Buy a used car and save tons of money. How many times have you heard it? It’s one of the top five suggestions on any “how to save money” article. It has become part and parcel of the frugalist mindset, so much so that we now scoff at the poor, misguided souls who still buy new at the dealership.
But does a used car really save you money in the end? The answer is nothing more than an uninspiring, “Maybe, under some circumstances.”
But usually it won’t.
I personally find used car savings the exception rather than the rule if, as I steadily preach, you think it through.
First, let’s start with the savings on price. Conventional wisdom is that by merely buying used you will save 20 – 40 percent on the purchase price. That can be true, no doubt, but as with everything you give up something for that price savings. There’s not a seller on the planet who will give you savings of that magnitude unless the car has suffered a similar diminution in value. Usually, it is pretty apparent by simply looking at the odometer reading. The next time you find yourself attracted to a used car price that is at or near half the cost of the same model new, just look at the odometer, and you will probably find the catch there. Chances are you will find that the car has a good 80,000 to 100,000 miles on it. This, of course, means that you are very close to buying that car’s next major mechanical failure. It may be an air compressor, a solenoid, an alternator, a timing belt and water pump — who knows? But you can rest assured that you are 80,000 miles closer to a $500 – $1,200 repair tab, and probably several of them.
Remember too how many normal wear and tear items might be staring you in the face. Unless the tires and brakes have just been changed, you will probably be replacing them in the next six months, as opposed to waiting two to three years before incurring that cost on a new car.
I also am willing to pay a bit more for peace of mind. With a car, that comes in the form of warranty coverage. If you buy a new Hyundai of Kia, you are buying yourself five years and 60,000 miles of bumper to bumper warranty coverage. If you buy a used model with anything beyond 60,000 miles, you get no warranty at all. With most other makes, you get zero warranty protection if you buy a car with a mere 36,000 miles on it.
Of course, you also have no idea how well the used car has been maintained by its prior owner — unless you are buying from a very close friend or from the very rare person who keeps full, accurate service records on file. Now just think about how many times you have been too busy to change your oil at the necessary intervals and how many times you have done downright stupid things with your car that won’t show to the potential buyer. Call me a pessimist, but I am less than confident in the diligence of the average car owner, and there is of course a reason why that owner is looking to sell the car in the first place.
But what if you buy a lightly used car, one still well within the manufacturer’s warranty? That is a great idea if you can still accomplish significant cost savings. The problem is that is very seldom the case. Just look at a random example. Let’s say you live in Atlanta and are in the market for a Toyota Corolla, a sound choice for the aspiring frugalist. A quick review of Atlanta Toyota‘s website shows us a 2014 Corolla LE with less than 21,000 miles priced at $15,180. The same dealership offers a new 2015 Corolla LE for $15,739, with other new models ranging into the $16,400 range. Does the used car price sound like such a good deal? Not to me.
Many will argue that better savings can be obtained by purchasing used from a private party seller. But that option also is overrated. With free, online access to Kelly Blue Book and Edmunds, any seller can easily determine the retail value of his vehicle, and just a quick browsing of Craigslist makes that clear enough. It is also much more difficult to find a lightly used car for sale from individual sellers. Again, check out Craigslist and what you will find is a plethora of cars with heavy miles.
In my opinion, the only practical used car option is a lightly used model, still within manufacturer’s warranty that is, for some reason, priced significantly lower than the new model alternative. About the only time you will find this option is with a close out model or one that has been sitting on a dealer’s lot for a long time. Dealers will reduce prices on models with “dust” on them. Otherwise, you will find a better overall deal with a carefully negotiated new car deal and all the warranty and peace of mind benefits that come with it.