Buying a car (new vs. used) and (cash or finance) (funds, pay)

[washist]

Looking at car shopping, I began to realize I had 2 issues I had to sort out when buying my next car- which will be in a few years. Previously I would swap cars out fairly quickly and my current car I bought in cash without really thinking it through- everybody says if you can pay in cash, do it. Fortunately I've wised up and now using my head.

1) Buying new vs. used? I understand the value of buying used, and I am looking into getting a used car. I've owned my current car for 7yrs and plan to drive it into the ground. So I wonder... if I buy new, I take the depreciation hit, but if things go wrong, I have a full warranty and lemon laws to take care of worst-case scenarios. I've been told if I drive the car into the ground, might as well buy brand new. And these days used cars aren't the steal they used to be with a shrinking supply of them.

2) Cash or finance. The issue is that with my next car, I would have the cash to buy. And everybody says buy in cash if you can and I was planning on doing this. Then I read some random story about how the rich just take loans out to finance stuff, which at first made no sense to me. Then it dawned on me that it would mean selling off some investments, which means by the time I do get a next car, I'd be in the tax bracket where the long-term capital gains tax will be 20%-23.8%. Which makes no sense to me, so I'm thinking about just taking a loan out (hate it) but it looks like it will be cheaper in the end.

[duster1979]

Originally Posted by washist

Looking at car shopping, I began to realize I had 2 issues I had to sort out when buying my next car- which will be in a few years. Previously I would swap cars out fairly quickly and my current car I bought in cash without really thinking it through- everybody says if you can pay in cash, do it. Fortunately I've wised up and now using my head.

1) Buying new vs. used? I understand the value of buying used, and I am looking into getting a used car. I've owned my current car for 7yrs and plan to drive it into the ground. So I wonder... if I buy new, I take the depreciation hit, but if things go wrong, I have a full warranty and lemon laws to take care of worst-case scenarios. I've been told if I drive the car into the ground, might as well buy brand new. And these days used cars aren't the steal they used to be with a shrinking supply of them.

A warranty is all about peace of mind. Let's say the model you want is $30,000 new and that you can buy a 4-year-old version in nice shape just out of warranty for $15,000. Is it likely that the warranty would have saved you $15,000 over 4 years? Pretty unlikely. So financially it's hard to justify, but the peace of mind of knowing that if something goes wrong you can take it in to get fixed at no cost is worth quite a bit to many buyers.

2) Cash or finance. The issue is that with my next car, I would have the cash to buy. And everybody says buy in cash if you can and I was planning on doing this. Then I read some random story about how the rich just take loans out to finance stuff, which at first made no sense to me. Then it dawned on me that it would mean selling off some investments, which means by the time I do get a next car, I'd be in the tax bracket where the long-term capital gains tax will be 20%-23.8%. Which makes no sense to me, so I'm thinking about just taking a loan out (hate it) but it looks like it will be cheaper in the end.

There's a difference between financing a purchase because you can't afford to pay cash and financing a purchase because you're investments are making more interest than you would pay for the financing. If your money's in a CD earning 1% and the auto loan is going to cost 5% then by all means pull your money out and pay cash. On the other hand, if your money is earning a solid 10% in a mutual fund but you can finance at 3% it makes more sense to go with the financing knowing that you have the funds available to pay it off if you need to.

[MrRational]

Originally Posted by washist

1) Buying new vs. (edit: lightly) used?

Lightly used. One or two years old = babied with most of the new warranty.

2) Cash or finance.

Few really have the choice but to finance.
If you have the $20-40,000 (more?) needed and available to pay cash then you should also
have the wherewithal to make the assessments about best/highest use. Poor you.

[lmw36]

I bought new because I got thousands off list (family friend doing us a favor, BIG favor), truly 0% financing (I have good credit), and the culture in my family is to drive a car until it's 10+ years old, or doesn't go anymore. I also drive cross country for work, so I need to know I have reliability for at least the next 2-3 years.

At the price I got my brand new Corolla, I'd be paying about the same for a couple year old one, so why not?

Other than that, I don't see why anyone would buy new.

What I was considering while buying a car:
-KBB Value of the car I'm looking at, as well as estimating depreciation of the car for how long you plan on keeping it, the mileage, the cost to insure, etc.
-Financing at various banks in town
-Reviews on the car. Does anything tend to break down after a few years, if so how much will it cost to replace?
-I have several mechanic family members that I live far away from now. Could I afford to fix my car without their help?

There are a lot of factors to consider. The best advice I can give is take your time, test drive, take your time, and take your time. Don't be afraid to walk away from "deals". If they want to sell you a car, they'll make you an offer you can't resist.


So, in short, new vs. (lightly) used depends. For some people, lightly used means 5K miles. Some it means 50K. I'm a fan of the cars that don't lose as much in terms of reliability/depreciation (Toyota, Honda, Lexus, etc) and have a history of good customer service. I went as far as to look at reviews of garages in my area to see the customer experience of buying a honda vs. toyota, both similar price points for me.

Cash vs. Financing:
Buying ANYTHING Cash is better. However, like I said, I put down a hunk of cash and chose 0% financing since I can use the money not going towards my car to investments like a 401K, IRA, or even my savings account at that point. Look around at different finance rates.

Only buy cash if you can afford to part with said cash .