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Oh, I'm accounting for both factors and you are correct people tend to overestimate repair costs for a well-kept used vehicle. The thing is...depreciation is not a real, immediate cost. It's only realized when you sell. People seem to forget that on here. If you are keeping cars for essentially their entire lifespan anyways...that extra depreciation isn't a realized loss. Add in the fact that (on average) the lifespan of a new car will be a few years longer than a used one and it typically washes out with reasonably priced vehicles.
I don't think you understand what depreciation is.
Buying a car brand new is a poor financial decision, because of the depreciation lost. This link helps to better paint the picture of exactly why it's a poor financial decision regardless if you are a millionaire or not: Car Depreciation: How Much Will My Car Be Worth In Five Years?
For those who are too lazy to click the link, on a car that is priced at $34,968, it will be worth $31,121 (11% depreciation) as soon as you drive it off the lot. In three year's time, it will have lost 46% of its value, and be worth around $18,882. By year five, it's lost 63% of its value and is worth around $12,900. My car brand new was close to this price, and this has been spot on assessment of depreciation. Over the course of time, you've paid $4,385.50 of interest on the car, and it lost over $22,000 in value. All this around 4.75% interest.
You claim that you've observed this type of depreciation with a Honda Accord. As someone who has aggressively looked in the secondary market at Honda Accords as well as Toyota Corollas and Camrys, I have not observed this to be the case. I bought a new Corolla last year for about $15.8K (not including tax and title, etc. A used car purchase would have most of the same costs. And yes, I did go through the additional costs line by line. The amount of "unneeded extra" in there was de minimis if it existed. But let's round up the cost new to $16K, for simplicity).
I'm looking at 2015 Corollas for sale. The cheapest listing I can find near me is one for $9,000 (so not quite 46% loss in value compared to new at 16K) that has almost 100,000 miles on it. For a Corolla, I would hope to drive one for at least 200,000 miles, hopefully closer to 250K. Another with 60K miles is listed at about 11K. So, at 200K lifespan, the depreciation is fairly "straightline", slightly less so if we go out to 250K. There does not appear to be much benefit for buying used.
Granted, one might be able to bargain for a better deal on these cars, but I'll note that these are the BEST deals listed. More common are cars listed at 12K with ~55K miles on them.
Obviously, maintenance and repair costs increase as a car gets older. The first three years of a car's life most of the routine maintenance is paid for, very few things are likely to go wrong, and those that do may often be covered under warranty. By contrast, 15 year old cars will often need something done at least once a year. Those costs aren't huge (and they're a boat load less than a new car payment), but if we're looking at total lifetime costs of ownership, miles 200K-250K are almost certainly going to require higher outlays for maintenance and repair than miles 0-50K.
So, if you buy a new car, MAINTAIN IT WELL AND KEEP IT FOR MANY YEARS AND MILES, the total cost over its lifetime is likely to be not much more per mile than buying a similar make/model used car. Obviously this varies if you buy a car model that depreciates faster, but in general cars that go for less on the used market are less reliable and won't last as long. (Of course, if you are very knowledgeable about cars and/or can make certain repairs yourself and/or can evaluate used cars well, you may be able to have the odds in your favor. But we're assuming no specialized knowledge).
I'm also going to add that we financed the entire cost of the car over 5 years. Why? Because the interest rate was about 2%. I'd rather take those $$ and invest them elsewhere. Of course, I could do worse over the next five years. Having said that, it was a choice to finance the car. If I wanted to I could have paid cash for the whole thing. (The discussion with the financing guy was funny: "yeah, I think we'll qualify for this loan" ) Which gets us back to Ramsey...
The general rule shouldn't be "don't buy a new car unless you're worth a million" or whatever, but rather "don't buy more car than you can easily afford, and buy a car for reasons that make sense, not to impress other people". That rule would apply to almost any purchase, really. But again, Dave Ramsey is not aiming his advice at people who do time value of money calcs or run depreciation schedules or whatnot. He is aiming it at people who have spent money with no plan on stuff they largely don't need and find themselves in a lot of debt and are desperately trying to get out. He's using simple, stark rules that people can adopt to avoid bad behaviors, and often states them in dramatic terms to get attention. I'm not a fan of DR, but I'm NOT his target audience.
I don't think you understand what depreciation is.
Explain how depreciation is realized until something is bought/sold.
Again though...besides the point. Do the math on a typical small or mid size sedan (Corolla/Camry, Civic/Camry, etc.). Assume ~12 year vehicle lifespan on new and ~9 on used.. Project all costs.
Ran this before our last car purchase. The difference is negligible. If this is what is what is making a meaningful difference in someone's financial picture...it is only because they have made other bad decisions and are already extended byond belief. Which come to think of it....does describe DRs target audience.
Explain how depreciation is realized until something is bought/sold.
Again though...besides the point. Do the math on a typical small or mid size sedan (Corolla/Camry, Civic/Camry, etc.). Assume ~12 year vehicle lifespan on new and ~9 on used.. Project all costs.
Ran this before our last car purchase. The difference is negligible. If this is what is what is making a meaningful difference in someone's financial picture...it is only because they have made other bad decisions and are already extended byond belief. Which come to think of it....does describe DRs target audience.
You said if you keep a car for it's entire lifespan then the depreciation is not a realized loss.
So if you buy a car for $30K, keep it until it is worth $0, you are out the $30K. How is that not a realized loss?
It doesn't. The 30k new car will also do everything your Mercedes will.
It will, but then I won't be driving around in a work of art.
Not that it's anybody's business, but I am in an income bracket where many people would expect me to buy a new Mercedes or BMW every four or five years, so if I buy a four-year-old Mercedes or BMW every six or seven years I am saving a lot of money relative to other people in my age group and social circle.
Finally, if I had to drive a medium-priced car, that would be perfectly fine - cars are not the most important thing in my life.
You said if you keep a car for it's entire lifespan then the depreciation is not a realized loss.
So if you buy a car for $30K, keep it until it is worth $0, you are out the $30K. How is that not a realized loss?
Why is it a loss? Didn’t he drive the car during tha5 time? Isn’t it just the cost of driving? How much did driving the car enable him to earn more?
Why is it a loss? Didn’t he drive the car during tha5 time? Isn’t it just the cost of driving? How much did driving the car enable him to earn more?
Of course. But if you follow the thread from the beginning you will see we are talking about comparing the cost of a new car, vs a used car.
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) Which gets us back to Ramsey...
