Every frugal shopper knows that to buy an automobile is to buy a rapidly depreciating asset. Your car becomes less valuable with every kilometre you put on it, every little scratch and bump it receives, and every year it ages. Your only strategic upside is that depreciation is heaviest the moment you drive your baby off the lot; after that, it depreciates more slowly as it ages. Eventually, after a decade or so, it has no value whatsoever – except perhaps to that kid in the market for his first set of wheels, or the dealer who wants to put you into a shiny new ride.
Buy a reasonably well-maintained used vehicle, on the other hand, and you skip that initial depreciation. This can save you up to half off new, even though the car still has 80% to 90% of its life left.
Unless the vehicle is a total lemon, the cost savings of buying used far outweigh what you can expect to pay for repairs.
Consumer Reports has a great article on buying a used car, and identifies some of the risks of doing so. These include reliability, warranties, and safety equipment. In short: reliability is greatly improved in modern vehicles; many can be expected to drive up to hundreds of thousands of kilomteres with proper maintenance. Underground Man’s 2002 Mustang, for instance, had more than 325,000 kilometres on it when he traded it in over the summer. It was one of the smoothest-running and reliable vehicles he has ever owned.
Once a used vehicle is out of warranty, the new owner is on the hook for repairs. But you have to look objectively at the overall ownership costs: unless the vehicle is a total lemon, the cost savings of buying used far outweigh what you can expect to pay for repairs. A new car does come with the very latest in safety equipment – usually as an expensive option; this equipment ultimately gets included in the price when that car sells used a few years later. The same goes for other pricey add-ons like leather trim, heated seats, or an upgraded entertainment/navigation system. Sure, if you’re a latest-and-greatest fetishist, then getting yesterday’s bling is hardly the turn-on you crave. But if you’re serious about your personal finances, a three-to-six year old vehicle can offer some pretty revolutionary tech, without the eye-popping price tag.
You’ll also save big on insurance, and, if you’re willing to do some of the work yourself, you can find replacement parts for your used vehicle at substantially reduced prices. Reconditioned parts are excellent bargains, as are those from wrecking yards. Don’t forget to check sites like Kijiji: skilled home mechanics will often “part out” a vehicle that is worth more in pieces than whole.
In sum, buying a used vehicle is almost always the frugal choice. If you need to finance your purchase, you will of course be disadvantaged by higher interest rates on used-car loans, primarily because manufacturers offer their lowest rates as incentives to finance new vehicles. But if you’re truly frugal, this won’t be an issue, will it? Because you will have paid for your car with cash.