About 5 years ago, we had paid off our debt and built up our emergency fund. We were finally ready to purchase a new car (at least, new to us). James had been driving an ancient purple Saturn coupe that he had been driving for almost 10 years. It was high time we got a new car. So we found a great deal on Craigslist for a 2001 Honda CRV. We've had this car since, taken it to Germany and back, and it still runs like a champ. We've never had it break down and all the repairs we've put into it have only added up to about $3,000. It is safe, has four wheel drive, and gets fairly good gas mileage. Our family of 4 (2 infant seats included) fit just fine in it!
With that being said, I thought it would be interesting to compare what it cost versus what it would have cost if I had purchased a new CRV at the time. We are big proponents of buying cars used for a number of reasons but just let the math do the work.
If I had purchased a 2010 CRV with average features and style, it would have been around $23,000 according to cars.com. Since it is new, I will assume that I wouldn't have needed to do any repairs on it for the past 5 years and the maintenance would be about $100 per year. Let's say I got a 4 year loan with a 3% interest rate. Based on Kelley Blue Book, this car is currently worth around $15,400 if it is in great condition and I am selling to a private party. (Note: all of these numbers are the best case scenario and consider the most perfect of circumstances. Also, Honda's are one of the top vehicles to retain their value. This means, most other cars will depreciate more over the 5 year period.).
My actual vehicle is a 2001 Honda CRV which we purchased for $6,200. We have put in around $3,000 in repairs over the past 5 years. Based on Kelley Blue Book, my vehicle is worth around $4,000. (Note: all of these numbers are the worst case scenerio).
Note: I am also not including the cost of car insurance which goes down with an older car. Also, you are less likely to need full coverage insurance on an older car which can save you as well (we took our full coverage off once my car was worth less than $5,000).
Here are the numbers broken down:
2010 Honda CRV Purchased New
Purchase Price: $23,000
Total Interest over 4 years at 3%: $1,373
Total Cost of Maintenance: $500
Sell Price: $15,400
Total Cost over 5 years: $9,473
Total Cost per year: $1,894
2001 Honda CRV Purchased Used
Purchase Price: $6,200
Total Interest over 4 years at 3%: $0
Total Cost of Maintenance: $3,000
Sell Price: $4,000
Total Cost over 5 years: $5,200
Total Cost per year: $1,040
That's a savings of over $800 per year! If you saved that $800 for 5 years ($4,000) and sold the used car for $4,000, you could purchase a $8,000 car in cash. Or you could invest the extra $800 a year into a mutual fund at 10% and have $5,372. If you left it in there for 40 years and did not invest anything else, it would be worth around $243,000!
That also means that to have my used car cost more than a new car because of breakdowns and repairs, I would have needed to spend an additional $4,200 on repairs over the 5 years. That would mean a whole new engine and more!
Now, is that new car really worth it....
Thanks for putting this together, Alicia. It amazing how the numbers work over the long run.
ReplyDeleteYou guys have been incredibly fortunate with your CRV. We purchased a 2006 Subaru in 2010 for the exact reasons you mention. It has been junk in every sense of the word. The math reveals if we'd purchased a new car in 2010 instead of the Subaru, we would likely be a little bit ahead right now. Go figure. Sometimes the math works until the car doesn't it. Ugh.
So glad you guys have a good used car. Tremendous blessing.
Hi Brett!
ReplyDeleteThanks for the comment. I agree, there is a chance to get a bad used car. We asked the owners of my car if we could do an inspection before purchasing. For $50, Midas did a full inspection and told us what needed to be repaired on the car and if there were any major issues. This made us feel much for secure in the purchase. Even if the total repairs over the past 5 years would cost over $7,000, we would still come out ahead. We actually could have purchased another car for cheaper than a new car. So, in most cases, it is still a better deal if you do your research before purchasing the used car and weigh the cost of repairs vs. selling and getting another used car, etc. I'm so sorry to hear about your used car issues. That was bad luck!
I forgot to mention that a new car can run just the same risk of being a dud. I worked for a rental car company where we purchased only new cars. We had a car that came right off the lot and the automatic transmission completely went out. We had many cars have engines blow up, electrical go out, and much more. Once a new car leaves the lot, it is used. Even with a warranty, there are many things that are not covered and after a certain amount of time, it goes out. We warranty our vehicles by setting aside a maintenance and repairs fund for our cars. That way, when something goes out or needs replacement, we have the money. We always weigh the cost vs. benefit of each repair. If something is too large, we would sell the car and get another. I think it boils down to what makes one most comfortable. If the "peace of mind" of having a new car (although I believe a lot of that is car company marketing at its best) is worth the added cost, it's a great deal. For me, this is just not the case. I am willing to pay a lot less to take on a tiny bit more risk. This blog is just to shed light on the actual costs, as many people don't realize or even know how to figure them out. When making a purchase, it is always best to compare and weigh what is most important before purchasing.
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