car may be the best bargain around.
 
Divide the car-buying universe into two camps: those who keep a car until it drops, and those who think a new car will change their lives. There's nothing short of the bus that's cheaper than keeping a car until it crumbles into a pile of rust. Almost any car can be nursed to 200,000 miles without endangering your life, and even a new engine is cheaper than all but the cheapest used cars.

To the second, another round of applause, because the 16 million or so new cars they buy every year instantly become used cars soon available at a considerable discount to those in Camp 1. And a moment of silence, because a new car will change their lives in ways they never foresaw on the dealer's lot.

If you're in a drive-until-the-muffler-is-dragging wannabe, read on. From a financial (and practical point of view), that may be the best option.

Sometimes, you hear people say, “I'd love to keep my old car, but … It no longer fits my life.” For example, your little Ford Escort may be a tight squeeze when family comes to town. What is the answer to this dilemma?: Rent. Why buy a gas-sucking pickup because you visit Home Depot twice a year or a $30,000 sport-utility because you take the kids skiing for a week at Easter? Even at $100 a weekend, renting is far cheaper than a car payment. Furthmore, you get to drive the very latest without worrying about insurance, license tags, maintenance or depreciation. Or try swapping cars with a friend, returning it gassed-up and clean (with the oil changed, too, if the loan was more than a day or two. Those repair bills are really adding up. Does the cost of repairs exceed the cost of a new car? A rebuilt transmission might run $1,500, a huge outlay in one chunk, but far less than the $4,200 a year you'd spend on new-car payments alone. If you can't afford repairs twice a year, it's unlikely you can afford a new car payment every month. In any case, anybody with a car older than three years should be tucking aside $50 a month for repairs and maintenance. If the gods smile, you'll never use most of it and you'll have a tidy sum to blow on your next car.

If you are nervous driving an older car, then you might want to spend money on a AAA membership and carry a cell phone, reminding yourself that even new cars aren't immune to mechanical failure. The upside of frequent breakdowns is that you'll get to know mechanics quite well. Pay your bills on time. The repair costs more than the car is worth. Simply stated, a $1,500 engine rebuild that keeps your '83 Toy on the road still makes good financial sense.

Are You Ready for a Newer car?

Put aside a car payment every month for three months (long enough for at least one of life's little emergencies to crop up). To pass the time, make three phone calls: one to your bank, to find out what kind of rates they charge on loans to people with your credit history; one to your insurer, to ask the rates for comprehensive insurance on a model you think you'd like to buy; and one to your local DMV, to see what registration and licensing would cost.

Then ask yourself: Would you pay this much every month for the car that's in my driveway already? Sooner or later, every new car becomes an old car, and you'll feel about the next car just the way you do about your old clunker. Typical car payments are about $350, and this adds up to more than $1,000 in three short months.

Next ask yourself: Could you continue to save for another year and simply pay cash? Five grand would buy any of hundreds of reliable used models. Save for two years and you're in new-car territory, if your old car will fetch a few thousand. If the craving for a shinier car hasn't passed in three months, at least you begin the shopping process with a few months' worth of car payments and a more realistic idea of the hit your wallet will take.

Pay special attention to the things that will cost you a fortune if they break. That means regular oil changes, tire rotations and transmission tune-ups, even if the car is running fine. Timing belts, for example, are spendy at as much as $600, and replacing one for no other reason than that the odometer has turned 90,000 miles might seem wasteful. But let one break and you'll find that repairing bent valves could cost you three times that. Replacing torn CV boots, those plastic housings that keep grime and grit out of the car's constant-velocity joints, costs about a third as much as a CV joint repair.

To make a long story short, if you take to the time to analyze your financial situation carefully, using the approaches discussed here, then you can make a more informed decision when you decide to purchase a car.