Should you ever buy a new car?

Some attractive deals can make it tempting, but that doesn't mean it's the right move for you. Here are 6 reasons you might consider sticking with the wheels you have.

By MSN Money Partner Aug 6, 2013 12:32PM
This post comes from Autumn Caliero Giusti at partner site Bankrate.com.

Bankrate logoWith auto dealers practically giving away vehicles and car and truck buyers getting approved for historically low- and even no-interest car loans, a shiny new set of wheels might look awfully tempting these days.

Car salesman showing couple new silver hatchback in car showroom © Juice Images/Cultura/Getty ImagesBut just like that 60-inch flat-screen TV that goes on sale on Black Friday, it's a purchase that isn't for everyone.

Should you ever buy a new car? There are times when buying a new car becomes a necessity, but there are also money-saving motives for hanging on to an older car a little longer. Here are five reasons why you might want to rethink making that drive to the car dealership.

1. Your old car can survive 6-figure mileage

It used to be that once a car hit 100,000 miles, it was destined for the junkyard. These days, 100,000 miles is merely the halfway point for a lot of vehicles. That's because many of the cars that rolled off the assembly lines in the past 10 years were designed to last much longer than their predecessors.

For independent mechanic Keith Exsterstein, it's not uncommon to see cars with 150,000, 170,000 or even 200,000 miles come into his shop, Keith's Auto Repair, just outside of New Orleans.

"The cars nowadays are built better in terms of reliability," he says.

Even economy brands such as Hyundai and Kia have stepped up and are staying in the game past the 100,000-mile mark, formerly a death sentence for those models of cars, he says.

It all comes down to car maintenance. If the owner diligently follows the manufacturer's maintenance schedule, a vehicle can survive well into the six-figure mileage range, Exsterstein says. "And if you don't do the maintenance, you're going to pay -- either in repairs or by having to buy a new car," he says.

2. New wheels bring new expenses
It's not just about the car note.

The size of the monthly payment might be the first thing people consider when eyeing a new car. But easily overlooked is a whole other set of expenses that are rarely considered with buying a car, such as auto insurance, gasoline bills and taxes.

"For many people, depending on where they live, a newer car is going to mean higher insurance," says Mary Ellen Nicol, a certified housing counselor for CredAbility, a nonprofit credit counseling agency based in Atlanta.

Car insurance is based in part on the value of the vehicle. Newer cars tend to cost more to insure because they have newer parts and, as a result, would cost more to repair after an accident.

Gas prices are another consideration, Nicol says, especially if you're looking at a new car that calls for premium gasoline instead of regular or gets lower gas mileage than your current car.

Then there are the taxes and fees associated with buying a car, says Philip Reed, senior consumer advice editor with Edmunds.com, an auto research website based in Santa Monica, Calif. "What a lot of people don't realize is that the fees to make that transaction are going to be pretty steep," he says.

In California, the purchasing process alone can set you back more than $1,200 on a $10,000 car, Reed says. California's sales tax on a $10,000 car is 9.25 percent, which comes out to $925. Registration fees for that car would cost about $150, and documentation fees would be $100 or less.

And some states charge either an annual or one-time ad valorem tax on automobiles that's proportional to the value of the car.

"You can see your ad valorem double or triple when you buy that new car," Nicol says.

3. Depreciation will take a big bite.
Depreciation is one of the biggest expenses of owning a car. On average, a car loses 15% to 25% of its value each year for the first five years, according to Edmunds.com.

"When you step into a new car, it's almost like you buy new depreciation," Reed says.

Making pricey modifications to your car doesn't help, either. Options depreciate very quickly, so that $2,000 navigation system you bought four or five years ago when the car was brand-new is not adding any value to the vehicle, Reed says.

"It's a depreciating asset. So, the less money you put into it, the better," Reed says. A better idea is to put that money into real estate or some other asset that will gain value.

The good news is that once a car is 5 to 7 years old, it's lost most of the value it's going to lose. So, as long as you're getting reliable transportation out of it, it's a good idea to keep that car for as long you can, Reed says. "Cars will always be worth something if they run."
4. You have a (mostly) free ride

Even with the occasionally steep repair bill, you're usually better off keeping an older vehicle if it's paid off, says Exsterstein.

"You can beat the note," he says.

Still, you have to factor in cost. If you're paying $300 to $400 per month on repairs on a car that's paid off, you're shelling out about as much as you would for a car loan payment.

It also depends on the type of car you drive. Of the cars Exsterstein sees, European imports tend to be the most expensive to maintain, costing two to three times as much to replace certain parts and fluids as their Japanese- and American-made counterparts.

And some cars are simply built better than others. Japanese-branded sedans and compact cars tend to be more reliable and are generally the least expensive to fix, Exsterstein says. "If it's a (Honda) Civic or (Toyota) Corolla with 100,000 miles or so, I'd say keep it. But if it's a Dodge Neon, I'd say get rid of it because it's going to cost a lot more to fix when it breaks down," he says.

5. You might lock yourself out of mortgage

If you're planning to buy a new house or refinance the one you have, adding a car loan to your debt load could wreak havoc on your borrowing abilities.

"Jumping to get that tempting car loan could price you out of the house you want to buy or the interest rate you want to get on a refinance," Nicol says.

Interest rates on a mortgage or refinance are based not only on your credit score, but also on your debt obligations. Lenders these days also tend to be more conservative. So if you've just taken out a car loan, the bank might not be too keen on giving you an even bigger loan, that is, a mortgage.
With interest rates at historic lows, Nicol advises making the most of these rates with a house first and putting the car on hold. "Even if you don't get the awesome car deals that are out there, it's still a much smaller purchase than a house," she says.

More from Bankrate.com:



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141Comments
Aug 6, 2013 4:43PM
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You can get the worst deal on a new car in the world but if you bought a good American or Japanese model you can come out by keeping it 8 to 10 years and driving it until it pays you back.  I never quit on one with under a 100k miles and usually a lot more.  They are made to last that long easy - just keep them maintained.
Aug 6, 2013 4:47PM
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Oddly, earlier today there was an article that a used car was costs too much justifying why everyone should be buying new, and this article says a used car is "free" and justifying why one should keep their old car longer.

 

BTW, what's the 6th reason.  I only see 5, but the subtitle says 6.

Aug 6, 2013 10:12PM
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How many times do they recycle these articles?
Aug 6, 2013 8:36PM
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As long as the body and powertrain remain solid, I have no reason to get rid of my 1999
Ford Expedition or my 1999 Chrysler 300m.

And the nicest part...they're all MINE...NOT the bank's!
Aug 6, 2013 6:57PM
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if no one bought a new car where would the used ones come from ?

Aug 6, 2013 10:37PM
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9.25% tax in California and $150 in fees.  Gawd.  One more reason living in California sucks.  How can a state tax their people and industry so severely and still have a deficit?

 

California doesnt just tax, they punish their citizens and industry for doing commerce and earning money.

Aug 7, 2013 12:48AM
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The old logic of saving a lot,by buying a 3 year old used car,is mostly gone. The prices on 1-3 year old cars are ridiculously high. Almost the same as new. There is no logic,in trying to save a few dollars,used,when you can buy brand new,and get the full warranty coverage. Plus the free maintenance most manufaturers give today.
Aug 6, 2013 5:17PM
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No doubt that cars are the biggest waste of money, but my top concern isn't mileage, its age.  Wiring & sensors make up an overwhelming majority of car problems even when you maintain them well.  Some days I can not have my car fail me, so my rule of thumb is to think about trading it in when it gets to 10 yrs old, and someone who needs a 2nd vehicle or around town driver can use up the other half of its life.

Aug 6, 2013 7:28PM
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We have never had a car payment and love our economy car. We buy gently used newer cars, keep up the maintenance and drive 'em til the repairs cost more than getting another car. And, we love the people who want to pay for the privilege of driving a new car off the showroom floor. We couldn't keep our costs down without them.
Aug 6, 2013 8:50PM
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I will never own another new vehicle. I look for used vehicle with low miles and a few years on them and I buy them from individuals, not dealers.
Aug 7, 2013 7:18AM
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Just bought a new Accord.  When looking at the cost of "gently used, recent model" similar vehicles, most were as expensive if not more pricey than the New car.  With the dealer markdown and low interest rate for new versus used, there was no way not to buy the new car.  Make sure to check.  The common wisdom that slightly used cars are cheaper might not be such wisdom after all.  Depreciation doesn't matter one scrap if you are keeping the car for 10+ years, 200,000 miles.  You are not a business that gets to write that off your taxes.  It is a red herring argument.  Few people buy new and sell in a year or two any more, if they do, they don't care about the depreciation, since they typically list it for more than a new car goes for anyway. 
Aug 6, 2013 5:59PM
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I drive a 2000 Mitsubishi Diamante I bought seven years ago with 150000 miles. It is still going strong today with 285000+ mi. Best buy I ever made.
Aug 6, 2013 6:47PM
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Because it's the closest thing most of us can do to buying a yacht or a Jet plane.  It feels good and employs a lot of people.  Other than that, your right.
Aug 6, 2013 5:44PM
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You won't get the same level warranty on a used car like you will a new one. My new car is also about $10/month cheaper on insurance (and a higher level car, to boot). And I haven't the slightest interest in getting a mortgage.
Aug 6, 2013 6:24PM
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a new car or truck is generally a losing proposition. I have a 98 F250 I bought new for 23k , it has 250k on it ,a 01 diesel ram flatbed 1ton for the heavy work bought used in 06 for7k it has 206k on it , a 2010 dodge ram hemi pickup, bought used in 11 for 23k , only 7k on it. the 98 and 01 have only had minor repairs and the10 nothing on repairs.  buying a GOOD, low mileage used vehicle is the ONLY way to go for the dollar spent !! pay cash and drive them for 250k miles or longer and take care of them and you will save thousands !!!
Aug 6, 2013 5:07PM
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Keep the old car, garage it... and get a scooter.  Great fun and cheap transportation!
Aug 7, 2013 8:17AM
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I have a 2000 buick lesabre that has 248,000 miles on it. it is a great car and I still get about 30 miles to the gallon. it has all the features of a new car without the sticker price. I have a mechanic who is the best and he takes care of it. I haven't spent much on repairs, only normal maintenance stuff.
Aug 6, 2013 7:21PM
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People don't buy a New car simply because it feels good, although of course, it  does. Folks buy a new car because in spite of the fact that cars lose a ton of value the moment you take it off the lot, it is a investment in your future. As quality jobs become even harder to find, being Mobile is key to survivability. So Pick the right one at the right price, and it can serve you for YEARS to come. Keep up with maintenance and at the very least, make sure your OIL is regularly changed.

In order to buy a reliable used CAR, most times the cost will be almost as much as a new one. They typically have a higher markup and loan rate. So why even bother unless you have no choice. Buy the right new car when you can afford it and make sure you keep up with maintenance and you can drive it for well over 200,000 miles before you have to junk it or have it as a emergency backup.

Concerning the poster that mention the age of Cellphones and Triple AAA, so what. It really doesn't take that long to commit a crime, they will be long gone before Triple AAA gets there and unless your phone doubles as a Gun, it's only has a limited use against a criminal on a dark lonely road. Peace of Mind and a CAR you know the History of or the money trap someone else is trying to sell you. Plan for a new car properly and it's the right choice. Just like anything else in life, plan ahead if you can.

Bottom line is there should be a far better options and far lower priced starter cars that are no frills but reliable. Far more choices in Europe and elsewhere. In spite of our tougher Regulations we can do better on that front here.



Aug 7, 2013 7:59AM
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In these economically hard times,  watching every dollar is very important to survive.  If at all possible, keep the old car running as long as it will run.    Our neighbors may have new cars and we may have old cars,  our neighbor is not paying our bills but we pay our own bills.   I have learned a great lesson of life due to the economic crisis.  I have put my impulsive shopping nature at the iron shelf,  thinking twice before buying; so saving a lot of money.
Aug 7, 2013 10:45AM
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Anyway you look at it a car is a necessity,  weather you buy new or used most people need one.  Now it you know you are always going to have a payment and don't drive a ton of miles LEASE one, you are only paying for what you use then you have 3 choices....sell it, buy it or hand it in and walk away.  Its a great way of not having the maintenance of a used car.  

I agree that if you purchase a car a couple of years old you can get a better price on a used car but you don't know how those 20,000 + miles have been driven, yes you can get a car fax but, car fax doesn't follow everything that has been done to the car unless all maintenance has been done at a dealership or a reputable garage.  Either way buying a car is a horrible investment but we need them.....These articles are ridiculous, they act like there some sort of secret they have discovered in buying a car......its simple.

People buy  cars new, finance for 72 months and the are sick of there car and want the latest and greatest after 36 months or there lifestyle has changed and it becomes the dealerships fault that they are upside down on there vehicle.....no one forced you to sign anything....take responsibility for your self and quit blaming everyone else.   
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