How To Score a $50 Car Payment For Life

Our latest big ticket purchase included a free membership in the Large Family Club.  That’s right, we bought a minivan.  “Purchase a minivan by 2008” I typed in my first FIRE spreadsheet back in 2006.  Oops, eight years late but it still counts, right?

The main reason we were eight years late buying a minivan is because we didn’t need it prior to the last year or two.  It was our planned five week multi-thousand mile road trip up the East Coast into Canada that convinced us that a larger vehicle would be more comfortable for long road trips.  We are in the middle of planning our 2016 summer adventure (more details later!) and decided to upgrade to a larger car for this trip.

The minivan might not be flashy or fancy, but it’s a very effective mass transporter of people and materiel.  Our kids are getting older.  They have friends.  We don’t work.  We can take fun trips around town during the work day with our family of five and up to two (or three or four if we break seat belt laws…).  The seats fold flat and/or pop out so we can haul full size sheets of plywood if necessary.

We still own the 2000 Honda Accord for now, though we don’t use more than one vehicle at a time, and rarely use either one much (the minivan’s trip odometer reads 15.9 miles three weeks after purchasing it).  We are back to the dilemma of wondering whether we should keep two cars or drop to one.  For the month that we were a one car family, there was only one time that we actually needed two cars (to haul 12 kids to the skating rink for a birthday party) but our one car plus UberXL could have done the job for $5-6 each way.

I hope we don’t fall into the trap of the status quo cognitive bias.  From Wikipedia: “The current baseline (or status quo) is taken as a reference point, and any change from that baseline is perceived as a loss.”  Too often we assume our current state of affairs is the best way to handle something but that’s often not true.  In the context of “How many and what kind of car(s) should we own?”, I believe the correct answer is one car and the right kind of car is roughly a minivan.  I think it makes sense to sell the old Honda Accord because there is no way we would go out today and buy a second car if we only had the minivan.  Time to right size our car ownership over the next couple months if we can overcome the status quo bias.

Before I jump into the math behind our perpetual $50 car payment, let me show off our new beauty:

2009-toyota-sienna

It’s a 2009 Toyota Sienna LE with 111,000 miles.  We paid $7,900 plus a few hundred in random sales tax, property tax, and fees.  We also spent $98 on a pre-sale inspection at our trusted independent Honda/Toyota shop.  They were shocked in a good way at the condition of the car inside, under the hood, and underneath the car and figured we would pay at least a few thousand dollars more for the car in its condition.  I guess we got a good deal.  The dealer and I thought it was a lower trim level (a “CE” instead of an “LE”) while we negotiated the price, so we also scored a bonus $600 value with a higher trim level (LE = it has cruise control and radio controls on the steering wheel).

It’s amazing what $8,000 buys you in the used car market today.  This van is sweet!  Very spacious and clean, runs well, and looks decent on the outside other than a few irrelevant scratches and dings that no doubt saved us some cash on the purchase price.  The Japanese minivan is also a favorite of fellow frugal early retirement types Mr. Money Mustache (for stuff hauling in his construction hustle) and the Frugalwoods.  They both own the Honda Odyssey which is the vehicle we initially targeted in our used car search until I did some research.  The Odyssey is priced about the same as the Toyota Sienna in the used car market, however online research and the sage advice of our in the know independent mechanic confirmed that the Toyota model outshines the Honda in the age range of vehicles we were searching for (2008-2010).  Fortunately we found a nice deal on a Toyota before we found a nice deal on a Honda.

 

The $50 forever car payment

Enough bragging about my awesome new used car.  I want to share my philosophy on the perpetual $50 car payment.  Whenever I pull together an annual budget (like our 2014 and 2016 budgets), I always stick about a thousand bucks in the “auto” line item to cover a new used car purchase every seven or eight years.  That works out to $83 per month and is most likely more money than we need to spend on a new used car.  But I like to plan for the worst case and then optimize spending when it comes time to actually part with my cash.

Here’s the math behind my $50 car payment.  Buy a gently used six to eight year old car with low to moderate mileage for around $8,000-10,000.  Run the car almost into the ground and then sell it after nine or ten years when it’s 15-16 years old for $3,000.  The net depreciation (cost of new(er) car minus sale proceeds from older car) for those nine to ten years is $5,000 to $7,000 or about $50 per month ($6000 divided by 120 months = $50/month).

Now that we have completed one cycle of the “sell the sixteen year old car and buy the seven year old car”, I know that $50 per month is probably closer to reality based on my periodic car replacement strategy.  In my case, I sold my sixteen year old Civic for $2,900 (as reported in my February 2016 Financial Update) and bought a 2009 Toyota Sienna for $8,300 including all fees.  My net out of pocket cost for upgrading to a new(er) car (a year 2009 instead of a 2000) was $5,400.  Spread the $5,400 cost over nine years and it works out to exactly $50 per month.  My hope is that our new minivan will last for about nine years and I can sell it as a well-maintained still running low-ish mileage vehicle for about $3,000 at that point.

I don’t think this is the absolute cheapest way to keep car expenditures to a minimum but it does a good job of balancing low cost with our goals and needs.  We could buy complete POS’s for a couple thousand bucks, cross our fingers they would run for another 5-6 years and then sell them as “needs work” cars or as industrial scrap for a few hundred dollars when they die.  That might get the per month depreciation cost down to $30-40 but then again we might be eaten alive by maintenance costs and plagued by the frustrations of breakdowns in the interim.

Under our replacement strategy, we pay slightly more but we get a lightly used car with modern-ish amenities every eight to ten years, and then drive it until we expect to see troubling repair bills.  By buying a car that’s six to eight years old, we skip the steep part of the depreciation curve and pay a quarter to a third of the new price of the vehicle without losing a lot of reliability (we’re talking about Hondas and Toyotas here).  Since we’ll probably be taking a multi-thousand mile road trip every other year, reliability is important to us.  Owning a used car also saves us hundreds of dollars per year on property tax and even more on insurance (an $8,000 car is cheap enough that we don’t carry comprehensive or collision coverage since we are our own insurance company).

Instead of paying a $300-500 monthly car payment essentially forever if we followed the “buy new and replace after three to six years when the shine wears off” method, we are instead paying around $50 per month and still get to enjoy a new-ish car occasionally.  Of course I definitely appreciate the sellers of lightly used six year old cars flooding the market with inventory (so they can upgrade to a new car) because it makes it easier for me to acquire a used car at a sweet price.

 

Tips on finding a new used car

While searching for a good deal on our minivan, I employed a few basic strategies.

Do your research.  Identify the vehicles that fit your needs, then figure out which of those models are the most reliable.  In our search, I found that the Honda Odyssey often had transmission problems after seven or eight years, whereas the Toyota Sienna held up reasonably well with few complaints.

Don’t be in a rush.  Start looking for a replacement vehicle before you absolutely have to have one.  Set up automated searches at Craigslist and other used car search engines.  Narrow your search to highlight only those cars that are good to great deals based on price, year, make, model, and mileage.

But then hurry.  Once your automated searches find the right car at the right price, check it out ASAP.  We bought our car on the first day after the car lot lowered their asking price by $1,000 to an amount below Kelley Blue Book value.

Focus on the lower trim levels.  I like the cars with fewer options.  For a 6+ year old car, I consider things like moon roofs and power everything to be more of a liability than an asset.  The extra features can break and cost money or time to fix.  They also cost more in the form of a higher purchase price.  However, when you sell the car once it’s almost dead, you likely won’t recoup any of the higher purchase price.  To the buyer of a 16 year old car, “does it work?” is more important than “how fancy are the amenities?” (“runs well” IS the amenity).

Don’t be picky.  Are there a few scratches or dings on the outside of the car?  Jackpot!  You’ll pay less money and you won’t worry the next time you get another scratch or ding because the new blemish will already have a built in friend network elsewhere on the vehicle.  It also helps to not restrict yourself to a single color, trim level, or even make or model (as long as the car meets your specifications like “7+ seat vehicle with storage”).

Get a pre-sale inspection.  Our local independent shop charges $90 (plus $8 sales tax – thanks North Carolina!) for a rather in depth inspection of a vehicle that might prevent you from purchasing a car with a latent defect lurking in the inner workings of the vehicle.  It’ll also provide an objective second opinion of the quality and condition of the car.  In my case, a few small problems were uncovered that led me to ask the seller to provide the fix ($25 worth of parts from the auto parts store).  I think it’s better to “waste” $90-100 on a pre-sale inspection in order to avoid buying a dud.  In my situation, I negotiated the purchase price then asked to take it for an inspection before closing the sale.

Check out the CarFax report (or use a similar service).  The dealer I bought from pulled up the CarFax report online and let me review it before we talked price.  The CarFax report will usually uncover unexpected surprises like salvaged title, a rebuild after a wreck, collision damage, poor (or good) maintenance, and ownership history (location of ownership, number of owners).

Negotiate the price.  This should be obvious, but the asking price is never the final price.  Know what the car is worth by checking the Kelley Blue Book value and other online pricing services.  Don’t be afraid to walk away if the seller isn’t willing to agree to a reasonable price (remember, you can always find another car).  I used the “I’ll have to check with the boss” strategy when negotiations reached a stalemate and went outside for a few minutes to chat with Mrs. RoG.  Then I came back in and said “look, we’re close to a deal but not there yet.  My wife said I have to take a little more off the price and she’ll be happy, otherwise I can’t get the car.  How about drop it another $100?”.  Maybe he took pity on me, because it worked.

 

Our $50 per month car buying strategy might not work for everyone, but I’m hoping it continues to work for us.  By the time we are facing the next replacement cycle in another eight to ten years, we will likely be looking at a smaller vehicle since the oldest two kids will be starting college around that point.  We may go back to a two car household once the kids start driving in another five or six years, which could impact our new(er) car purchasing decisions.

 

 

What does your vehicle replacement plan look like?  Do you prefer new cars or used cars?

 

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77 comments

  • I’m leaning more and more towards wanting to purchase a 6ish year old used car whenever I have to replace my 08 Civic. Wow I just realized that in June my car will be 8 years old. It definitely doesn’t seem like it. I want to upgrade to an SUV in the future because I need more room/hauling capacity than my little Civic offers. I need to track how well they hold up but the one I’m thinking of is the Hyundai Santa Fe or Santa Fe Sport. Luckily the timing will work out pretty good since the model year I like will be approaching the 6 year mark when my Civic turns 10 so the timing could work out on that one.

    • You’ll probably save a ton of money off the new price without sacrificing a lot of reliability. Go for it!

    • A minivan can haul way more than a micro SUV like a Sante Fe or a Ford Escape. I can haul 10′ long pipe or lumber in my Grand Prix. I have used my 04 Grand Prix for yard project, hauling 1200lb of bagged gravel at a time. I’ve taken an entire kitchen demo to the local dump in my grand prix. I’ve hauled 14′ long counter tops in it. I’ve hauled dressers home in my wife’s Prius with the hatch closed!

      A minivan can hold 4×8 sheets of drywall or plywood inside of it. Those mico SUV’s really don’t have a lot of room in any direction, and the seats rarely fold perfectly flat. With some minivans, you can take the seats right out and haul huge things in them! Don’t underestimate the utility of other vechicles that don’t have “utility” in their name. They’re often cheaper to buy, operate, and fuel.

    • I own a 2007 Santa Fe, got it 3 years ago for $7500. Really good SUV for the price and unlike honda or toyota, Hyundai offers a few options on base models that makes their cars a bit more comfortable on the road 🙂

    • If you need extra “hauling capacity”, it’s important to categorize what kind of things you’ll be hauling.

      Justin is hauling lots of kids around so he needs seating capacity.

      I’m re-habbing a couple of houses a year and so I need the ability to load up sheet rock, plywood, and 2x4s.

      Rather than buy an expensive vehicle (particularly if it gets lower gas mileage than my small sedan), I chose to get a small utility trailer like this:

      http://www.harborfreight.com/1195-lb-Capacity-48-in-x-96-in-Heavy-Duty-Folding-Trailer-62648.html?ccdenc=eyJjb2RlIjoiMTI0MTU3MzMiLCJza3UiOiI2MjY0OCIsImlzIjoiMjQ5Ljk5IiwicHJvZHVjdF9pZCI6IjExNDg1In0%3D

      Tags and title are dirt cheap. I only put wear and tear on it when I use it (unlike a pickup truck that I would also be commuting to work in), so it should last pretty much forever. Total cost, including the trailer, “forever tags”, a trailer hitch on my current sedan, and some plywood and 2x4s to put a railing and floor on it will be under $750. It will cost me another $200 or so anytime I get a new used car to pull it with.

      It’s a bit less convenient than a pickup truck but it costs a whole lot less. And so what if I have to make 2 trips to Lowes instead of 1 a couple of times a year?!

      As for trading in my cars, I’ve followed the “if the dealer will give me a $500 courtesy trade-in, I didn’t drive it long enough” approach.

      I’ll have to re-think that now that I’ve seen your method.

  • Unfortunately I kept my last car a little too long. Literally driven into the ground and I wasn’t able to get more than scrap for it. However, the Accord did make it to 20 years old and I saved thousands by buying an older car and not taking out a car loan like all my other friends were at the time. This is the biggest mistake that I see people making out there. It is baffling to me that people will spend so much money on a brand new vehicle without ever thinking about how much depreciation alone is costing them. Thank you for the reminder on how to keep these costs in line.

  • Favorite line this month: ” … you won’t worry the next time you get another scratch or ding because the new blemish will already have a built in friend network elsewhere on the vehicle.”

    • We just loaded up the inside with a huge play castle contraption a neighbor was giving away. Glad we didn’t have a brand new car because we would have been freaking out about the possibility of getting a little dirt on our pristine interior. 🙂

  • Nice work ROG. I don’t own a car, and don’t plan on purchasing one for as long as I can hold out 🙂 I love the negotiation part!

    • I’d (mostly) love to go car-free but it’s too easy to own one and there are huge advantages here. The upside is a trip across town is cheap and now we can haul big stuff for free (well, the cost of gas). Also great for a month long road trip.

  • That’s a great deal! We got a Mazda 5 and it’s the perfect little minivan for us. I hope it last us at least 10 more years and then we’ll be in the market for a used minivan. I think minivan is great to buy used. The price seems to drop quicken than sedan.

    • I looked at the Mazda 5 a lot online. There were tons of those in the 6-8 year old range for $5-6,000 and fairly low mileage ($2-3k less than the Odyssey/Sienna). Looks like a good smaller stuff hauler and would easily accommodate four, possibly 5 on a road trip. Nice gas mileage stats too. It seems like a very appropriate car for your family! We went up one size category to the full size minivan to snag the extra space and in case we have an extra passenger or two beyond the 5 in our family (if grandma joins us again on a cruise leaving from South Carolina or Florida, for example).

  • I am a full-on subscriber to your philosophy, so much so that I freelanced a very similar article in 2014:

    http://blog.futureadvisor.com/get-rich-with-a-30-car-payment/

    I guess great minds think alike.

    • Nice! Makes perfect sense. Seven year old cars seem to hit the sweet spot where the depreciation curve flattens out. But the way they make most models these days, they are good till 15 years or more (with repairs along the way, obviously). So keep a 7 year old car for 7 more years and then sell before it dies.

  • Jeremy Amaismeier

    Thanks for running such a helpful website! This is my first time commenting, and I wanted to let you know that I’ve really appreciated all the time you’ve put into explaining so many finance/retirement/life topics in clear, understandable ways. It’s really been a help to me (and from what I read in the comments, many others, too).

    I almost commented on your last budget post to ask what company you use for car insurance. Am I remembering correctly that your cost was about $400 annually for 2 cars with no collision or comprehensive coverage? Do you mind providing information on how you selected the company you’re with?

    Sometime last year, I came across a new car insurance company called Metromile that targets its service at low-mileage drivers (<10,000 miles per year). I think the idea is that by doing that, they're attracting customers that are less of an accident risk because they drive fewer miles. I made the switch last fall, and so far, I've been pleased with the company and pleased with the lower insurance bills. For the same coverage, it looks like the cost will be around $400/year (cost varies month-to-month based on miles driven), down from about $700 for 2 cars, one with comprehensive/collision). I didn't know if you'd heard of the company or had any thoughts, but given how much I've appreciated your other articles/comment responses, I figured I'd be able to learn something by hearing more about your process/reasoning in how you've selected car insurance.

    Thanks for all your work on the site!

    • Thanks for the kind words, Jeremy! And thanks for commenting and collaborating.

      A reader here suggested looking at mutual insurance companies, so I found a few and ended up with Farm Bureau. I shopped my home and auto policies and ended up adding an inexpensive umbrella policy too. You are right – with 1 car and 2 drives our annual premiums for liability only ($500,000 limit I think) are around $400. I’ll check out the Metromile company that you mention. We drive so little that it would be great to take advantage of lower rates for lower mileage drivers. When I switched us to pleasure only drivers (no commuting) that only took off about $10 per person, which is crazy. We rarely drive during rush hour so I imagine we are much less likely to get in a wreck due to that alone. And we don’t have to drive in inclement weather either. Ice on the roads? We stay home.

      Edit: Metromile doesn’t offer insurance in NC yet. Only California, Illinois, New Jersey, Oregon, Pennsylvania, Virginia, and Washington so far. But it looks like the perfect fit for our lifestyle, particularly when we aren’t planning a two or three thousand mile summer road trip.

      • Jeremy Amaismeier

        Thanks for the response. It seems like bundling is common way to save money.

        When I first heard of Metromile, they didn’t offer insurance in PA (where I live), either. But I think you can sign up to be notified if they expand to include your state. I’m not sure I would have remembered to check back without that notification.

  • I have an 02 Chevy Cavalier that I plan to run into the ground. There is a place here in Houston that can install new engines for about 3,500. I’ll probably go that route when the current ride finally bites it.

    • A frugal friend went that route with his 199x Toyota Corolla. The engine blew a couple years ago but he didn’t want to upgrade to a new(er) car so he dropped $2500 I think on a new engine install. Still running strong a few years later (though his commute is under a mile and I think he rides his bike or skateboard sometimes).

  • Bravo….It seems like an excellent purchase. I hope it serves you well. My experience in the car search has not been as pleasant…perhaps I’m unrealistic. For the time being we have abandoned our search for a good used 4-wheel drive SUV. Too many cars with high mileage and high prices. Congrats on your purchase…

    • To some extent you get what you pay for. During my search, I excluded any car over 130,000 miles or so. I’d rather pay an extra $1-2k for the lower mileage cars. I figure I can replace the engine, transmission, or other major system literally every year and still come out even with new car depreciation.

      • You are wise ,,,,, I went a step further and checked into repair cost on some of the SUV’s I was interested in. It gets really scary for some units….How about $5-6K for a transmission replacement? And IMHO buying a car with over 200K is asking for trouble….yet there are plenty out there for sale….

        • Yes – that’s a good point. The beefier 4×4 transmissions are very expensive to replace. I’d be very hesitant to buy a 200k+ mile vehicle unless I was paying very little. We saw a lot of minivans around that mileage but steered clear (even though they were a couple thousand cheaper).

  • We essentially do the same thing, we’ve just never written it down is such an accessible way. 🙂

    In our “budget” we used to account for $0.50 a mile driven, all in, but this is too much when driving fairly old cars. Hmmm…I should really look at what we’ve actually spent on our teenage car in the past five years…

    • I’ve seen that $0.50 per mile number elsewhere (approximately the IRS reimbursement rate) but I don’t think I’ve ever spent anywhere near that much. Even with $4/gallon gas and our new minivan I don’t think we’ll hit $0.50 per mile.

  • How do you categorize maintenance costs?

    We bought an 8-yr-old minivan (99,000 miles) for $4000 2 years ago. We immediately turned around and put $2000 worth of repairs into fixing things. We knew about these issues before buying – so mentally we bought a $6000 minivan.

    But since then we’ve had a few other repairs, just the miscellaneous things that go wrong. Oil changes, headlights. It will need new tires soon. Last month was a pretty hefty repair bill when we needed new brakes and rotors. Unfortunately we drive much much more than you – so perhaps your maintenance costs will be less. That 15 miles you’ve put on your van in 3 weeks would only be one trip to the grocery store for my rural family.

    • We account for them like you do. I’d say you spent $6000 on a used minivan (including the cost to get it in operating condition). The other repairs and maintenance items are operating costs. I stick them in “automotive” along with insurance, taxes, fees, etc; gas, tolls, and parking go in a different category. New tires, brakes, oil changes etc are easily predictable recurring expenses that you can budget for (tires = 40-60k miles usually; oil changes – 5-7k miles; brakes – 40-80k miles depending on highway vs city).

      I feel like even with all the maintenance costs, you still come out way ahead vs buying brand new. A brand new car will need new tires, new brakes, and a few other maintenance items within the first five years (totaling over well over $1,000 most likely).

      Our city living certainly helps. A long drive for us is 4-5 miles to go downtown or to a park on the other side of town or 10 miles to grandma’s house across town. Most trips are under 2-3 miles. It’s funny, our kids start whining about “are we there yet?” if we’re in the car more than 10 minutes. This fall we have a kid attending school outside our neighborhood. The trip to the other side of downtown is almost 6 miles so it might increase our annual mileage a lot if we drive every day (but the gas for that is in our 2016 budget just in case!).

  • It is hard to beat a minivan during the key kid years. I drove a 2005 Mazda MPV for 7 years. The MPV was in between the Mazda5 and a Sienna/Odyssey.

    The kids are older so my wife now drives the “leave town vehicle”. I “upgraded” to a 2004 Ford Taurus sedan with 62k miles. Perfect shape driven by an older college professor. $4,200. She had averaged about 6k miles per year before I bought it just over a year ago.

    • It’s definitely nice to have room for 7 with seatbelts. I look forward to getting back to a smaller car because they are so much more fun to drive and it’s a lot easier, but in the meantime this minivan fits our family and intended usage perfectly.

  • Great Strategy RoG! I’m definitely going to use this.

    We still have our pre-kids two-door honda, but it’s nearing the end of that 15 year window….so I might be trading up soon.

    However, like you, I really think we should go down to just one vehicle!

    • I’d encourage going to 1 car if you can swing it. Between uber and transit and walking we are well covered if we ever have one car in use and still HAVE to get somewhere.

      That 2 door Honda sounds rough. I made sure to get a 4 door when I bought mine in college because I figured we would have kids some day.

  • Reminds me of what I did with my 2007 Subaru Impreza. Bought it for $2,880 with 120,000 miles. Lasted me around five years, and then got sold for around $400 to the junker.

    $2,480 for 5 years of service was $41/month. Never needed any major repair until it died out.

  • status quo cognitive bias…I like that enough to write it down 🙂

    I like your method.

    I’m on the “buy new car and keep it 16 years” plan. For a 25k net car purchase every 8 years (2 car family) my monthly cost is 260/mo or 130/car.

    Not as frugal as $50 but a much better option than new car every 3 years.

    • I figured you would like that “status quo cognitive bias” reference given your philosopher background 😉 I knew it was a principle in psychology but couldn’t remember the name of the term so had to google it. It’s one that all of us fall for.

    • My husband has the same car philosophy. When we were expecting baby #3, I wanted to buy our minivan used, but he won the argument for buying new and driving it forever. We have a 2014 Toyota Sienna, and own it outright. I put so few miles on it (12-15/week) that I am hoping it will last at least 16 years too, or when that baby we had in 2014 turns 16. At that point I am going to ditch it for something small and economical, like the beloved Civic I used to have in my single days.

      • Sounds nice. I loved my Civic and will definitely be going back to something smaller once the kids are independent (unless the stuff hauling capabilities of the minivan get me addicted to the large car life!).

  • We do something similar by putting away money each year in our budget to upgrade, but a I should take your lead and work out the maths in more detail. Thanks for the idea!

  • We’ve had an 04 odyssey since 09 and I love having a mini-van it is far superior to trying to haul around kids than a car. My plan is to upgrade in about 4 years to something in about the $8K – $10K range as well, which we will pay out of cash flow gleaned from having the house paid off. I’d love to get one that seats 3 in the middle row to give a bit more flexibility. Does your minivan have the built in retractable sun shades on the middle row seats? I saw those in a Kia recently and think those would be a great feature to have.

    • We don’t have the sun shades but we have tinted windows on the middle and all around the rear (not sure if that’s a standard feature or factory upgrade, but they aren’t aftermarket tint I don’t think). We didn’t end up getting the third seat in the middle row (would have been a little nice, but not sure we would use it much and would also make the inside more cramped).

  • I’m a big believer in buying used cars. Though my car purchases may be frowned upon by the more hardcore FI crowd to me they make sense.

    5 1/2 years ago when I finished my first year of full time career work I purchased a 2004 base model Nissan Sentra for $7,000. I am in the process of selling it for $2000, after putting no money into it aside from brake pads and tires.

    My depreciation or “payment” there was $75/month on a $3,000/month after tax income.

    A few weeks ago I purchased a new to me 2008 Infiniti (again frowned on by hardcore FI folks) with just under 22,000 miles for $16,500.

    I plan on keeping this car ~6 years, my projections show that it will be worth ~$10,500 which means my “payment” is roughly $85/month on a VERY nice sports luxury car. This is now on a $5000/month after tax income.

    I think this is the biggest area of improvement for most folks who can’t break the cycle of buying new cars and trading them in every few years.

    • Nothing wrong with that if you can afford it. A good friend does about the same thing (well, Acura MDX instead of Infiniti, but about the same age/price). They also make a lot more than we ever did, so obviously they can afford it! As you illustrate, the monthly average cost of buying quality used is much lower than buying brand new and doing the typical 3-6 year replacement cycle.

      We could afford the luxury models, but I just don’t get any extra feel good emotions out of them. In fact, I prefer cloth seats, so a luxury car with leather is actually a downside in my case (though my Acura owning friend ridicules me for my taste for cloth seats 🙂 ).

  • We have two cars (2007 2 door Honda Civic + 2008 Mitsubishi Lancer). They are getting close to 100K. We bought used. Hoping my car lasts till 2020 at least 2020. Once it hits 140-150K, I will probably be looking for another car. I will then probably pass on my car to my dad or mom. My dad works on his car so he can do the maintenance on older cars himself. SO 4 more years of this baby at least. Cars are a huge deprecating asset, and I believe in buying a reliable car that works. My Honda Civic is actually pretty nice. First car ever, so I fell for the leather seats, sunroof, GPS. Even though I bought it used. Now I know better and will not fall for the fancy upgrades.

    • Hey, we both bought our cars brand new 16 years ago so it’s not a horrible financial deal, just something I don’t think I would do again unless we’re just swimming in money (and have no other way to spend the money effectively!). I also knew nothing about car maintenance 16 years ago, so wouldn’t have been a savvy used car shopper. Now I’d say I have a very thorough understanding of how cars work and what kind of maintenance is required (not that I do much in depth DIY auto work!). So I feel smarter when shopping for a used car.

  • I have an 11yo car that I bought 4 years ago and it just had its 100000 mile check up. Only need brakes, a water pump and an idler pulley and the fact I only put 8000 mi a year on it…I am hoping it lasts another 50000 miles or 5 years.

    • The way cars are made these days you should get another 50000 miles out of it. Repairs might be necessary along the way but still cheaper than a new car payment!

  • You are a trained engineer. University trained. Don’t you feel the urge to “build something”.? Is engineering that bad in the States.?

    I worked in the telco business as a field techie in New Zealand. Dropped out of engineering at Auckland Uni.

    I learned all about networks .Had some satisfying days .

    Retired at 61 and live in Australia.

    • Sure I do! I like playing with computers and code – I’m going to disassemble a couple of laptops, clean them and tune em up so they run better. I’ve been playing with code today on this blog. I have a new router to install tonight. I build lego stuff with the 3 year old. I work on DIY projects on the car and house. Small projects, but building or engineering to some extent.

      While working, I built a billion dollar toll road (with help of course!). Neat project, stressful at times. I’m having more fun now but know I can always go back and do that if I ever get bored.

  • Why keep it until 15-16 years old? Why not 20-25 or 10-12 yrs? I am on 17th year of my car bought new.

  • Justin,

    We have done the same thing for the past 20 years, and it really does work well. I think you are right that the sweet spot is around 8 years old. This typically means you will be the second or third owner. If you can get the used vehicle checked out ahead of time by someone who knows what they are looking at, you can save quite a bit versus dealing with a used car vendor.

    If you run the math, you will save several hundred thousands of dollars by going this route versus leasing or buying cars new!

  • Good strategies on the car buying, it definitely goes a long way to research beforehand. I paid more than you because mine was a 2012 Camry. New Used to me car is the way to go.

  • Sweet! I’ve been looking occasionally for a used Odyssey or Sienna. Around here, nearly every single one has been overpriced in that price range. As in, you plug everything into KBB and the asking price is about $3k too high.

    • Similar experience here, and I consider myself very lucky to have found what so far appears to be a decent used car below KBB. The Craigslist sellers also think they are going to get the KBB price for dealers(usually 10-20% higher than the private seller price). Maybe I can get the KBB dealer price when I sell our Honda Accord!

  • We paid $3500+ tax for a 2002 Kia Sedona with 80k miles in 2008 from a private seller and literally drove it to the ground and scrapped it for $150 last month. We were very happy with the Kia Sedona, so we replaced it with another one, bought a 2008 Kia Sedona with 80k miles for $6400+ tax from a dealer last week.

  • Just curious, what would you suggest if the car has a salvage title? Ours is an 04 Chevy Classic (originally a fleet car I think, basically an amalgamation of the 02 and 03 Malibus) with almost 200k miles on it. Surprisingly, it’s had no real maintenance issues other than a blown out fuel pump around 145k miles. However, it has a salvage title, because my parents (the previous owners) hit a deer and the body damage totaled it. So, I doubt I can really resell it for much. It’s not a Honda or a Toyota, so most people aren’t going to want to drop more than $1k on an old Chevy with a salvage title. Should we just plan to drive it into the ground and then scrap it? Or should we try to sell it and get a few hundred bucks before it totally bites the dust? We have around $7k stashed away to get our next car, so we’re good either way.

    • Whether you keep the Classic until it dies or sell is soon, it’s probably not a big deal financially. I would lean toward finding a new(er) replacement vehicle while you have the advantage of time on your side. You can be picky and selective and wait to find the perfect car at the perfect price before buying it. Then sell the Classic while it’s still operational. Otherwise your Classic might die suddenly and you’ll be forced to buy a replacement vehicle on short notice (unless you have access to a second vehicle or could do Uber/transit for a while).

      This approach of taking our time with finding a new(er) car certainly helped us. We found a good car with an asking price $1-2k less than other similar models with same mileage and features. And we didn’t have to worry about the negotiation working out if the seller couldn’t offer a lower price.

  • We tend to buy new cars with 0% financing and run them into the ground – sometimes literally. I realize that it’s not the best move with money, but we’re getting exactly what we want, at a price we’re willing to pay, and not paying extra for the privilege (except the initial depreciation). I have to admit, I almost put in my $1000 deposit for a Tesla Model3 though – it’s in our price range and we want one, but we’re not currently looking for a car, we just got a new one in June!

  • I’ve never bought a new car, but only recently have grasped the concept of getting rid of my car payment (duh!). I spend 12.5 hours a week commuting, and then also drive a further 5-7 hours per week for my job. A good, reliable and comfortable car is essential to me, but a car payment is not.

    With any luck (and some serious hard work in the meantime), I won’t need to work in 5-8 years. In which case, your strategy would work perfectly and allow me to downgrade to a smaller more efficient car.

    p.s. you will never catch me in a minivan!

  • While I despise car payments, I can’t get too upset about a $50 monthly cost. By buying used, you are letting someone else take the massive depreciation hit, which is great.

    I am a proponent of gradually stepping-up in quality of used vehicles using the sinking fund method. Paying yourself a car payment upfront is the way to go.

  • After I paid off my wife’s 2011 Honda CRV, the $400 per month car payment went into a savings account for the next car. We call it the “Auto Fund”. It’s amounted to Approx $5000 at this point and our family Is looking at purchasing a used minivan to haul the extra luggage and grandparents. Good grief, $40,000+ for a new minivan is insane. We’ll buy used this time. Bravo to the poster that wants to buy a Tesla model 3 as I own the stock but can’t afford one

    • Very smart to look used. There were a ton of options, some incredibly nice, for well under $15000 when we were looking. $40,000 for a brand new loaded minivan is crazy!

  • I’m very lucky in that I live in a high COL area that does not require a vehicle. I pay for it in public transportation + wear and tear on my shoes, but it keeps car expenses away from me & me off the road. Everybody wins.

    • I’d use public transit exclusively if it worked for us. But it would be a challenge with kids (I’d spend half the day on the bus or walking!). In the future, as we get older and the kid concern lessens, public transit and walkability (though we enjoy both right now to some extent) will be considerations in where we choose to live.

  • I’ve owned used vehicles since I started driving and will most likely stick to used vehicles in the future for daily driving.

    Also, I’ve got a partner who’s a car guy – he finds great used vehicles and has connections/resources for cheaper quality maintenance if needed (plus side of dating a car guy whereas the downside is that he can spend a lot of money on multiple cars and performance parts! This is something we’re finding a sweet balance for as we go haha!) I’m lucky to have him help me in this department and teach me about cars so I’m not so clueless. 🙂

    As a young person, I recommend it to my friends and peers that they buy out used vehicles instead of financing. It’s just so much better for your bottom line in the long run!

    • Good to hear! Having a knowledgeable car person in your life (partner or friend!) is very helpful when maintaining cars and finding good used ones.

  • I am debating on whether it would be worth it to buy a minivan for a cross country road trip/move coming up. The cost would be about $1600 to rent a minivan vs probably about $8k to buy a similar van to what you have. We’ve been debating on whether this would make sense after all the registration, title fees etc. Would be helpful with the dogs though.

    • I’ve considered the same thing for a cross country summer road trip. We could theoretically fly into somewhere on the west coast, buy or rent a minivan, then drive east back home. Should you buy or rent? I’d say it comes down to convenience, how much hassle you want and cost. If you could take time buying a minivan and get a good deal, then you might come out ahead some if you later sold the minivan.

  • Good article, although the title is a bit misleading. I have a question, with interest rates so low, why not finance it and invest the difference?

    • I’d rather pay cash for such a small amount of money. I can always get access to borrow short term for under 2% using credit cards, just don’t want the leverage.

  • How much mileage do you put on your vehicles annually? I like this formula but ours would probably have way too many miles on if we kept it that long. We always buy used. However, the last car (2001 Honda Civic) we bought we have had to re-do the transmission twice! We paid less than $4K but we have spent more than that on it in 4-1/2 years. It’s so expensive. The last truck (2008 F-150) we bought is awesome. However, it cost around $16K. It’s hard to figure out what to do.

  • Daniel J. McMillan

    We love our 2008 Sienna! It’s about to hit 180k. We used cash and bought it with 93k miles. I do all of the service on it. I will get my money’s worth when it hits 230k, and anything beyond that is gravy. I even installed a 12 inch subwoofer in it. Nice blog, too.

    • Nice! I hope I hit 230k in mine, though at 7000 miles per year right now (including 3 long road trips!) I doubt I’m going to make it before the body rusts out. 🙂

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