MoneyUnder30.com
Simple. Honest. Personal finance.
MoneyUnder30.com

Should You Buy That New Car? 5 Reasons to Keep Your Clunker Running

Keeping your old car running as long as possible can make a lot of financial sense.

Guest author David Bakke shares his insights on money management, smart shopping, and getting out of debt on Money Crashers, one of the top ranked personal finance blogs.

In this day and age, people are constantly upgrading just about every appliance, device, and gadget they own. Therefore, it’s not surprising that many people feel the need to buy a new car every few years. Personally, I think the obsession with “upgrading” is silly, but I also understand that it’s just one of society’s latest trends.

Unfortunately, this trend can often cost you more than just the retail price—buying a new car rather than keeping your old one carries quite a bit of added expense. Here are five great reasons why you should hold onto that “outdated” vehicle a while longer.

5 REASONS TO KEEP YOUR OLD CAR

1. Life Without a Car Payment
It took me a long time before I got to experience the joy of life without a car payment. Unfortunately, I wrecked my first two cars right before they would have been paid off. Then, in 2000, I finally paid off a car that I was still driving.

Let me tell you something: not having to write a check for a car payment every month amounts to huge savings in your personal funds. Just imagine having an extra $300 or more left over at the end of every month. I was able to use the funds to pay off all my credit card debt and begin seriously saving for retirement.

If you are currently driving a car that is paid off but are contemplating purchasing a new one, ask yourself this: “Do I really want that chunk of money coming out of my pocket on a monthly basis again?”

2. Opportunity to Save for Your Next Car
If you’ve just paid off your current car, why not use the opportunity to save for a new one? Continue to “make” your car payment, but set it aside in some sort of interest bearing account.

If you hold onto your current car for three more years, putting that $300 or so payment away each month, you would have almost $11,000 to put towards your next car. And that doesn’t even include the interest you’d gain on that money!

3. Depreciation
I’m sure you’ve heard it a million times before, but it’s important to remember when you’re tempted to purchase that shiny new vehicle: a new car begins to depreciate in value as soon as you drive it off the lot.

It’s impossible to give you any hard numbers on the matter since it fluctuates based on the purchase price of the car. Here’s a rough estimate to keep in mind: you can expect to lose somewhere in the area of at least 50% in value during the first five years of owning a new car. Compare that to the cost of maintaining your current car over the next five years. I bet Old Reliable’s looking pretty good right about now.

4. Indirect Costs
Oftentimes, people do not take the indirect costs of owning a car into account when considering whether to buy a new vehicle.

Take auto insurance, for example. If you purchase a new car, plan on paying significantly higher insurance premiums. To illustrate, I obtained quotes for insurance on a 2010 Toyota Corolla and a 2005 Toyota Corolla utilizing identical factors (including age and driving record). If you purchased the newer car, you would be paying almost $300 more annually for your auto insurance coverage. (Note: it is important to compare auto insurance quotes from multiple companies whichever car you decide on, as rates between companies can be dramatically different, even for the same coverage).

There are also tag renewal fees to consider. I currently own two cars: a 1994 Toyota and a 2005 Toyota. The annual tag renewal fee for my 2005 car usually runs about $150. The renewal fee for my “clunker,” however, is less than $30. Combine these two expenses alone and you’ll save over $400 per year by keeping your current auto.

5. The Environment
Did you know that keeping your current car helps the environment?

The act of replacing your vehicle has direct effects on the world we live in. The process of building a new car expends both energy and resources, and there are also environmental costs to disposing of an old car. It takes energy to shred and recycle metals, and some car parts that cannot be recycled end up in a landfill. The leftover fluids, refrigerants, and other chemicals simply turn into hazardous waste.

FINAL THOUGHTS

I drive a 1994 Toyota Tercel. Yes, 1994. It is not the most attractive car in the world, but it gets me from point A to point B just fine. For several years, my reasoning has been that I will continue to invest money in the maintenance of this car until a repair comes along that costs more than the car’s current value. That hasn’t happened yet.

If you’re worried about the repair costs involved in maintaining your current car, ask your friends and family members if they know someone who does repairs on the side. Alternatively, if you’re handy, learn DIY car maintenance tips. You’ll save a bundle over taking it into the shop. If you think that you “need” a new car right now, look at the overall financial cost. You may just want to hold onto your current car for a while.

Did you choose to keep an older car rather than purchase a new one? How did you use the extra money?

###

Comments

  1. I buy an used car(less than 5 years old) and stick with it for 5 years. No car loan what so ever, and with 11K (your example), you can buy a nice used one. I resist to drive a car older than 10 years, for 2 major reasons: 1) bigger repair/ maintenance bill 2) to keep up with the safety technology, like: side air bags and electron stability control.
    Good to have them to minimize injury/death and to prevent accident.

  2. Yes. I bought my mom’s 2000 Volvo Station wagon off her after college. My plan is to drive it into the ground. It’s not fancy, but it gets me between point A and B. Plus, it’s got tons of cargo room for the ride.

  3. I completely agree. My car was a hand-me-down from family that was upgrading to a larger vehicle because of an increase size in family, so I got a steal of a deal and no car payments, which meant NO INTEREST!
    I would personally rather put my money in an investment that will at least retain it’s value, or increase (even better). Cars are “black-holes” of money. My family has always chosen to drive modest cars and spend money elsewhere like family vacations. These are definitely values I want to install in my kids!

  4. oldcarsforkeeps says:

    My husband and I figured out our total car costs for the year – we have three vehicles: a 1999 subaru wagon, a 1999 dodge ram (pickup truck b/c he often has to pull a trailer), and a 1990 cadillac deville.
    Gas – $5070 for 2011 (and we carpool at least 3 days a week when schedules allow – this is really not a cost we can cut down on)
    Insurance – $1200 for all three
    Tags & Registrations – $350
    Repairs, Maintenance, Tires – $1000

    It was eye-opening to realize how much we actually spend on vehicles every year.

  5. I’ve been lucky in that all 2 of my cars have been virtually free since my father’s a mechanic and can help me repair them on the cheap.

    For me, cars are a practical thing, though, not an item of desire or status. I don’t anticipate buying a new car someday; what I eagerly look forward to is a nice car of my own choosing that does the least harm to the environment.

  6. Yes, I drive a 2000 Chrystler Seabring. I bought it 4 years ago for about $8,000 and it only now hit the 100,000 mile mark.

    I’m an average to light driver who on average only puts 10,000 or so miles on a car per year, nd make sure to do regular maintanence. I recently ran into a few repairs that cost me $300 when all was said and done. The car is still worth more than that.

    I’ll run it as long as I can, then probably buy a gently used care (3-5 years old).

  7. Bought an 03 civic for $1500 from my girlfriends father. The car had 170K on it when I bought it, but runs like a champ. $30/month in insurance is dirt cheap and I’m paying back my student loans fast due to this car! I wish more people in the US would read this site and some of the advice it has to offer.

    -Ryan

  8. We live in the Bay Area, both my wife and I can either walk, bike, or take public transit to work, so our car ends up sitting in the street 90%+ of the time. It’s a 2008 Honda Fit, purchased new, and we’re about to finish payments of $175/month on it in March. As nice as it will be to completely pay it off, we’ve been discussing how we could sell the car for at least $10,000 (fuel efficiency, shortage of Hondas due to natural disasters that have impacted production, less than 35k on the odometer make it quite valuable) and use that money for a down payment on a condo. At least in the Bay Area, renting is more expensive than owning if people can scrape together enough for a 20% down payment. Also, there are plenty of options available to us, such as relatively close access to City Carshare and Zipcar vehicles, walkable distances to grocery stores/farmers markets, that it makes a lot of sense to free ourselves of the car. Sure, gas prices are low right now, but we’re looking longterm and thinking of future maintenance, higher gas prices, and where else that money could be allocated to, like starting a family. Our situation is unique, yes, but we still are having a VERY difficult time making the decision to sell the vehicle despite all the benefits. Let’s just say it’s hard to go from owning a car to getting rid of one!

  9. To anyone out there considering buying a new car, please, take my advice and do not, DO NOT do it. I bought a new $21k car 5 years ago after finishing college and can safely say it was the worst financial decision of my life. I’m just now paying it off and I don’t even use it anymore (its sitting in storage as I moved to a city where I don’t need to drive). My car depreciated in value faster than my loan balance did. Its depressing to check the Kelly Blue Book and see you owe $12k on a car that’s currently worth $9k. If I could go back I’d buy a used car for $5k or less. Put as little money as possible into depreciating assets (e.g. cars).

  10. I have never owned a new car and always paid cash when buying a used one. I have an Acura Integra and Honda Accord Sedan for wife which we use for longer trips. Both cars are exceptional and I have done some repairs on my own saving tons of money on both. Using Youtube and manuals are a great way to learn to fix your own car and knowing a mechanic. My 2 Hondas both are around 140,000 miles and still runs like new. It is a great feeling knowing that I have them paid off and I actually appreciate my cars much more and enjoy them.

  11. Hi!
    I was just wondering what I should do with my car as I am about to make the last payment this month. I bought new, but it seems like everyone is on the same page of not purchasing a new car. Does it matter if you have a long commute to work so that the miles are increasing on your vehicle faster than normal? In this case is it still better to keep your car as long as possible, OR try to get rid of it before the miles get to high for re-sale? In other words, do you think it would be better to save the money that i would be using on the car payment vs.trying to earn money by selling it while it still has realitvely low mileage? I am at 75k miles and purchased new in Honda CRV 2008.

  12. To me, this decision is more of a personal choice. The first and foremost reason to go for a new car or a new “used” car is the value of your current car. See if there are any repair works required on your current car. If the repair works > the value of that car, one should just dump it or trade it in at the dealer’s place.

    The second reason why one should go for a new car is “safety” (actually this should have been first). There are things that you would always miss in your 10 year old car in terms of safety when the rest of the world is driving a 5-6 year old car with all the latest features. you may be a safe driver but with all those bluetooth gadgets in those new cars, a driver can easily get distracted and hit you. The other driver may still be safe with the all the safety features compared to your old car that may miss a few.
    Three, maintenance costs. If your monthly maintenance costs > 1/2 the monthly payments of a new car, it’s high-time you change your car. In all probability, your 10-15 old car may not survive another 5 years. However, your new car will do that but it depreciates to 50% of it’s original value in 5 years. So, working the reverse strategy, look for a car whose monthly payments is not greater twice the maintenance costs of your old car.
    Four – Peace of mind.. are you the one that thinks – “oh! will my car stop halfway if I take it for this car for a 3 hour drive?”. Are you sometimes afraid of taking your car in the night because it may fail. In such cases, without a doubt, get a new car or a new “used” car.

    Five – Pleasure and status! Yes .. this is very subjective. and so is everything else that you spend your money on. Well, can you SURVIVE without a television or an iphone? I guess you most definitely can. Infact, if you’re already working in an office, all you need is a moderate house, 5-6 sets of clothing, little food and books/education. So, where does everything else go?

    Therefore, the best judge is you depending on what you want. But, with dealers coming up with all leased cars as used cars, you can almost get a new car at the price of a used car. Think smart, stay safe.