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Rolling in My Hooptie
August 10, 2011 4:59 AM   Subscribe

Help me decide how to finance my vehicle purchases. I need to get two cars for my family. Could be new, could be used. I want both of these cars to have very high safety ratings. Everything else doesn't really matter. I could pay cash for two new cars, but that just seems stupid to do on a depreciating asset. Is the best course of action to find two used, yet reasonably new cars and pay cash? What if we like having new cars? Should we just lease two new vehicles? I have read that the best course of action is to buy a used car and drive it into the ground. That's great, but what if I leave the country again in 5 years. And do I really want to be driving around in a Hooptie in ten years. How do I approach the whole buy new / used, lease issue.
posted by jasondigitized to Travel & Transportation (16 answers total) 4 users marked this as a favorite
 
Find reasonably-priced used cars that meet your criteria, have them checked by a trusted mechanic. If they pass, pay cash for them. Then, drive them until they're dust.
posted by Thorzdad at 5:16 AM on August 10, 2011


If you're going to buy a car, buy used. There's just no real excuse for buying a new car these days. You can get a late-model used car with 90% of its life expectancy for maybe 70-80% of its sticker price, tops.

Unless you buy something which is kind of on its last legs already, most any car you buy now will probably be working just fine in ten years. You'll have had to drop a few grand on repairs, maybe some transmission work, etc., but there's no good reason you can't drive any car built since 2000 up to at least 150,000 miles, if not twice that.

Leasing is... complicated. We've talked about it before. It's a multi-factoral analysis. You have to decide how much of a premium you're willing to pay for reliability and newness. You have to decide whether you have better things to do with your cash than sinking a lot of it into a car up front. You also need to consider exactly how much driving you're going to do. If you're going to drive much more than 15,000 miles a year per vehicle, leasing can get pretty expensive pretty quickly.

But you have the added wrinkle of potentially going carless in a few years, i.e. leaving the country. This is actually a fairly strong weight on the "lease" side of things. One of the main drawbacks of leasing is that the end of the lease, you're out of a car. Which in most cases is inconvenient, but in your case might actually be a good thing.

This also might be a good financial proposition. Here's the thing: buying a used car is the best dollar-for-dollar proposition over a period of about a decade. You need to own it that long to really use all of the value you're sinking into the purchase price, which you either pay up front or in a period of a few years. In other words, you buy the entire car up front, but only get to use it a bit at a time. A lease, on the other hand, only requires you to pay for the depreciation while you own it, which is nice, but because it's nice, they charge you for that. So instead of paying $15,000 for a car and having to sell it on what are likely to be less than favorable terms, you pay $8,000 and walk away.

So basically, run the buy/lease calculations, then ask yourself how likely you are to leave the country, and more importantly, how valuable it is to you to not have to deal with your car situation if you decide you want to do that. That last really isn't a purely financial decision. It's a risk management decision, and you need to decide what, if anything, you're willing to pay for the convenience of being able to walk away from your car in a few years.
posted by valkyryn at 5:16 AM on August 10, 2011 [4 favorites]


Buy two cheap new cars from one of the Japanese companies. They'll last basically forever, and they're all up to a very high safety standard at this point.

The downside of buying late-model used is that there's a small, but significant, risk that there's something seriously wrong with the car that your mechanic's inspection will miss. In my opinion, you don't save enough money to justify this risk. If you do buy used, try to go for private-party, or a very large reputable new & used dealer. And always get your own mechanic to inspect it.

Leasing is always a bad financial proposition -- it only makes sense for very status-conscious people who always want to be driving around in a new car. It doesn't sound like you're one of those people.
posted by miyabo at 5:35 AM on August 10, 2011


Oh, also, I've kept records and my 2006 Scion XB has cost $2300/year including gas, insurance, maintenance, depreciation, everything.... Cars are a depreciating asset, but they depreciate a whole lot slower than they used to!
posted by miyabo at 5:37 AM on August 10, 2011


Here's the thing: buying a used car is the best dollar-for-dollar proposition over a period of about a decade. You need to own it that long to really use all of the value you're sinking into the purchase price, which you either pay up front or in a period of a few years.

This is not a good argument against you buying a used car because you might be leaving the country in five years. If you buy wisely, you are able to resell the car again when you leave, often for not that much less than what you bought it for. Certainly you get a better deal than you would by buying a new car and trying to resell that.

When I had less locational stability, I bought an old car (like, worth only about $1500). I put about $1500 more into it for repairs every year. Four years later, I sold it, for about $1000. So the total cost of it was about $1600 a year. Even adding on insurance and registration costs, it worked out to cheaper than an annual public transport ticket (sadly). And it worked out cheaper per year than my father's car works out for him, which requires almost no repairs, but cost $40,000 new, and which he will sell for less than $20,000 eight or nine years later.

That said, if safety is your primary concern, you probably want to look a bit higher up the ladder than the rust buckets I was interested in, but you can still probably get something used and sell it in five years time without making much of a loss on depreciation. And in those circumstances, you are best off paying cash unless you get an incredible deal on financing, exactly BECAUSE the car is a depreciating asset. You don't want to be paying interest on something that is losing value.
posted by lollusc at 5:47 AM on August 10, 2011 [1 favorite]


You should ALWAYS buy a car with cash if you can afford to do so, even though it's a depreciating asset.

If you buy with cash, you pay only the price of the car. If you buy with a car loan, over the loan's terms, you pay not only the price of the car, but all that interest on whatever amount you borrowed (price of car minus your down payment). Over the long term, you're actually spending more money on the car than you would if you had paid cash. Buying a car with cash is my preferred method, if I can afford to do so at the time I need a car.

Leasing is NEVER a good way to get (I won't say "buy" in this case) a car, in my opinion. At the end of the lease, all you have are the vehicle-related equivalent of rent receipts. You don't own the car, and can't sell it to get what it's worth. At least at the end of a loan, you own the car and have the option to sell it to get money. That, and you typically have incredibly restrictive mileage limits that cost you more if you drive any reasonable amount.

As for new vs. used, that's going to depend on your personal preference, circumstances, and what you can afford. Do you prefer to have a new car or do you not mind driving around in something that's a few years old? Can you afford the loan payments on (or to buy outright with cash) a new car? Can you afford the insurance, registration, sales tax, and (in some states) property/excise tax?

Since a car loses so much of its value the instant it's driven off the dealer's lot, you might want to seriously consider used cars from one or two model years ago. However, why did the owner get rid of it so soon? Did it have mechanical problems? Was it a lease return?

If you own the car (loan or buy) you can always sell it if you decide to leave the country and get back some of your money. If you need a loan, consider a shorter term loan -- if you own the car free and clear after 3 years you can sell it if you leave in 5 years, which perhaps won't be the case if you have a 5 or 6 year loan. You can even sell with a loan before its paid off, as long as you get at least enough money to pay off the loan.

Since safety is a concern, I wouldn't look at anything older than about 7-10 years old, but that's a personal opinion. It's of course going to depend on the individual car(s).
posted by tckma at 6:13 AM on August 10, 2011


I would look for a 1-2 year old used car if you really want to drive it into the ground. If you pay cash for two cars, how much cash does that leave you with on hand (i.e., do you have an appropriate emergency fund)?

I would say "don't lease" as well. It just doesn't make sense 99% of the time.
posted by getawaysticks at 6:14 AM on August 10, 2011


Here's the thing: buying a used car is the best dollar-for-dollar proposition over a period of about a decade. You need to own it that long to really use all of the value you're sinking into the purchase price, which you either pay up front or in a period of a few years.

This assumes you're going to drive the car into the ground rather than selling it while it still has some value, which seems to me an unreasonable assumption to make.

A lease, on the other hand, only requires you to pay for the depreciation while you own it.

I've never leased a car, but I'm under the impression that most leased cars are brand-new at the beginning of the lease. That means you're paying for the depreciation during the part of the car's life when depreciation is fastest.

...instead of paying $15,000 for a car and having to sell it on what are likely to be less than favorable terms...

What unfavorable terms? I haven't found it terribly difficult to sell cars when I've needed to, though that hasn't been often. Last car I sold was a nine year old VW, via craigslist, in a semi-rural area. I got the private party blue-book price inside of a week, having spent only a couple of hours photographing, writing the ad and responding to emails.

But Valkyryn is right: leasing is mostly about convenience, so it's a subjective decision as to whether the extra cost is worthwhile.

Perhaps more important than buying or leasing, buying new or used, buying from a dealer or private seller, is to keep your wits about you, keep control of the transaction and buy or lease well. Cars are not like store merchandise that you just take to the register and pay the shelf price for. The more time you're willing to put into making it a rational, intentional process instead of just doing whatever the dealer tells you to do, the better price you'll get.
posted by jon1270 at 6:37 AM on August 10, 2011


Specifically I'd suggest paying cash and buying ~3 year old Hyundais.

Used Toyotas and Hondas are EXPENSIVE. Korean cars depreciate like wrapping paper after christmas and are right up there with the Japanese when it comes to quality. They didn't drive very well up until this year or so, but I don't get the impression that matters too much here. Elantra, Sonata, whatever. The Kia Soul is one of the better boxes.

Also worth checking out as used cars are the Mazda 5, Pontiac Vibe (a toyota under its ugly skin) or a Ford Fusion (kinda a Mazda 6). All of them depreciate HARD and have great drivetrains.
posted by pjaust at 6:42 AM on August 10, 2011


You should ALWAYS buy a car with cash if you can afford to do so, even though it's a depreciating asset.

With all due respect, this is just not true. The financing options available for new cars now are incredibly generous, if your credit is good--I just got a 5 year loan at 1.9 percent interest. I could have paid cash, yes, but by not paying cash I can keep more of my money to invest as I see fit. I'm planning to buy a house in the next 2-4 years, and having that extra 10k+ in cash will help to reduce the size of the mortgage (a loan with interest rates closer to 5%), and reduce the likelihood that I'll incur the extra cost of mortgage insurance. So financing this car certainly made financial sense.

To the OP--I would take a look at what is available in your area before you decide outright that you will buy used vs. new, or decide to lease. I found that the market for lightly used (1-2 year old), reliable cars was such that I might have saved $1000, if anything, off the sticker price of a new car. And considering how much leeway there is with sticker price, you might be able to pay the same thing for a new car if you do your research and time it out right.
posted by Jemstar at 6:46 AM on August 10, 2011 [3 favorites]


If very high safety ratings are indeed your highest priority, so much so that you're willing to throw a bunch of money at the problem for only marginal gains, then you might be one of the few people who should consider buying new.
posted by box at 6:56 AM on August 10, 2011


Don't automatically discount buying new. Prices for used cars right now are at a 16-year high. With the economy as it is, the market for used cars has driven prices way up, by 30% in some cases.

At the same time, the market for new cars is stagnent, so there are great deals to be had with financing (I, too, recently got 1.9 percent interest on a new car loan). It used to be true that it was smarter to buy 1-2 year old models, but these days, you can buy a brand-new car with no miles on it for close to the same as you can buy a two-year old version of it with 25k miles. Anyone who has been to a dealership lately will attest that if you go to a lot and clearly indicate that you're not interested in used, don't have a used car to trade in, and won't be swayed by adding a bunch of bells and whistles to your new car, they're hardly interested. Your new car won't make them more than a few hundred dollars that day, where the used car they picked up for nothing on trade-in value that they sell at a huge mark-up later that day will bring in significantly more.

So if I knew I'd be selling in a few years, I'd haggle a great deal on a new car, take great care of it, and then sell it *privately* at a premium price when the time came.
posted by mmmcmmm at 7:08 AM on August 10, 2011 [1 favorite]


Another option might be to assume a lease through one of the sites that broker these deals (google "assume auto lease." You get a newish car and can walk away in a known number of months but avoid the upfront charges. Lease assumption prices are occasionally subsidized when the holder really needs to get rid of it. Pay close attention to whether the remaining miles meet your requirements. You may need to pick up the car somewhere else (or have it shipped) but you can usually arrange to drop it off at your local dealer when the lease expires.
posted by carmicha at 7:55 AM on August 10, 2011


mmmcmmm makes a good point about the new car market right now. I recently (Dec 2010) bought a 2010 Subaru Forester after my 8-year old Rodeo was totaled. I considered used, but found that I got a better deal on a new vehicle. Same dealership wanted almost $3K more for 2008 used with 30K miles (really! they had that much demand for used vehicles at the time) than I was able to negotiate for the 2010 model with less than 100 miles and full warranty. I also got 1.4% financing over 6 years. Yes, it will depreciate, but my car history is such that I consistently keep a vehicle for about 10 years with low mileage, so I get premium resale when I do decide to change.

So don't assume that used is the best deal. The economy sucks. If you have cash (or great credit, or both) you can probably get a new vehicle for less than a used these days.
posted by southpaw at 8:52 AM on August 10, 2011


Definitely listen to mmmcmmm about the used car market. Used car prices are really, really high right now. That being said, we ended up having to buy two cars in the last month, one due to an accident that totaled one car and the other due to a failing transmission on the other car. These two events happened on the same weekend. Fun!

We bought both used cars through Hertz Car Sales and got what I think were good deals considering the price of used cars right now. Hertz car sales puts pricing online, refurbishes cars before selling them and sends bad cars out to auction. I am not shilling here. Just passing along my positive experience.

We bought a 2010 Mazda 3 i touring with 28,000 miles and an automatic transmission for $14,300. Cheapest deal on the same new car is $17,400. Hertz put new tires and brakes on the car before selling it. It's in very good cosmetic condition and drives like new.

The next weekend (no kidding...) we bought a 2010 Nissan Versa Hatchback with 22,000 miles for $12,200. Best price on the same new car was $14,300 via TrueCar.com. Best price we got from a local dealership was $15,000. We were actually able to talk them down a little bit by buying two cars in two weeks.

Regular used car prices on the same cars were much higher than the prices we paid, but it is possible to save a little money on used cars.
posted by cnc at 10:43 AM on August 10, 2011


jon1270 wrote: But Valkyryn is right: leasing is mostly about convenience, so it's a subjective decision as to whether the extra cost is worthwhile.

If you're going to buy a new car anyway, and you were going to get a loan anyway, there's absolutely nothing wrong with a closed-end lease, as long as the quoted residual value is reasonable. If you drive it too much, buy the car for the residual. If the residual turned out to be lower than it's really worth, you can recoup the extra money you paid by buying the car for the residual and reselling it for market price. If the residual is too high, give it back, it's the leasing company's problem.

The only way you lose with a closed-end lease is if you drive too much and the residual is higher than market value.

Open ended leases, on the other hand, can be a really bad deal. The residual is whatever they say it is at the end and you get to make up the difference if you didn't pay enough. With a closed-end, you pay your monthly payments and you're no worse off than having bought with a loan. (presuming your money factor is equivalent to the going interest rate..this is important to figure out before signing the papers!)

The big problem with leasing is the opacity of the terms. It's harder to figure out whether you're getting screwed than it is with a loan.

Of course, buying a two year old car is almost always a better deal than any transaction involving a new car. Not always, though. The used car market has been really screwy lately, to the point where if you have good enough credit to get the loan or lease special you're actually coming out ahead buying new. I've seen one and two year old used cars selling for only slightly less than the brand new car. Checking the blue book/Edmunds/whatever price isn't enough; you need to see what you could buy an equivalent car for brand new.
posted by wierdo at 9:05 PM on August 10, 2011


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