### Author Topic: New vs Used with some math  (Read 7805 times)

#### BayAreaFrugal

• Posts: 62
##### New vs Used with some math
« on: July 23, 2012, 10:35:47 AM »
Hi everyone,

I'm in need of a new car (my 1998 Camry was totaled after I got rear ended) and am deciding between getting another used Camry or a new Camry hybrid. The used Camry is a certified pre-owned 2009 with 51,000 miles on it, and the dealer is asking for \$16k. They also told me they recently reduced the price and aren't willing to go any lower. The new Camry hybrid is \$26k. I have \$12,500 to use for a down payment, so I'd be able to pay off the used car in a year, but it would take me 3-4 years to pay off the new car. My mustachian gut tells me to go with the used car because it's closer to what I can afford now. Everyone else is telling me I should get the new car.

I wrote out a spreadsheet estimating the annualized cost of each car, taking into consideration cost of the car, interest paid, and gas. I didn't consider maintenance because I don't think I'm informed enough to make a good guess on that. I tried out various assumptions about how long I will drive the car and found some pretty interesting results. If I assume I'm only going to drive the car to 100,000 miles, the new car's annualized cost is significantly better, to the tune of \$1600/year. My previous car had 164,000 miles on it when it was totaled though, and I hope my next car will last just as long. If I change the assumption to 150,000 miles, the new car is still better by \$500/year. If I am optimistic about the life of the car and change the assumption to 200,000 miles, the new car is still better by nearly \$350.

Essentially, the shorter the life of the car, the more of a difference it makes that the used car already has 50,000 miles on it. But as I drive the car longer, that 50,000 miles becomes less significant, and the annualized cost of the used car becomes better. But then you factor in the annual fuel savings on the hybrid, that's \$600 every year. Even if I drive the car to 250,000 miles, the annualized cost of the used car is only about \$250 better.

What do you guys think? Does my math sound believably accurate, or do my calculations seem wrong? My gut tells me the new car can't be the better deal, but it seems like it is in the long run.

#### velocistar237

• Handlebar Stache
• Posts: 1422
• Location: Metro Boston
##### Re: New vs Used with some math
« Reply #1 on: July 23, 2012, 10:50:35 AM »
Have you considered the difference in insurance costs?
How many miles do you drive per year?
Would you consider a smaller car?

#### gecko10x

• Bristles
• Posts: 420
##### Re: New vs Used with some math
« Reply #2 on: July 23, 2012, 10:59:07 AM »
My gut says the math may be correct, if you are talking about lots of miles/yr (like 15k+) and/or a large mpg delta between the two cars.

Assuming the number are correct, then you should be looking at a used hybrid.

#### grantmeaname

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##### Re: New vs Used with some math
« Reply #3 on: July 23, 2012, 11:27:58 AM »
Assuming the number are correct, then you should be looking at a used hybrid.
Yeah, this is the key. Compare a new hybrid to a used hybrid if that's what you're concerned with, because otherwise you're comparing two variables at once.

I think you're also obscenely overpaying by getting it from a dealership. Though car prices vary regionally, even a perfect condition 2009 Camry with 51k on the odometer sells for less than \$13k, and a typical example less than \$12k in my area. Is getting the dealer's stamp on it really worth \$4k?

#### Jamesqf

• Magnum Stache
• Posts: 4047
##### Re: New vs Used with some math
« Reply #4 on: July 23, 2012, 11:44:31 AM »
What I think is that you're starting from the wrong place, trying to choose between a new car and a nearly new car, both of which you'd have to make payments on.  The correct approach is to decide how much of that \$12K cash you are willing to spend, then look for a car that costs no more than that much.

#### BayAreaFrugal

• Posts: 62
##### Re: New vs Used with some math
« Reply #5 on: July 23, 2012, 03:24:28 PM »
I know absolutely nothing about cars, and therefore would not be comfortable buying a car off of Craigslist. Similarly, I wouldn't be comfortable getting a used hybrid (not that there are many used Camry hybrids available anyway). I am completely dependent on my car, as my commute is roughly 20 miles each way, so it is worth it to me to own a car that I trust is reliable. If that means I have to finance a few thousand dollars to get a slightly used, certified car, I'm ok with that. My issue here is that my gut reaction is the same as all of yours - always buy used. But here I found two cars that I like equally, ran the numbers, and the new car came out better.

Some of you suggested getting a used Camry hybrid. As I said, I don't think I'd be comfortable getting a used hybrid, but I suppose I could be convinced on that front. My fear is that when my mother bought a new Prius several years ago, she was given specific care instructions such as: don't let the tank get too close to empty, only take it to repair shops that have experience dealing with hybrids, etc. How will I know if the previous owner followed any of the special care instructions?

#### tannybrown

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• Location: South Scottsdale, AZ
##### Re: New vs Used with some math
« Reply #6 on: July 23, 2012, 03:51:39 PM »
I'm surprised that the fuel savings can wipe out a \$10k delta (not including the additional tax, interest payments, etc.) so quickly.  I'd double check the math.

My gut says it will take a long time for one's savings in gas to cancel out the price difference between used and new, especially if you are assuming both cars will require equal maintenance.

• Walrus Stache
• Posts: 5217
##### Re: New vs Used with some math
« Reply #7 on: July 23, 2012, 04:03:44 PM »
In your shoes, I would do neither.  If you compare a dealer's price for a used car with the same new car, the new car is often the better deal.  This is especially true for the "certified" used cars.  Good negotiation skills and judicious use of low interest rate dealer financing can actually make the new car cheaper.

The Mustachian way would be to take a flyer on a used car with a good reputation.  This is the one area I am NOT Mustachian.  My transportation must be reliable and must not need expensive and time consuming repairs and maintenance.  This is a safety issue for me as well.

Under no circumstances would I pay the premium for a hybrid.  The battery life is still an untested area of concern.  I want at least 150,000 miles out of the car before I even think about replacing it.  I would look at an old fashioned 4 cylinder instead.  I would also consider downsizing from the Camry to a higher mileage, equally dependable vehicle.  The Civic and Corolla are two examples worth test driving.  Even smaller are the Fit and the Yaris.

Once I had decided what I wanted, I would research current manufacturer's incentives and start dialing for dollars.  I would call a few dealerships and tell them you are in the market today for whatever vehicle you decide you want.  Mention the incentive you want, and get their best price for the car and the financing.  Rinse and repeat.  After several phone calls, you will figure out which dealers want to play and which do not.  Take the lowest price offered, subtract another 5 to 7 percent, and see what you can do in a second round of negotiation.

I have bought MANY cars using this method.  You have to be polite but firm, and not listen to any nonsense about "but our invoice is..." or similar garbage.

#### sol

• Walrus Stache
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##### Re: New vs Used with some math
« Reply #8 on: July 23, 2012, 04:15:08 PM »
I'm surprised that the fuel savings can wipe out a \$10k delta (not including the additional tax, interest payments, etc.) so quickly.  I'd double check the math.

My gut says it will take a long time for one's savings in gas to cancel out the price difference between used, and new, especially if you are assuming both cars will require equal maintenance.

The Camry is one of the few cars whet the hybrid makes good financial sense in the short term.  In the used market, spending an extra 5k for the hybrid nets you an extra 7 mpg. Even at a low \$3 per gallon, you pay that off in only 11k miles.

#### MMM

• Stubble
• Posts: 181
##### Re: New vs Used with some math
« Reply #9 on: July 23, 2012, 04:30:58 PM »
If there's a \$4,000 difference between a dealer and a private-party sale, isn't it worth wading into the slightly less conservative waters and out of the comfort of the Stealership? Private sellers are actually nicer and more honest people in general!

Plus, when you're buying an almost-new car (under 100k miles), you don't need to know anything about cars. Just verify that they have receipts for those very few scheduled maintenance visits prescribed since the car was new. As for longevity, a Toyota should easily go 200k miles before needing even remotely expensive maintenance.

Also, the Camry is a rather large high-end, expensive car. Wouldn't you want to start with a car you can afford in cash (Civic, Fit, Corolla, etc.), rather than borrowing just to get higher on the automotive ladder? This will give you Camry Hybrid fuel economy at less than a Used Camry price.

#### tannybrown

• Stubble
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• Location: South Scottsdale, AZ
##### Re: New vs Used with some math
« Reply #10 on: July 23, 2012, 04:40:24 PM »
Along those lines, we bought our 06 Matrix used (on Craigslist) less than a year ago and with some novice hypermiling, average between 37 and 39 mpg combined.  I love it.

#### BayAreaFrugal

• Posts: 62
##### Re: New vs Used with some math
« Reply #11 on: July 23, 2012, 04:55:01 PM »
My fiance is a big guy and he's not comfortable in smaller cars. Since we carpool to work every day, he does get some say in the purchase of a car. I would happily get a Civic, Fit or Corolla, but he has unfortunately vetoed all of them. :(

#### Uncephalized

• Stubble
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• Age: 33
• Location: Phoenix, AZ
##### Re: New vs Used with some math
« Reply #12 on: July 23, 2012, 05:04:06 PM »
Has he actually ridden in any of them, or is he assuming that he will be uncomfortable?

Because newish compact cars are generally pretty well-designed and generally can accommodate 6+ footers no problem.

If he's 6'6" or 350 lbs or something then I can see that being a problem in a smaller car, of course!

#### BayAreaFrugal

• Posts: 62
##### Re: New vs Used with some math
« Reply #13 on: July 23, 2012, 05:07:47 PM »
Yea, he's ridden in them and he feels cramped. I could make him try them out again, but I doubt he'd change his mind.

#### tannybrown

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• Location: South Scottsdale, AZ
##### Re: New vs Used with some math
« Reply #14 on: July 23, 2012, 05:46:50 PM »
I'm surprised that the fuel savings can wipe out a \$10k delta (not including the additional tax, interest payments, etc.) so quickly.  I'd double check the math.

My gut says it will take a long time for one's savings in gas to cancel out the price difference between used, and new, especially if you are assuming both cars will require equal maintenance.

The Camry is one of the few cars whet the hybrid makes good financial sense in the short term.  In the used market, spending an extra 5k for the hybrid nets you an extra 7 mpg. Even at a low \$3 per gallon, you pay that off in only 11k miles.

My math is coming out differently.  Driving 11k miles at, say, 35 mpg, takes only 314 gallons of gas.  At \$3 per gallon, the total cost for 11k miles of driving is only \$943.  Even if the hybrid used no gas whatsoever, the most it could save her over an 11,000 mile stretch is \$942.

Another way to look at it, the average Mustachian is only driving when absolutely necessary...so let's assume their total gas expenditures hover between \$100 to \$200 a month (\$1200-2400 a year).  Even if the hybrid doubles your mpg, it's maximum savings per year is limited...maybe \$600 to \$1200 a year.  It'll take a while to make up for the extra \$10k+ in cost, since gas itself is a small expenditure when compared to the cost of a vehicle.

But, as always, YMMV, and my math may suck.
« Last Edit: July 23, 2012, 05:57:11 PM by tannybrown »

#### James

• Handlebar Stache
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• Location: Rice Lake, WI
##### Re: New vs Used with some math
« Reply #15 on: July 23, 2012, 06:14:42 PM »
What do you guys think? Does my math sound believably accurate, or do my calculations seem wrong? My gut tells me the new car can't be the better deal, but it seems like it is in the long run.

Your math does not sound accurate, but since you don't show your math it's hard to know.

But my answer is that this is Mr. Money Mustache forum, and the answer is certainly neither!

You should purchase a vehicle within the \$12,500 you have available, which is plenty for a quality and reliable used car.  I also have to chuckle at the need for reliability, you were willing to drive a 1998 Camry but can't purchase a slightly used car from a private party?  Statistically the slightly used private party car is significantly more reliable than the vehicle you were so recently happy with.  I highly suggest you reconsider a private party purchase, read through the recommendations for purchasing a private party vehicle in past posts on this forum, and take the plunge.  Over you lifetime we are talking about tens of thousands of dollars in savings, compounding and building in your mustache through your driving years.

#### onehappypanda

• Stubble
• Posts: 238
• Location: Columbus, Ohio
##### Re: New vs Used with some math
« Reply #16 on: July 23, 2012, 11:45:52 PM »
Regardless of your math, both of your options kind of suck, as others have pointed out. You would save much more money by getting a car private party at \$10,000 or less. Then take the extra money you have on hand and have an independent mechanic thoroughly check it out and fix any issues. The money you save by not buying at inflated prices should cover any necessary repairs to make sure the vehicle is nice and reliable.

You are making the assumption that a used car dealer will be more reliable and honest than a CL private party seller. Definitely not true. Many used car dealers are simply more well versed in how to hide issues that a car may have. The price inflation you pay at a dealer isn't for reliability- you're paying for them making the car look pretty and advertising it. Regardless of whether you purchase from a dealer or private party, I'd go to an independent mechanic for an inspection and repairs. Given that, it makes more sense to purchase it private party since the price differential is large.

We can't really comment on your math, because you didn't show anyone the math. You're using a lot of estimates (mileage, gas prices, etc) that may be highly inaccurate, but obviously we couldn't tell you what those are without knowing the numbers you used. And yeah, you will want to add in the additional insurance costs as a new car generally requires much higher insurance, which adds up fast.

#### menorman

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• Posts: 178
• Location: SoCal
##### Re: New vs Used with some math
« Reply #17 on: July 24, 2012, 10:52:43 PM »
Hi everyone,

I'm in need of a new car (my 1998 Camry was totaled after I got rear ended) and am deciding between getting another used Camry or a new Camry hybrid. The used Camry is a certified pre-owned 2009 with 51,000 miles on it, and the dealer is asking for \$16k. They also told me they recently reduced the price and aren't willing to go any lower. The new Camry hybrid is \$26k. I have \$12,500 to use for a down payment, so I'd be able to pay off the used car in a year, but it would take me 3-4 years to pay off the new car. My mustachian gut tells me to go with the used car because it's closer to what I can afford now. Everyone else is telling me I should get the new car.

I wrote out a spreadsheet estimating the annualized cost of each car, taking into consideration cost of the car, interest paid, and gas. I didn't consider maintenance because I don't think I'm informed enough to make a good guess on that. I tried out various assumptions about how long I will drive the car and found some pretty interesting results. If I assume I'm only going to drive the car to 100,000 miles, the new car's annualized cost is significantly better, to the tune of \$1600/year. My previous car had 164,000 miles on it when it was totaled though, and I hope my next car will last just as long. If I change the assumption to 150,000 miles, the new car is still better by \$500/year. If I am optimistic about the life of the car and change the assumption to 200,000 miles, the new car is still better by nearly \$350.

Essentially, the shorter the life of the car, the more of a difference it makes that the used car already has 50,000 miles on it. But as I drive the car longer, that 50,000 miles becomes less significant, and the annualized cost of the used car becomes better. But then you factor in the annual fuel savings on the hybrid, that's \$600 every year. Even if I drive the car to 250,000 miles, the annualized cost of the used car is only about \$250 better.

What do you guys think? Does my math sound believably accurate, or do my calculations seem wrong? My gut tells me the new car can't be the better deal, but it seems like it is in the long run.

That part I put in bold is your problem. You even alluded to it all throughout. You seem to have somehow incorrectly accounted for the 50k miles in your spreadsheet. Both cars should start out on an equal footing and be assumed to have no miles for the purpose of comparing them. If you start one with 50k miles, it robs you of basically 4 years worth of use (since it appears your annual mileage is in the 13k range). So of course the car with zero miles (and zero years of use) comes out as better annually at the beginning then diminishes over longer time periods.

Also, since you're making an assumption (which probably isn't too inaccurate) about maintenance and leaving it out, there's no way a car that costs \$10k less comes out less efficient on an annual basis assuming the annual mileage is the same. Even with gas at \$7/gallon, the regular Camry should still beat out the Hybrid for the 3-4 year time frame given. <hasty math>240 x 2 x \$7 = \$3400/year on fuel for regular Camry, \$1900 for Hybrid. BUT, Hybrid adds about \$2700/year in loan to repay as well. Then of course, the higher insurance.</hasty> Therefore, even with very under optimistic views of mileage and extreme view on gas prices, Hybrid is still \$1000+/annually more than regular Camry. So with the most optimistic circumstances, the Hybrid takes 6 years just to break even with the regular Camry.

Now for the advice. Walk away from used car dealerships unless you have a trusted mechanic in tow with you. As others have pointed out, dealers don't necessarily have cars that are much better than a decent late-model private party. Quite honestly, if a late-model is at a used car dealership, it was probably either a bank repo or else the previous owner had too many miles on it to qualify at the real dealer as a decent trade-in. That means those cars are generally not much better than what is on craigslist anyway. I'd say the only exception would be an actual Certified Pre-Owned vehicle, but those are usually only at new car dealerships for the branded company. If it's a CPO, you'll usually get offered a factory warranty as well. Many dealerships offer "warranties" that they sell, and they also "inspect" the cars. Don't be confused. An "inspected" car isn't a CPO nor will it come with the full factory warranty like a true CPO will. Now that we've narrowed it down to CPOs or else drag a mechanic, it makes little sense to visit most used car dealerships.

With that in mind, save your cash and stay away from all dealerships. Find a trusted mechanic, peruse the MMM car list and craiglist, then get to work on picking something up. Time is your best friend, but if you don't have tons of time you can still find a decent deal. I'd say your first move (whether going cl or stealership) would be to sit down and list out some features that a new car both would need to have and some that you'd probably prefer but not require then go shopping with that. It would make it real easy to decide on something when you have specifics in mind beyond just "new car roomy enough for the fiancee". Then, browse craigslist (a lot of dealerships post on it anyway), find something you like, and go see it in person. If it meets the criteria, then head over to a mechanic to get it checked out. I feel like \$8k should be plenty enough to find a decent vehicle that is decently fuel efficient and fits your fiancee with decency. After the buy, I'd change all the fluids, belts, bushings, tensioners, filters, etc.--the stuff that usually gets neglected and causes problems. Then take the remaining \$4k and throw it in a fund toward repairs/replace if you're afraid the mechanic isn't competent.