Author Topic: New car vs used car cost difference.  (Read 4658 times)

Kaplin261

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New car vs used car cost difference.
« on: January 10, 2016, 06:51:11 AM »
My wife has a long work commute, we have 4 years till early retirement. We have ran the numbers and moving does not benefit us nor does changing jobs. Her job also requires reliability, she manages scientists who monitor manufactured consumables if she is late or misses work it could drastically affect her team.

I have made a list with information I gathered from KBB.com. I used the honda civic lx as a example here because she likes the car and the car has been in production for a long time making it easier to gather data. Her commute 55 miles round trip to work X 240(48 weeks)=13,200 miles with 98% of them being highway miles at 75 mph

2004 LX 44 highway=300 Gallons,Bluebook $3,197
2006 LX 34 highway=388 Gallons,Bluebook $5032
2008 LX 34 highway=388 Gallons,Bluebook $6084 4.33% 48 MO
2011 LX 34 highway=388 Gallons,Bluebook $8602 3.11% 48 MO
2012 LX 41 highway=388 Gallons,Bluebook $10164
2013 LX 41 highway=321 Gallons,Bluebook $11800 3.11% 48 MO
2014 LX 41 highway=321 Gallons,Bluebook $13135 3.11% 48 MO
2015 LX 41 highway=321 Gallons,Bluebook $17733(OTD*) 0.9% 60 MO
2015 LX 41 highway=321 Gallons,Bluebook $14950(USED)(**Real $15,500) 3.11%
2016 LX 42 highway=314 Gallons,Bluebook $20122(OTD*) 0.9% 60 MO

* Out the door
** Could not find any data supporting sales of the kbb value suggested

Why finance? All extra cash we have is invested earning 7% and we can get loans for much lower than that. New cars have incentives with financing for really low interest rates however used cars have a bit higher interest loans and shorter payback terms.

The simplest way I could figure out to compare different scenarios was to take the monthly payment and compare it to if I were using that money to put in a investment account instead. The investment account earns 7%. Since she only has 4 years left I used 4 years for my scenario.

2016 LX Honda Civic brand new from dealer. This would require financing of $20,122 with 0.9% interest makes our monthly payment $343.  So if I take that $343 and put into a investment account instead that earns 7% interest in 4 years I would have  $18,938.09 but if we were to buy the car we would now have 4 year old car worth $10,164 and a loan with $4,116 leaving us with only $6,048 subtract that from what we would have gotten from the investment 18,938.09 - 6,048=$12,890 is our true cost of ownership

2015 LX Honda Civic brand new from dealer. This would require financing of $17,733 with 0.9% interest makes our monthly payment $302.  So if I take that $302 and put into a investment account instead that earns 7% interest in 4 years I would have $16,674.51 but if we were to buy the car we would now have 4 year old car worth $8602 and a loan with $3,624 leaving us with only $4,978 subtract that from what we would have gotten from the investment 16,674.51 - 4,978=$11,696 is our true cost of ownership

2015 LX Honda Civic Used from private seller. This would require financing of $15,500 with 3.11% interest makes our monthly payment $344.  So if I take that $344 and put into a investment account instead that earns 7% interest in 4 years I would have $18,993.30 but if we were to buy the car we would now have 4 year old car worth $8602 and a loan with $0 leaving us with only $8,602 subtract that from what we would have gotten from the investment 18993-8602=  $10,391 is our true cost of ownership

Her current car 2008 EX-N Honda Civic Used . This would require our own money of $7327 with 7% interest makes our monthly payment $175.  So if I take that $175 and put into a investment account instead that earns 7% interest in 4 years I would have $9,662.94 but if we were to buy the car we would now have 4 year old car worth $3197 and a loan with $0 leaving us with only $3197 subtract that from what we would have gotten from the investment 9662-3197=  $6,465 is our true cost of ownership

There also other things that I have not factored in. Insurance on a newer vehicle is going to be more, however a newer car will have no repair bills,better gas mileage, more safety features and great reliability.

RWD

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Re: New car vs used car cost difference.
« Reply #1 on: January 10, 2016, 08:28:31 AM »
I did a similar comparison using the Honda Fit a little over a year ago:
http://forum.mrmoneymustache.com/welcome-to-the-forum/detailed-used-vs-new-car-cost-comparison/

Staying with your used Civic is going to be cheaper, as you've already calculated. Maintenance on a Civic is going to be infrequent and cheap. Depreciation will be much less. The fuel economy difference won't save you more than a hundred bucks or so. Keep in mind if you finance your vehicle you will be required to have full coverage insurance.

Because you only have another four years to go I would recommend staying with the 2008 Civic. It doesn't make much sense to buy a new vehicle unless you are going to be using it heavily for at least 10 years.

JLee

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Re: New car vs used car cost difference.
« Reply #2 on: January 10, 2016, 09:14:58 AM »
What do you have that's earning 7% now? My stuff certainly isn't! :P

I would stay with the 08 Civic. It has many years of good life left. If you're currently paying 4.33% on it, refinance and get the rate down (e.g. Penfed, 36mo / 1.99%).

Kaplin261

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Re: New car vs used car cost difference.
« Reply #3 on: January 10, 2016, 12:41:06 PM »
I did a similar comparison using the Honda Fit a little over a year ago:
http://forum.mrmoneymustache.com/welcome-to-the-forum/detailed-used-vs-new-car-cost-comparison/

Staying with your used Civic is going to be cheaper, as you've already calculated. Maintenance on a Civic is going to be infrequent and cheap. Depreciation will be much less. The fuel economy difference won't save you more than a hundred bucks or so. Keep in mind if you finance your vehicle you will be required to have full coverage insurance.

Because you only have another four years to go I would recommend staying with the 2008 Civic. It doesn't make much sense to buy a new vehicle unless you are going to be using it heavily for at least 10 years.

Glad I'm not the only one!! My wife thought I was crazy writing that report up. If we did go with the new car we probably would keep it 10 years.

What do you have that's earning 7% now? My stuff certainly isn't! :P

I would stay with the 08 Civic. It has many years of good life left. If you're currently paying 4.33% on it, refinance and get the rate down (e.g. Penfed, 36mo / 1.99%).

The car has no lein on it, the information I was able to find is banks do not like to give out loans on old cars like a 2008 and the ones that do have higher interest rates like the 4.33%.

The 7% is averaged.

Quote
In our situation my wife is making $110,000 a year and has excellent credit, if she ends up missing a day because of her car that would be $400

 Her 8 year old car did break down recently. She ended up investing over 8 hours resolving the issue. Being broke down on the side of the road waiting for roadside assistance. Dealing with the shop to have the car fixxed. Picking up a rental while the car is being fixed. It was a $600 bill for the repairs,$150 for the tow truck and $200 for the rental car and a full days worth of work.. If this was a new honda under warranty she would of received roadside assistance and towed for free,  the repairs would of been free and she would've received a loaner car for free.

The maintenance on a 8 year old car is much higher then one may think, especially if being reliable is a important factor. Serpentine belt $250, Timing chain $500, Radiator flush $100, Transmission flush $100, Shocks and Struts $600 and every other little things that wear out. Also high mileage oil changes are about double the price of a standard oil change. She isn't doing mustachian driving, she is putting a lot of miles on the car and we use it for our vacations.

Something else worth mentioning, if a car is in a accident the price drops by about 15%. Even if it is repaired and there is no physical evidence when you give a buyer a choice of a car that been wrecked vs a car that has  been wrecked the one that has never been wrecked will always be picked. So on a $20k car this could easily cost you $3000 vs a old car worth $8k it would only be $1200.

JLee

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Re: New car vs used car cost difference.
« Reply #4 on: January 10, 2016, 01:04:52 PM »
I did a similar comparison using the Honda Fit a little over a year ago:
http://forum.mrmoneymustache.com/welcome-to-the-forum/detailed-used-vs-new-car-cost-comparison/

Staying with your used Civic is going to be cheaper, as you've already calculated. Maintenance on a Civic is going to be infrequent and cheap. Depreciation will be much less. The fuel economy difference won't save you more than a hundred bucks or so. Keep in mind if you finance your vehicle you will be required to have full coverage insurance.

Because you only have another four years to go I would recommend staying with the 2008 Civic. It doesn't make much sense to buy a new vehicle unless you are going to be using it heavily for at least 10 years.

Glad I'm not the only one!! My wife thought I was crazy writing that report up. If we did go with the new car we probably would keep it 10 years.

What do you have that's earning 7% now? My stuff certainly isn't! :P

I would stay with the 08 Civic. It has many years of good life left. If you're currently paying 4.33% on it, refinance and get the rate down (e.g. Penfed, 36mo / 1.99%).

The car has no lein on it, the information I was able to find is banks do not like to give out loans on old cars like a 2008 and the ones that do have higher interest rates like the 4.33%.

The 7% is averaged.

Quote
In our situation my wife is making $110,000 a year and has excellent credit, if she ends up missing a day because of her car that would be $400

 Her 8 year old car did break down recently. She ended up investing over 8 hours resolving the issue. Being broke down on the side of the road waiting for roadside assistance. Dealing with the shop to have the car fixxed. Picking up a rental while the car is being fixed. It was a $600 bill for the repairs,$150 for the tow truck and $200 for the rental car and a full days worth of work.. If this was a new honda under warranty she would of received roadside assistance and towed for free,  the repairs would of been free and she would've received a loaner car for free.

The maintenance on a 8 year old car is much higher then one may think, especially if being reliable is a important factor. Serpentine belt $250, Timing chain $500, Radiator flush $100, Transmission flush $100, Shocks and Struts $600 and every other little things that wear out. Also high mileage oil changes are about double the price of a standard oil change. She isn't doing mustachian driving, she is putting a lot of miles on the car and we use it for our vacations.

Something else worth mentioning, if a car is in a accident the price drops by about 15%. Even if it is repaired and there is no physical evidence when you give a buyer a choice of a car that been wrecked vs a car that has  been wrecked the one that has never been wrecked will always be picked. So on a $20k car this could easily cost you $3000 vs a old car worth $8k it would only be $1200.

Speaking as someone who has exclusively owned used vehicles since I began driving (most of which were purchased with over 100k on them)..here we go!

A serpentine belt is $20 on Amazon. If you're getting charged $230 in labor for that, do it yourself.
Special oil is not required if you have a higher mileage vehicle.
There is no service interval for the timing chain on a 2008 Civic.
You can get roadside assistance through various avenues (credit cards or AAA) -- and on what planet does a rental car cost $200? I usually rent cars for $15-25 a day when I'm traveling. Spending an extra $20,000 on a car to *maybe* save $200 down the road seems a poor exercise of mathematics.

Your new car will require the same services as your old car. If you're putting 18,000 miles a year on it your factory warranty will be gone in two years. For the remaining eight years of ownership, you'll be in the same situation you are now.

Regarding reliability, my roommate has a CPO 2013 Ford C-Max Energi with a 100k bumper to bumper warranty that has broken down twice in the last 4 months. My former roommate bought a brand new Subaru BR-Z, which was also frequently at the dealer for warranty repair and was eventually bought back (they couldn't fix recurring problems).  While new is generally more reliable than used, it isn't always.

Regarding financing, my car (2006) is financed at 1.99%/36mo - they are out there. :)

Kaplin261

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Re: New car vs used car cost difference.
« Reply #5 on: January 10, 2016, 01:30:56 PM »
Spending an extra $20,000 on a car to *maybe* save $200 down the road seems a poor exercise of mathematics.

2015 LX Honda Civic brand new from dealer. This would require financing of $17,733 with 0.9% interest makes our monthly payment $302.  So if I take that $302 and put into a investment account instead that earns 7% interest in 4 years I would have $16,674.51 but if we were to buy the car we would now have 4 year old car worth $8602 and a loan with $3,624 leaving us with only $4,978 subtract that from what we would have gotten from the investment 16,674.51 - 4,978= $11,696 is our true cost of ownership for the next 4 years

Her current car 2008 EX-N Honda Civic Used . This would require our own money of $7327 with 7% interest makes our monthly payment $175.  So if I take that $175 and put into a investment account instead that earns 7% interest in 4 years I would have $9,662.94 but if we were to buy the car we would now have 4 year old car worth $3197 and a loan with $0 leaving us with only $3197 subtract that from what we would have gotten from the investment 9662-3197=  $6,465 is our true cost of ownership for the next 4 years


$5,231 is the price difference not $20,000 like you suggested.

A standard oil change at walmart is $19.99 and a high mileage oil change is $39.99.


NathanDrake

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Re: New car vs used car cost difference.
« Reply #6 on: January 10, 2016, 01:40:58 PM »
I recently purchased a 2016 Civic EX, but I was replacing a 99 with over 200,000 miles. The car still drove from pt. A to pt. B, but a lot of maintenance was on the horizon and every little minor thing was breaking that I was just putting up with.

I intend to drive the new vehicle until the wheels fall off. I'm really enjoying the new vehicle and comforts that come with it. Getting 40 mpg for my commute instead of 28 is also an added bonus that will probably save me $4k in commuting costs over 10 years even at these depressed oil prices. It has made my similarly long commute much more tolerable and I feel a lot safer driving it. The 2016 re-design is worth it over the 2015, in my view.

Whether you should get a new car really depends on how many miles you currently have and if you just want to have a newer, safer car. Civics should easily go to 200k miles without too much out of the ordinary, although my vehicle required a transmission rebuild.

Since you're 4 years away from FIRE, it makes the math more difficult if the vehicle is over 150K miles. In the past 5 years of my 200K vehicle, I had around 4 instances of maintenance issues that needed to be addressed which was annoying, but tolerable. My job was fairly flexible in that I could take time off to address these issues as they arose.

If you get a new car for the next 4 years until FIRE, you'll have good peace of mind and then a vehicle that will be used a lot less once you retire, so you won't need to purchase another car for a very long time in theory. You could drive the new car for 15+ years like I did with my previous Civic. I would suggest that whenever you do buy new that you don't skip out on amenities/features that you may enjoy. Over 10-15 years a few extra grand is negligible. I decided to go for the EX model for this reason.



« Last Edit: January 10, 2016, 01:43:54 PM by NathanDrake »

JLee

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Re: New car vs used car cost difference.
« Reply #7 on: January 10, 2016, 01:46:15 PM »
Spending an extra $20,000 on a car to *maybe* save $200 down the road seems a poor exercise of mathematics.

2015 LX Honda Civic brand new from dealer. This would require financing of $17,733 with 0.9% interest makes our monthly payment $302.  So if I take that $302 and put into a investment account instead that earns 7% interest in 4 years I would have $16,674.51 but if we were to buy the car we would now have 4 year old car worth $8602 and a loan with $3,624 leaving us with only $4,978 subtract that from what we would have gotten from the investment 16,674.51 - 4,978= $11,696 is our true cost of ownership for the next 4 years

Her current car 2008 EX-N Honda Civic Used . This would require our own money of $7327 with 7% interest makes our monthly payment $175.  So if I take that $175 and put into a investment account instead that earns 7% interest in 4 years I would have $9,662.94 but if we were to buy the car we would now have 4 year old car worth $3197 and a loan with $0 leaving us with only $3197 subtract that from what we would have gotten from the investment 9662-3197=  $6,465 is our true cost of ownership for the next 4 years


$5,231 is the price difference not $20,000 like you suggested.

A standard oil change at walmart is $19.99 and a high mileage oil change is $39.99.
How does your current paid-for car require $7327?

There's no way buying a brand new car from a dealer only costs you $5k more than keeping an existing car that's paid off.

mastrr

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Re: New car vs used car cost difference.
« Reply #8 on: January 10, 2016, 02:16:05 PM »
I recently purchased a certified 2012 honda civic LX with 40,000 miles from a Honda dealership at the end of December for $12k (right at KBB for certified).  Feel that it is a solid financial decision because I can easily drive it for another 10 years and it still has the balance of the warranties because it is certified.  I'm going to be using it as a commuter as well and I like the fact that I know what I'm getting a cheap reliable vehicle that is still backed by Honda.

Kaplin261

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Re: New car vs used car cost difference.
« Reply #9 on: January 10, 2016, 02:17:37 PM »
Spending an extra $20,000 on a car to *maybe* save $200 down the road seems a poor exercise of mathematics.

2015 LX Honda Civic brand new from dealer. This would require financing of $17,733 with 0.9% interest makes our monthly payment $302.  So if I take that $302 and put into a investment account instead that earns 7% interest in 4 years I would have $16,674.51 but if we were to buy the car we would now have 4 year old car worth $8602 and a loan with $3,624 leaving us with only $4,978 subtract that from what we would have gotten from the investment 16,674.51 - 4,978= $11,696 is our true cost of ownership for the next 4 years

Her current car 2008 EX-N Honda Civic Used . This would require our own money of $7327 with 7% interest makes our monthly payment $175.  So if I take that $175 and put into a investment account instead that earns 7% interest in 4 years I would have $9,662.94 but if we were to buy the car we would now have 4 year old car worth $3197 and a loan with $0 leaving us with only $3197 subtract that from what we would have gotten from the investment 9662-3197=  $6,465 is our true cost of ownership for the next 4 years


$5,231 is the price difference not $20,000 like you suggested.

A standard oil change at walmart is $19.99 and a high mileage oil change is $39.99.
How does your current paid-for car require $7327?

There's no way buying a brand new car from a dealer only costs you $5k more than keeping an existing car that's paid off.

$7327 is what the car is worth if i sell it, thats money that could be earning interest just like money tied up in any new or used car. However after investigating penfed like you suggested it looks like I can get a low interest loan for a older used vehicles.  So instead of $5,231 it would be $6031 if we get a loan of 2.49% like advertised on penfed.

JLee

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Re: New car vs used car cost difference.
« Reply #10 on: January 10, 2016, 02:52:37 PM »
Ah, I see.

Also don't forget to factor in the 4.1% tax when purchasing another vehicle, unless your OTD pricing includes registration.

Fuzz

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Re: New car vs used car cost difference.
« Reply #11 on: January 10, 2016, 04:24:06 PM »
A 7% return on your money is not guaranteed. I think that's pretty aggressive. True, over long time periods there has been a nominal return of 7%, but that assumes the next 30-40 years are like the last 30-40. Plus, stocks are still historically high for their P/E ratios. No, I don't have a crystal ball and no I don't pretend to know what the market is going to do, but I think a 7% opportunity cost is really high. Treasuries are at like 1-2% right now. I can't think of any large, sophisticated financial institutions that are expecting to get 7% annually in the next 4 years in index funds. That said, investing money is good, so you should do it.

Also, your insurance costs are going to be much higher on a new vehicle. A 10 year old vehicle with liability only, costs $150/6 months. On a new vehicle, you'll want comprehensive. I would assume you're looking at $200/month to adequately insure a brand new vehicle.

I echo the other commenter about your estimates of maintenance costs. They seem high to me.

Is a new Honda a dumb thing to buy? No, they're good cars. Is it a great financial decision vs. keeping a 8 year old Honda? Not in my opinion.

RWD

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Re: New car vs used car cost difference.
« Reply #12 on: January 11, 2016, 07:11:58 AM »
I would assume you're looking at $200/month to adequately insure a brand new vehicle.

This varies a lot by person and region. Your best bet is to get an insurance quote before you make a purchasing decision. In my case, a $30k brand new sports car with collision and comprehensive ($2k deductibles) was less than $60/month.

spruce

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Re: New car vs used car cost difference.
« Reply #13 on: January 22, 2016, 05:59:12 AM »
Can you add roadside assistance to your insurance policy? We have this through Geico for the car my husband has a long commute in. It only adds $6 to our six-month premium.


NoStacheOhio

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Re: New car vs used car cost difference.
« Reply #14 on: January 22, 2016, 08:13:46 AM »
I would assume you're looking at $200/month to adequately insure a brand new vehicle.

This varies a lot by person and region. Your best bet is to get an insurance quote before you make a purchasing decision. In my case, a $30k brand new sports car with collision and comprehensive ($2k deductibles) was less than $60/month.

We have a 2013 Civic (Si!) and a 2014 CR-V with full coverage for $583/half. Insurance is wildly variable. I was shopping today, and another company quoted me $1486/yr including a bunch of employer discounts (~30-35%).

JAYSLOL

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Re: New car vs used car cost difference.
« Reply #15 on: January 22, 2016, 09:59:51 AM »

Her current car 2008 EX-N Honda Civic Used . This would require our own money of $7327 with 7% interest makes our monthly payment $175.  So if I take that $175 and put into a investment account instead that earns 7% interest in 4 years I would have $9,662.94 but if we were to buy the car we would now have 4 year old car worth $3197 and a loan with $0 leaving us with only $3197 subtract that from what we would have gotten from the investment 9662-3197=  $6,465 is our true cost of ownership


I'm confused about this math, a 4 year old Civic worth $3197?  Do you mean an 8 year old civic?  I wish 4 year old Civics went for that where i am :)

Keep in mind that the smaller amount a vehicle is worth, the more reason there is to KEEP IT. 

Anyway, no matter what the math works out like on guesstimated investment/maintenance/cost of ownership tables that most people come up with, in my experience (as someone who is a "Car Guy", has worked as a Mechanic, and at 2 car Stealerships) a 2008 Honda Civic is the perfect car to be putting high miles on commuting for the next 4 years.  Any stress you get from the occasional maintenance of a used car is MUCH less than from the monthly new car payment IMHO.  And keeping the 08 Civic until when you FIRE, you have more freedom to maintain an older vehicle, loose the vehicle entirely while travelling the world, or change to something else that fits your new lifestyle by not being tied to a 2016 Honda you will still paying for every month.

mpg350

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Re: New car vs used car cost difference.
« Reply #16 on: January 22, 2016, 10:29:11 AM »
Personally would just keep the Civic you have I didn't see the miles listed.  They are very reliable maybe get the water pump and alternator replaced and you really should be good to go.

 

kittenwhiskers

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Re: New car vs used car cost difference.
« Reply #17 on: January 22, 2016, 09:49:52 PM »
I recently sold my 2002 Camry with over 286,000 miles for $2,750 and bought a new (gasp) Camry for about $19,000 with a 2-year credit union loan at 1.84%. Why? I work in healthcare and cannot be late or miss work, plus a 35-mile one-way commute (against traffic, so about 1-1/2 hours total driving per day). This should last well into early retirement and could be the last car I ever buy.

I saved several thousand dollars, and got the car about $2-3,000 below "invoice" price and much cheaper than anywhere else in the state, by buying from a high volume dealer 160 miles away.

This was only about $1,000 more than the cheapest 2-year old Camry I could find. Worth the peace of mind IMO.

use2betrix

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Re: New car vs used car cost difference.
« Reply #18 on: January 23, 2016, 06:56:00 AM »
Most of the stuff you mentioned on her 8 year old Civic is stuff that any car with 100k + will need. Struts.. Timing belt.. Radiator flush... Etc.

Do you plan to sell every car you get at 90k miles? If not, those are not repairs, those are routine maintenance.

How many miles does her 08 have? I don't think you mentioned that..

My wife drives a 1999 Camry. She has had it for 2 years and it has about 110k miles. Over Christmas we just drove it 3000 miles on a trip.

In the last 2 years it's needed some of the routine maintenance you mention: timing belt, struts, etc. none of that stuff really even counts if you plan on keeping your vehicles passed 100k. In repairs it's needed this steering shaft ($600) and battery terminals ($10).

We paid around $5000 for the car 2 years ago. A bit steep, but it had under 90k, in great shape, and the same owner the previous 12+ years. Plus, the cars are so easy to work on, easier than new ones even, so everything is cheap. It's not that we "can't afford nicer" because we can, that car was a good chunk less than my 2 week paycheck I got yesterday. We have a nicer truck because we live full time in a 5th wheel, but take her car for any trip together that's an hour or more away.

I'm not steering you away from a newer vehicle, but I am pointing out that if you want to do it, do it because she wants a new car. Financially, it's not the MOST SOUND move. I am speaking from the owner of a 99 Camry, not the owner of my 2013 F250 lol, that's a very different story though.