New Cars and Auto Financing: Stupid, or Sensible?

When you hear people talking about  their cars, you usually hear ridiculous terms like “dealer”, “interest rate”, and “payment”.

Mr. Money Mustache has already laid down the law on this issue in the past: You should never even spend all your money on a car, let alone more than all your money. So why does everyone still get car loans? Pure blissful consumer ignorance? Or are there some subtle details I am missing out on? Let’s examine further.

The first barrier to overcome is affordability. If you don’t even have the money invested somewhere to allow you to pay for a car in cash, you are obviously far too poor to buy that car. Wake up! If you couldn’t save the money by this point, what do you think it will do to your finances to hang a giant boat anchor  of mandatory principal and interest and insurance payments around your neck? You are in a bad place right now – you obviously don’t need to make it worse for yourself!

But let’s say that you DO have enough money for a car. Five grand, ten, twenty, even thirty grand. It’s just sitting in your bank account, and that’s not even counting the money you have ‘stashed away in your 401(k). You plan to invest this cash soon so you can earn dividends and capital gains, and the dealer down the street is offering auto financing at only 1.9%. Borrow the money cheap, and leave it invested at a higher rate. That’s a no-brainer, right?

In most cases, this is wrong again, and that’s what we’re going to examine in this article.

The key to optimizing your automotive expenses is in thinking about total cost per year and cost per mile rather than cash outlay per month. Doing this will affect both your vehicle selection and your driving habits.

The most important factor is of course reducing your driving outright. That means living close to work, using your feet or bike for destinations within a few miles of your house, and treating your car as a special luxury leisure tool you get to have because you are rich, rather than a daily appliance you depend on. With priorities like these, suddenly the idea of a 2-car household starts to seem ridiculous, since the chances of both you and your spouse simultaneously needing to do something as exotic as driving, with no chance of sharing or adjusting your schedule to accommodate it, is hard to imagine.

At this point, you’ll have a car that gets driven less than 10,000 miles annually, and ideally less than 5,000. At the 5k level, it would take you 40 years to use up a reliable car’s 200,000 mile lifespan, meaning a single new car would be good for most of your adult lifetime.

It may sound nice to have a car that is still in nearly-new condition after 20 years, but it is actually very inefficient, because of a concept I like to call automotive inventory.

Businesses figured out long ago that carrying excessive inventory is bad for their financial health. Products go stale or become obsolete on the shelves, and money is tied up in something that does them no good until it is sold to a customer. If the business carries any debt, the inventory also shows up as part of this outstanding debt and sucks out money in the form of interest costs too. So the ideal amount of inventory is just enough to meet their customers’ needs and no more.

Similarly, owning a big automotive inventory is bad for your financial health. Your new car slowly degrades over time (especially if you store it outside exposed to the weather), and every mile of inventory that you haven’t used yet costs you money in the form of foregone investment returns you could have gotten instead of buying such a new car, as well as higher insurance premiums and ownership taxes.

When you buy a brand new car, you’re buying up to 200,000 miles of automotive inventory. Even if you are one of the extremists who drives 15,000 miles per year, that is still over 13 years of inventory – meaning that although you are paying for all of those future miles when you buy the car and paying additional carrying costs for them constantly for the 13 years of ownership, you don’t get to actually use up those last miles until the year 2024.

So let’s imagine two 15,000-mile-per-year drivers:

Consumer Carl buys a new 2012 Toyota Corolla S with a 5-speed manual transmission, for $20,000 including taxes and fees and registration. This is one of the best new-car values on the market when measured on a cost-per-mile basis when you factor in its long term reliability and fuel efficiency. He drives it for 13 years, traveling 200,000 trouble-free miles.

After 13.3 years, tying up that $20 grand in a car cost Carl about $38,269, compared to putting the money into paying off part of a 5% mortgage or making another investment that pays a 5% annual return.

Mustache Mary buys a 2006 Toyota Corolla with 90,000 miles on it for $9,000 including taxes. She can only get 110,000 miles out of this car which takes 7.3 years to use up. At that point, she buys a second used Corolla to cover the remaining 90k miles. To make our numbers clean, let’s say she buys a slightly older one such that it only has 90,000 miles of life remaining. This costs her $7,500.

She has to go without that $9000 for the entire 13.3 years, which could have earned her $17,221 if she had used it to pay off her mortgage.
Then she spends an additional $7,500 which is missing for the final 6 years at a cost of $10,050.

So at the end of 13 years, Consumer Carl spent $38,269 on Corolla ownership, while Mustache Mary spent $27,271. She saves about $11,000 even while doing the same amount of driving, and she will repeat that windfall every 13 years or so by continuing this strategy.

Even while driving a nearly-equivalent car for exactly equivalent mileage, Mary saves 30% on the cost of driving simply by buying her Corollas used instead of new.

“But Wait”, the complainers will say. “You forgot to factor in the increased maintenance costs of the older car!”.

No, I didn’t – because on average these will be cancelled out by the hidden costs of owning the newer car. Collision and comprehensive insurance coverage is extremely expensive on new cars – often $500 or more per year. This annual amount alone is more than enough to nurse a Corolla from 100k to 200k miles. Plus there are often annual registration fees on cars that are higher for new cars than for old ones – the difference is several hundred per year in my own area. These provide another financial boost for the driver of the older car as well.

Make no mistake about it – if you have a good reliable type of old fuel-efficient car, it will always be cheaper to maintain and repair it as necessary, compared to buying a brand new car. If you have found yourself hit with frequent $2,000 repair bills for your own older cars in the past, you are either very unlucky, very hard on your cars, or have been choosing unreliable vehicles.  Reliable cars really do go 200,000 miles or more with just routine scheduled maintenance, and seeking out this type of car for yourself in the future will be part of what makes you a true Mustachian. (Sorry, no more Jeeps, Jaguars, or Audis – the most reliable brands are Scion, Lexus, Acura, Nissan, Mazda, Honda, and Toyota).

There may be situations where upgrading from a very old used car, to a somewhat newer car, are cost-effective, but the brand new car always loses.

The most exciting part of all of the calculations above are that I designed them to show the worst case savings.

I picked the Corolla because it is one of the slowest depreciating cars on the market. When you buy a 2006 Corolla with half of its miles used up, you still pay about half of the price of a new one. With most cars, the depreciation is exponential rather than linear, meaning that the first fifty thousand miles are the most expensive ones of all. In other words, you will get an even better deal if you pick a car that is reliable but less well known, such as the Pontiac Vibe (actually an exact twin of the Toyota Matrix, both made on the same assembly line), or any of the other cars rated as “recommended” by Consumer Reports in their used car guide.

And my example featured insane people who drive 15,000 miles per year – over 1.5 hours per day, every day of the year at the national average traffic speed. The lower your annual driving, the more powerful the inventory effect is, and the more you will save by buying an older car.

Even worse, most cars cost much more than the Corolla, so there is more money at stake. I just looked it up and found that the average price of a new car sold in the United States these days is about $28,000. Holy Crap that is a lot of money to spend on getting yourself around.

It’s a bit of a balancing act, because in theory you could get the lowest driving cost by driving around in a very old car. A 1991 Honda Civic that you picked up from a bearded musician for $500, or even a 1984 Nissan Pickup like the one I used as a construction vehicle from 2005-2010. But it takes additional skill and patience to keep vehicles like those running. If you do depend on a car for daily driving, or you’re a single person living in Miami and hoping not to scare off too many potential mates, or you need to carry clients around and look somewhat normal doing so, even a single breakdown could cause more costly side-effects than the old car is saving you. That’s why I am suggesting that busy professionals play in the 5-15-year-old car range, rather than diving right into the 1990s.

Here’s a guideline for the age of car that meets this balance, based on your annual driving mileage. It assumes that the typical used car has been driven about 15,000 miles per year before you buy it. If you find one with lower miles, it’s often a good deal because the prices tend to drop with year more than with mileage.

Annual Miles DrivenIdeal Car Year to Purchase
Under 3000late 1990s or older

So how does Auto Financing fit into all of this? How do I answer the person who wanted to borrow from the dealer so he could pay 1.9% interest and invest the balance?

The reason you don’t want to do that, is because you don’t want a new car. It’s not until you get into “taxi driver” levels of annual mileage that the inventory effect of a car’s cost becomes small enough to ignore.

The second reason you don’t want to do that, if you have limited willpower, is that it might entice you to buy a more expensive car than you would have otherwise bought in cash.

I find it very interesting that even at the very bottom end of the automotive market (find the drop-down box to sort by Price-MSRP low to high) in the US (Hyundai Accent, Kia Rrio, Nissan Versa, Toyota Yaris), you already have great fuel-efficient cars with more than 110 horsepower that can easily carry 5 passengers at 100+ MPH, ranging from $10,000-$13,000. In a rational environment, this should be the middle to upper range of the car market – very few people need more than this. In other words, well over 90% of the car market is purely irrational overkill – people buying unnecesarily fancy machines that they can’t afford.

Surely the presence of auto financing is a big part of why this has happened. You just don’t need to get mixed up in that world of stupidity.

If you really want a car and you can afford it, get one. But do it in a way that causes the minimum possible damage to our goal here, which is of course getting ourselves rich and free.

  • sky November 28, 2011, 7:34 am

    The price of used reliable cars seems to be very high. Why would a used Corolla be a better choice than a Kia Rio? If they are the same price, isn’t it better to choose a new car?

    Insurance might be more expensive for a new car than a used car. The new car has a warranty.

    It may be better to choose a smaller new car than a used car, because the used car market prices are very high, probably higher than they should be.

    • MMM November 28, 2011, 8:59 am

      Yeah – that’s a good point: Kia and Hyundai may have recently pulled to the front in transportation value for the dollar.

      Note that the Rio would still cost more than ten grand new, since you still have to pay sales tax, various fees, registration tax, etc. And depending on how tough you are and what equipment comes as standard, you might end up going up a trim level to get air conditioning or some other amenity. I used the Corolla just as a plain-vanilla comparison because it is pretty much a fully outfitted luxury car these days – there is no rational basis to get a fancier car than that, because it has EVERYTHING.

      In reality, even I wouldn’t buy a Corolla, because it’s too high-end for me. Toyota makes lower-cost car that is better in many ways: the Yaris 5-door hatchback, which is a mechanical twin to the car I actually do have, the 2005 Scion Xa.

      Also note that used car prices are still temporarily jacked up because of the Japanese car shortage caused by last year’s tsunami in Japan. They are coming back down, and should be quite a bit lower in another six months or so.

      Even after all this, the math would still probably suggest that a used Rio is a better value than a new Rio.

      • sky November 28, 2011, 9:46 am

        I had a 94 Toyota Pickup that I sold (for the price I paid for it) to buy a 2009 Versa new.

        Financially it was a mistake but I was always nervous about getting into an accident in the Toyota. My knees were about 0.0001 inches away from the dashboard.

        The Versa has airbags. But car payments suck, so I would say it was a mistake.

      • Willie Nelson April 16, 2016, 10:24 pm

        I’m really kicking myself here. I am new to your blog and just this past November, I traded in my beat up 2005 Scion XA for a 2014 Prius V and $20,000 in debt. I LOVE this car but do I love it more than that however many years it keeps me in the workforce? I don’t know. I’ve never had a nice car before and it sounds like I never should. Now I am seriously considering selling it, in the past couple days of reading your blog. I may thank you if I get to retire before my 60s or 70s but right now mad at you Mr. Money Mustache!

        • Mr. Money Mustache April 17, 2016, 11:46 am

          Yeah, you should probably sell it, Mr. Nelson. The Prius is a great car, but NOBODY should drive a car so expensive that they need to borrow money to pay for it.

          If you are debt free, with retirement accounts nicely funded and just can’t find something to do the spare $20,000s that keep building up in your checking account, sure, buy a $20,000+ car. Otherwise, invest in things that appreciate rather than depreciate.

          • Nadia April 21, 2016, 12:29 pm

            I’m also new to the blog and I have been considering whether to sell my Jeep Patriot 2009 and finance a newer Prius. I commute to work 25 miles each way by bus and train (Hollywood, FL to Miami), but a new job is in the near horizon (also in Miami) with no easy access by public transportation regretfully, so a car will be needed to get there. Second option would be to sell my house to pay off student loans and credit card debt and use the $30k to $40k profit for a townhouse or condo down payment near the new job. Any thoughts Mr. Money Mustache?

            • Mr. Money Mustache April 22, 2016, 7:55 am

              Hi Nadia, I like your plan “B” – move close to work and skip the commute altogether!

              And either way, you can sell the Jeep Patriot and get a car you can afford in cash. No need to finance a Prius, you can get them for $5k or less these days.

            • Matthew June 5, 2016, 6:33 pm

              Mr. Stache, I am an Army soldier in the state of Washington. In the past three years, I have relied on public transportation to serve my needs, avoiding the trap that has claimed so many a naive, young G.I. left to his/her resources. Recently, a fellow soldier proclaimed himself the proud owner of a new Mazda, boasting of low monthly dues and 6% APR. I simply shuddered, but after so many years of careful saving and low-risk investment, I too have developed the itch. Lucky for me, I have enough stashed away for twice my current dream car, a 2016 VW Golf GTI, and then some. I am afraid I have already made plans to scratch said itch, including road trips to Toronto. Your advice?

            • Mr. Money Mustache June 7, 2016, 1:39 pm

              Hey Matthew – why not try a 2009’ish Mazda3 instead? You can get plenty fast ones, amazing handling and very similar to the Golf. But you’ll end up about $30,000 richer over the next 10 years while having 100% of the fun.

    • Grant November 28, 2011, 6:37 pm

      Here in Australia, the NRMA (a motorist group) evaluates and publishes cost-of-running type reports – which include costs of repairs etc. In these reports, the lower priced cars (Hyundai, Kia, low end Toyota and Ford, etc) tend to do badly, ie spare parts and servicing are more expensive.

      For this reason, a similarly priced older car may effectively cost you less in the long run. The Toyota Corolla is actually an excellent example. Extremely reliable, huge numbers sold, plenty of second hand spare parts available. In fact, I’d suggest when you are buying a car, you pick the Toyota Corolla, then justify a deviation.

      • Rhys February 28, 2013, 10:17 am

        Yeah, it’s hard to go ten metres down the road here without seeing either a ‘rolla or a camry. Common as dog shit, which makes spares fantastically easy to get a hold of.

  • oskar November 28, 2011, 8:03 am

    I recently purchased a new car for the first time in my life, I did so in cash and the reason was that the cars that were 2-4 years old cost almost as much as the new once and the new one has warranties, included insurance and was also more fuel efficient. This said I thought about my decision a long time and told the sales person that although this apeared to be a good price I thought it was a lot of money to spend on a vehicle. The response from the sales person was to tell me that I could get very good financing….when i said I was planning to pay in cash and that was the reason I was sweating so much….he was surprised:-) Anyway I think your point is very valid that when you finance you are likely to spend more. And as you look at a “low” monthly payment rather than the actual price tag you are more likely to buy new.

  • SteveW November 28, 2011, 9:24 am

    You can get great rates on used cars as well if you look around. PenFed offers 1.99% on used cars over $7500. At that rate, you should keep your money invested and borrow for the car.

    • MMM November 28, 2011, 4:34 pm

      I find that quite amazing – why is the credit union willing to lend out money on a risky asset like a car loan, when they can get higher returns on much safer investments like bonds? Is it being subsidized somehow? Or is it just because CUs are not profit-motivated?

      Either way, if there is no hidden hitch to the deal, I agree with you.

      I always figured that new cars were available with cheap loans because the loan cost was somehow hidden in the price, or subsidized by the auto manufacturer’s financing arm for some reason.

      And when I did buy a new car once with cash (I know, I know.. this was long before becoming MMM), I found that I was able to negotiate quite a large discount by pointing out that I had cash and could make the purchase on the same day.

      • elai December 2, 2011, 12:41 am

        Cars are secured loans. You can get the car and auction it off relatively easily and will always get some of your money back. An unsecured loan is pretty much all smoke, there is no physical object to reclaim and sell potentially. You can also mandate full insurance coverage on the secured loan object, so if you have to reclaim the car and they destroy it in rage, you can get your money back still. Can’t do that with unsecured loans (unless your AIG ;) ) Car sellers also have an incentive to offer easy credit on their relatively expensive objects to help sales volume and there is probably some kickback there too. Dealers also often have 0% financing offers too.

        I treat my car purchase as my luxury vehicle, which is why I’m getting a used sport convertible.

        You should really look into rental cars being sold off. You can get a relatively well maintained 1 year old Mazda5 for $14k vs $20k for a new one.

        • Cameron Daniels January 7, 2012, 9:21 am

          +1 for this.

          Fleet cars get a bad rap for, I believe, not enough of a reason. There seems to be a bias toward “1 owner” or “2 owner” used cars.

          You tell me what is a better/more reliable car:

          A 1-owner car where the owner didn’t have any maintenance, oil changes, tire rotations and had many dings on the car over years of neglect.

          A “hypothetically” 200-owner car where the owner of the rental car performed all required maintenance, changed the oil and fixed anything that happened to the car.

          Why is 1 bad owner sometimes considered better than 200 average ones?

          • Ian F. April 19, 2012, 11:10 am

            I am a newly graduated mechanical engineer, and a story I was told in a lecture a few years back has stopped me from ever wanting to buy a fleet, rental, or leased car. We were talking about designing a car, and the professor recommended the first step being researching the competition. The easiest way to do this is to rent or lease. To really learn how something is made, an engineer needs to taking it apart and preferably, cut a lot of those parts in half. He finsished this little tale by assuring us that most things go back together with a little creativity after being dismantled and abused….

            • Uncephalized June 12, 2012, 12:43 pm

              The likelihood that any given car in a rental fleet has actually been disassembled and examined by industrial-spy mechanical engineers has got to be so low it is negligible. Do you know how many rental cars there are in the US?

            • Jay July 2, 2014, 11:21 am

              This sounds like an urban legend to me.

              If you were a car or parts manufacturer wanting to research the competition, wouldn’t it just be easier to buy a new car for the lab than keeping track of rental and lease agreements, remembering to put every part back in properly (plus the labor cost of doing that)? And what if one of the rental/lease cars got into an lethal accident afterward because someone put a brake pad in wrong, and the rental company found out in their investigation what had happened? What rational company would expose themselves to millions in civil and criminal penalties, the loss of reputation, and the potential black-listing of all their cars from rental fleets (an important promotion channel) as punishment, all to save a max $50k it takes to buy a new car?

              Also, in Arthur Hailey’s “Cars”, he actually writes about the practice you mentioned. The cars are always purchased, never leased or rented.

          • victoria July 12, 2012, 9:28 am

            I bought a two-year-old Mazda Protege 5 about ten years ago that had been used as a dealer loaner — the car the dealership would give you if they were servicing a warranted vehicle. The car had less than 10,000 miles on it, and we paid cash for less than the Blue Book value. I am guessing we can get at least another eight to ten years out of the car (we drive 5K to 7K miles per year, depending on how many times we go out of town).

            We have been so happy with it. With the certified pre-owned warranty we had a better warranty than a new car would’ve had without any extra cost, and it’s been very reliable. We’ll probably replace it with a hybrid or electric when we can get one for a reasonable price (either that or we’ll get lucky and find something we can afford within walking distance of work and drop car ownership entirely), but this has been an excellent car owning experience.

          • Matt July 12, 2014, 10:55 pm

            I am an automotive technician, and at my shop we see a ton of fleet vehicles. Depending on the company, they are not always particular about the maintenance their cars receive.

            One national rental chain that we deal with often is infamous for refusing to pay for ANYTHING extra. Air filters, a scheduled flush or fluid exchange, any preventative maintenance beyond an oil change is a total non-starter. This company won’t even pay for the correct weight of oil that the manufacturer requires! So they end up with 5W-30 from the bulk tanks in everything. Many of the technicians that I work with don’t even bother doing an inspection on this company’s cars, since they won’t be buying anything anyway.

            Before I had this job, I’d have considered purchasing a fleet vehicle. But really, they’re the second-class citizens of the auto repair world. I’d have to be VERY sure of its history before I’d think about buying one now.

      • Oh Yonghao July 28, 2014, 6:51 pm

        I wouldn’t be so quick to agree, you seem to have forgotten one of the points of your own article, the added insurance cost. The CU will require that you carry full comprehensive insurance on your used vehicle for the life of the loan, and as your article states this adds up to hundreds a year. If the insurance costs are higher by more than $375 then you fail the 5% test you put in.

        • Slee July 15, 2015, 4:43 pm

          This is true. I actually have a current 1.99% used loan with PenFed and, upfront, they required 500/500 Comp and Collision deductibles on my vehicle. $500 collision deductible was a ridiculous cost vs the $1000, so I called PenFed to request a waiver. They agreed to it.

          Obviously one doesn’t necessarily NEED either comp or collision, but if you have a 5 – 10 y.o car, regardless of cash paid (or super low loan rate), the added costs aren’t that bad…particularly with high deductibles.

          For me personally, the used low rate is a no-brainer since I’m the type that carries comp/collision anyway.

          Now as to ‘how much’ car I bought…..well that was indeed a mistake. Yeah, I absolutely could ‘afford’ it….at the cost of having to work another 6 – 12 months. Meh.

          I’m considering getting rid of it.

  • Matt November 28, 2011, 9:52 am

    Cheap auto financing has likely created a bubble, driving up the price of cars. If everyone switched to cash the prices of new cars would probably drop by a third or more. Look at what cheap credit did to the housing market and student loan debt.

  • Kevin M November 28, 2011, 9:55 am

    Great article, but I disagree with the unreliability of Jeeps. My 1998 Cherokee (admittedly very un-Mustachian) has almost 185k miles and was purchased nearly 10 years ago for just over $12,000. Also see this:


    “Japanese models, Hyundai and Kia and the Jeep and Lincoln brands dominated the most reliable list.”

    • MMM November 28, 2011, 3:40 pm

      That is true – I was surprised to see that some of the latest Jeep models have moved way up recently. But in earlier model years they made some really troublesome ones too. And it’s the earlier models that we care about, since that’s what we are buying.

      You have had unusually good “luck” with your Jeep Cherokee, which is great to hear, and I think careful drivers create their own luck, by knowing what types of use wear a vehicle out quickly (short trips, cold starts, outdoor storage, rain/salt/snow, harsh acceleration and cornering, etc.) and what do not. Your geographic location also plays a big part. Where I grew up in Ontario, cars started to look and act old after ten years. Here in Colorado, I see cars from the early 1980s that are still shiny and rust-free and happily running around.

      The real key is just to look at the Edmund’s Lemon-Aid guide or the Consumer Reports rating of the exact car and year you are considering, to make sure you’re getting a good one. My own car buying algorithm is something like this:

      – Start with models earning consumer reports top rating for model year (“recommended”)
      – carve down the list to include only 5-door manual transmission hatchbacks or wagons (I’d make an exception and allow a CVT automatic transmission in the case of the Prius)
      – pick the most fuel-efficient one out of what is left
      – find the ideal price range for that model and year
      – shop on Craigslist for a few months until the right one comes up – negotiate and buy it.

      • Kevin M November 29, 2011, 1:38 pm

        Love that decision tree, I copied and put it away for future use. I’m inclined to drive it until it dies (my goal is 250k miles), but we’ve talked about replacing it before it is too late and we can’t get any resale or trade value from it. I really don’t like any cars that are out there now in the style we are considering, another reason I’m inclined to wait. One of the reasons I’ve kept the Jeep this long is I always wanted one when I was growing up so I hate to get rid of it.

      • SenorPesoBeard October 17, 2013, 8:20 pm

        I too am a Cherokee owner and I think this particular model is an anomaly. The engine is reliable, the transmission is reliable, and together routinely go up to 200k-300k miles. Mine has seen 20k miles with minimal maintenance. I have only had to replace a hose and, because this is a popular fixer-upper for off-roading types, it was pretty cheap. Also, I park my car fear-free in the city. It can take a dent, a kick, a key.

        The only downside is the poor gas mileage. I get 13 miles per gallon in the city. 18 on the highway is more acceptable but still disappointing. Even as a weekend vehicle (public transportation eff yeah) that is unacceptable.

        Insurance and registration (even for me as a 19 year old male) is dirt-cheap and the car was only 2 grand.

        Long-run it’s gonna hurt to keep but I think I made a good buy. Saving up for buying an electric within the next few years.

  • B November 28, 2011, 10:22 am

    Great article I love the way you break things down. When I was 20 years old (2001) I bought a 94 Saturn SL2 that had a bad engine and 130k miles. After putting a different (used) engine in the car I think I had about $2200 in the car. I am still driving that car today. Unfortunately the odometer stopped at 179k but its probably right about the 200k mark now. Since I moved closer to work about 5 months ago I only put about 10miles a week on it. If I treat it right that car might be my 1 year old sons first car. Hahaha

  • Dwight November 28, 2011, 10:30 am

    Sales tax adds a considerable amout to the cost of a car if you live in a state with that tax. Another reason to consider a used car.

    • Scott January 23, 2013, 5:29 pm

      Whether you buy new or used, when you register your vehicle with the state you have to pay the sales tax. That’s not to say that you can’t doctor the paperwork to show a lower sale price, but I’m not suggesting that as a responsible thing to do.

      • Miniwing June 7, 2016, 7:08 am

        Just curious, if I buy a car in Delaware where there is zero sales tax in the entire state and then register it in Texas do I still pay sales tax to Texas?

        • JZ September 19, 2019, 9:43 am

          A little late to the party, but many states require you to register within that state within 30 days of bringing the car to that state. At that point, they will determine if you owe them any tax $$$. Even if you bought it in a low tax state, they will require you to pay the difference in tax if the purchase was made within about 90 days. For example, say you paid $1000 in tax 15 days ago, but the state you live in requires $1500. You will still be required to pay the extra $500.

  • Alex | Perfecting Dad November 28, 2011, 10:36 am

    This is a very smart analysis. The concept “automotive inventory” you mention is wonderful and exactly right. There are a couple of other concepts I can offer from my time in corporate finance, when I managed fleets of assets.

    First off, cars do have a salvage value and there is no need to own one until end of life. That’s an assumption. It is often better to buy new, use it, then sell. In your example you lambast Carl for buying a new Toyota. Here is what Carl should really do: Buy the new Toyota for $20K, drive it for 6 trouble-free years using up the first 90K, then sell it to Mrs s’tache for 10K (or more like $12,500 in 6 years due to inflation) so she can drive it for all the problems in the second half of its life while Carl buys a new Toyota that is probably more fuel efficient and better built.

    Second, you were very right to focus on that utility of a car. You need one to travel miles. What are some things that could be done to either get you across those miles or reduce the miles traveled? Moving close to work is one very good one. Others are renting a car, telecommuting, car pooling or any other scheme that reduces those car-miles for either yourself or a group of people. Wherever those mathematics work there is an opportunity to save on car costs.

    The real key measure, in the corporate world, to getting value out of owning assets is utilization. Personal cars are terrible because they spend most of their lives parked. This is absolutely a huge warning sign that cars are a terrible purchase, old or new. You don’t need ’em but for a short time! If you spend money on something you want it used HARD, otherwise you don’t need it. My advice, buy close to new but only if you actually use it. First thing is to try to engineering the car out of your life.

    I loved this piece!

    • No Name Guy November 29, 2011, 10:11 am

      The difficulty of the above analysis is you’re applying corporate thinking (e.g. turning a profit on an asset) to a personal finance situation.

      A car, in the personal sense, isn’t an asset, it’s a liability, in the sense that it causes cash to flow from the stash to other people. There is no income (e.g. cash flowing into your stash) from driving more.

      Working your personal car harder (the utilization) merely increases the cash out flow (from linearly increasing fuel expenses and mileage related maintenance such as oil and tires). The total cost PER MILE might go down as the fixed expenses, such as insurance, and to a certain extent depreciation (which is some what time based and some what mileage based) are amortized over a higher base of miles. But that doesn’t negate the fact that the more one drives, the more it costs, period. There is no “profit” to be made from driving more for a person doing daily living. As you said, the best way to get to FI is to “engineer the car out of your life.”

      That said, your analysis is spot on for a corporate / business view point (says the person who works in aerospace where our customers must use their planes 10-12 to 14 hours a day to turn a decent profit.)

      • MikeK November 29, 2011, 11:07 am

        Thank you for that very concise explanation! I’ve always struggled with the conflict between driving a car a lot to decrease the cost per mile and not using a car very much to decrease the ‘cost per time’.

        Since (like you said better than I’ll attempt) we don’t gain additional profit/income from driving the car more, only the latter makes any financial sense for a personal situation.

        Of course, if one is driving others around (ie. a taxi driver), then of course it makes sense to keep the car as busy as possible, since when it’s not busy, it’s not earning any income. And actually, it’s costing _more_ as all the fixed costs are still there!

        • No Name Guy November 29, 2011, 3:28 pm

          In the personal sense, think of it this way:

          If you drive only one mile a month, it’s awfully expensive on a per mile basis, but relatively inexpensive on a cash from the stash basis. You’re burdening that first mile with all the fixed expenses – insurance and time based depreciation. The actual cash out lay for that same mile is pretty small – a few cents of gas, a few cents of the cost of the oil change, a few cents wear and tear on the tires. (Note, for the sake of simplicity, other expenses are ignored, however, yes, they DO in fact come into play. The chosen ones are to illustrate the point).

          If you drove 5,000 miles in a month, the per mile cost goes down significantly. Instead of having all (lets say) $50 of insurance on that one mile ($50 a mile – ouch) the cost of insurance is only a penny a mile. However, instead of using only a few cents of gas, you’d be using (at 40MPG) 125 gallons of gas at $3.75 / gallon = nearly $470 a month in fuel. You’d also use up a full oil change – call it $30 for the 5 quarts and a filter so you can DIY. Tire wear and tear (my tires last 100k and cost $750) is 0.75 cents / mile, so you’re burning about 38 bucks of tire a month. On just those items (not counting depreciation here since I couldn’t throw any reasonable numbers at it) the 5,000 mile a month driver is spending 50 on insurance, 470 on gas, another 30 on oil, 38 on tires for a total of 588 bucks a month.

          The one mile a month person is burning only about 51 bucks.

          On a per mile basis using the above numbers, it’s 11.76 cents a mile for our 5000 mile a month person, and 51 bucks a mile for our 1 mile a month person. BUT, again, it’s 588 bucks a month versus 51 bucks a month leaving the stash. Which one of these will get you closer to FI / ERE? I’d say being a lot closer to the 51 bucks a month than the 588 a month is the way to go.

          Of course, MMM hit the true cost of commuting better than the above numbers which are plucked out of the air. They’re used to illustrate the point of cash out flow per month versus the cost per mile.

          In my line of work, it’s said that you have to pick the right metric to measure, since once you pick those metrics, you tend to manage toward them. If the metrics you measure aren’t aligned with your goals, you’ll end up not achieving your stated goals.

  • Leslie November 28, 2011, 10:44 am

    Tangentially related, I heard a piece on NPR the other day about attempts to make gasoline-powered cars more fuel efficient. I was really struck by one quotation:

    “When we talk about 55 mpg, we had that technology, criminy, 20 years ago,” says Margaret Wooldridge, who is also a professor at the University of Michigan in the department of mechanical engineering. She says there’s a but — in this case, the car driver. “Like, when was the last time you actually took your hand and rolled down a window?” she asks. “But now there’s an expectation that every vehicle, even if it’s an entry-level vehicle, will have that kind of creature comfort [power windows].”

    Wait, I could trade in things like power windows and air conditioning and get close to or above 50 miles per gallon? Maybe this is common knowledge, but I really had no idea how much of a fuel suck “creature comforts” can be. Sign me up for the bare bones model! (I don’t have a car yet, as I live in a city and have plenty of college debt to work off before I buy anything big like a car, but I will definitely keep fuel efficiency and your advice on used cars in mind when I’m ready to buy!)

    • MikeK November 28, 2011, 11:11 am

      Don’t forget all the safety regulations that have been imposed in the past as well. For example, side impact requirements likely add 50-100lbs per door of weight!

      Granted, when safety features are up for discussion, it’s hard to quantify the cost….though, if one rarely drives, then the risks for accidents has to go down as well, right?!

      • Grant November 28, 2011, 7:01 pm

        not really relevant when you consider the bulk of building materials in a car have reduced in weight – eg alloy block, lighter panels, air shocks…

        • MMM November 28, 2011, 9:01 pm

          I’m not so sure about this one, as the average weight of US cars has been rising, even for cars of the same wheelbase.

          There was some great weight loss in the late 70s and 80s, as the oil crisis triggered things like the increased use of aluminum, smaller size, and even some aerodynamic designs. But then the 1990s and 2000s were plagued by super-cheap gas and rising safety standards. So horsepower and safety engineering both went up, leading to some real bricks.

          And SUVs became popular as well, compounding the effect since they drastically increased the exterior dimensions of the average car.

          It’s all a big stupidfest when viewed from an engineer’s eyes. Cars should be little unbreakable carbon fiber/plexiglas bubbles with thin wheels that weigh less than 300 pounds and have a drag coefficient of 0.15. Then a 300CC diesel engine would be plenty of power and the fuel economy would be several hundred MPG – and they would be just as useful! The car division of the Rocky Mountain Institute shares this view and they have some really neat car prototypes.

          • Grant November 28, 2011, 9:19 pm

            I would accept that the *average* weight of cars has gone up (rising popularity of SUVs would contribute to that), but a quick google search revealed this site:
            which has limited data, but for the few that I checked, the weight generally decreased slightly over a ~10 year period for a given model.

            Keep in mind that there seems to be a trend for a model to swell when it gets revised, which may be more signifcant than the weight of a safety feature.

            Also found this interesting article on weight vs safety (ie using additional safety features to counteract the decrease in safety provided by reduced mass):

          • KevinW November 28, 2011, 10:09 pm

            That smartcar isn’t that far off from your description. Especially the diesel version which sadly isn’t sold in the USA.

        • Wrecked November 29, 2011, 1:00 pm

          Although the trend may be reversing slightly in the last 5 – 10 years, if you broaden your horizons you will see that cars have been getting heavier and heavier over the last 30 years. Safety protection and consumer demand for elecrical gimmicks have seriously impacted motor vehicle weight. Not to mention the fact that almost all new models are larger than the ones they replace to make them “better”.

          While engine technology has improved, it hasn’t kept up with the weight increase. This is why you will find that a compact car that got by with a 120 hp 1.6 litre engine a few generations ago now needs a 2.0 litre 180 hp engine to provide the same performance (acceleration/top speed). The 2.0 litre may use each drop of fuel more efficiently but the larger displacement means it will end up using just as much or more fuel than the 1.6litre to get the same job done.

          If you are so inclined, you might find this series of articles interesting and they touch on some of the ideas shared here.


  • Nermal November 28, 2011, 10:58 am

    Can you please comment on 0% financing?

    • Gypsy Geek November 29, 2011, 6:47 pm

      You only get 0% financing on a new car, and I think the main point of the article is expounding the benefits of used cars. Plus, when you buy a new car at 0%, they force you to choose more expensive insurance, because the car company is protecting their investment. With a car you buy cash, you can chose any insurance you want– or basic cheap liability like I prefer. If you can’t afford to lose it, perhaps you shouldn’t buy it :).

  • Gerard November 28, 2011, 11:19 am

    Something I really like about this site is that the comments are often as useful or engaging as the post. A couple of thoughts about Alex’s comment:

    *A plausible situation in which the first point doesn’t work as well is if Carl can save up $10K to buy a car, but not $20K. In that case, the comparison is between financing a new car and buying a used one outright.

    *I really like the second point. Not owning a car unless you use it a lot makes sense… BUT it makes the most sense if there are fixed costs associated with owning a car, whether you use it or not. I don’t own one, so I don’t know whether that’s true, but surely without financing, fixed costs are much smaller than operating costs. Unless you’re paying rent on your garage or something.

    *Which brings me to my third point, which is that I still really like your second point. But let’s take it farther. Not driving doesn’t just reduce the cost of getting around. It changes other “needs”. As a carless guy, I was able to buy a house with no garage and lousy on-street parking, thus saving me about $25K. That difference got me into a neighbourhood that would otherwise be out of my price range. Now I can walk almost everywhere I need to go.

    • Alex | Perfecting Dad November 28, 2011, 12:51 pm

      @Gerard: You’re totally right that an individuals resources may limit choices. I’m one of those guys who thinks you shouldn’t use your own money for anything. Car companies are usually willing to do really low or no interest financing these days so I would finance the car anyway if that was accessible. That said, I did buy my new vehicle outright a couple of years ago because the cost of financing from the dealer was more than my own cost of financing — but I still “financed”.

      So the main point about not spending money on things that aren’t being used is because they are a waste of money. Money is a very scarce resource for most people so tying so much of it up in a car is a bad business move. In my house we are always “cheap” because our money is used on things like real estate, ventures, stocks, etc. We don’t have money available to waste on cars and furniture and homes even though people who have less than we do often have much nicer things.

      MMM mentioned that if you don’t use the car a lot then it might last for 40 years. He said it might be nice to have a car last this long but you pay in advance so it’s bad. Another reason it’s bad is that after 10 or 20 or 30 years the new cars will probably fly, have teleport buttons, get 10,000mpg, or other such things. If you need a car, you always want the best one, and the way to do that is to use them up as quickly as possible. If you’re a 2 or 3 car family, size down to one car and use it up. I have one car for two adults and four kids. That thing is being driven a lot.

  • TheMonopolyGuy November 28, 2011, 11:55 am

    Finally, an article assuming a sensible stance on cars.

    I’m tired of going to personal finance blogs and seeing advice on how to haggle down the price of a new car at the dealership. It’s so sad that people actually think they would be saving money that way.

  • et November 28, 2011, 12:23 pm

    What about carsharing/car coops?
    If I lived closer to one I’d join in a moment.

    • rjack November 28, 2011, 1:02 pm

      …or just plain old car rentals? If you can bike to work and the grocery store and have reasonable public transportation, you may rarely need a car except for “special” trips.

      • Tom November 28, 2011, 2:33 pm

        I keep wondering about car rentals as well. I presume one would have to maintain a license and insurance to be able to rent a car–tough to do if one does without a car for appreciable stretches of time (at least in Kentucky). I currently own (and insure) a car, although I try to not use it to the extent I am able (more miles on bicycles YTD than on the car, of course). However, if I didn’t have a car, I don’t think I could get motorist insurance. Have to ask the agents I know…

        • Grant November 28, 2011, 6:59 pm

          When I lived in London, I found the car sharing thing much more useful than renting – but I used it differently to how it was promoted. Most of the car share things suggest using the car for local things – doing the shopping and whatnot, but I just used public transport or the bike for that. I used the car share thing for weekends (or weeks) away – which is where the car rental usually would be used…

          BUT with the car share, there was one parked in my street, I could “book” it as I was walking to it (assuming it was available – and there were 2 more only slightly further away), you buy fuel on the included fuel card, and I only pay for exactly how long I had it. The last point was the most significant factor though. Generally I would get back from where ever I was (be it a weekend or a week) on a Sunday night. I can book the car to 11pm Sunday night, and that’s when I stop paying. If it were a rental, I would have had to return the car during business hours to the depot a couple of suburbs away. For me this meant taking as much as half a day off work (contracting, so time very much = money).

          I could also extend my booking with a simple phone call while I was out – so if I was on the way back to London from Birmingham (say…), and there was an accident on the motorway causing a 4 hour delay in the trip, I just call it in with no penalty (* conditions apply)…

        • Mark October 18, 2012, 7:07 am

          In the mid-90s, my wife and I moved from a distant suburb into a city apartment in downtown Chicago. We sold our car (a Corolla, of course) and canceled our insurance. This saved us the payments on the car (yes, we financed it, but in our defense we were young and stupid and it was 20 years ago), the insurance (high in Chicago for 23-year-olds), the garage space rental (even back then, $100/month wasn’t uncommon downtown), and the maintenance.

          We then proceeded to live the high life, taking taxis all over the city 2-3 nights a week, eating out all the time, and seeing movies we’d never heard of at the downtown IMAX just because they sounded like they’d be “cool” on the big screen. About a weekend a month or so, we would rent a car to visit relatives outside of taxi/train range (my parents live in Michigan, hers about 100 miles outside of Chicago). My Discover card provided as-good insurance (for free) as what the rental companies were hawking, so I always turned them down, saving about 50% on the total cost of the rental.

          But we also walked to work, walked to the park on Sunday mornings, and I started biking everywhere because it was fun (not for financial reasons). In a couple of years, we went from barely scraping by to having enough money to make a down-payment on a house, without trying at all, and while consuming like crazy people.

  • Valerie November 28, 2011, 1:24 pm

    Hahaha! The google ad at the bottom of the email version of this post says,

    “Buy a Car with Bad Credit
    0 Down, 24 hr Approvals, 25K Loans, Low payments. Apply now in 30 sec.

    Surprisingly it doesn’t mention the 25% interest rate that they likely charge!

  • Marcia @Frugal Healthy Simple November 28, 2011, 1:58 pm

    Ah, you are making me miss my old car. I had a 2001 Chevy Prizm (aka, Toyota Corolla). Sadly, it was totaled in an accident (my family was fine), and we replaced it.

    Our last two cars were purchased new, for cash. In both cases, we were somewhat “desparate” to replace our cars. In the case of the Prizm, it was totaled. We managed to wait 1.5 weeks to buy the Civic, but that was hard (it was the rainy season). Part of that is, understandably, our own lifestyle choices (two parents with full time jobs).

    In the previous car (Matrix), we were unable to find a quality used car in a short period of time. Again, in that case we replaced a 1994 Saturn that had so many problems in the previous 9 years – and it finally died on me on the way home from work one day, with the same recurring problem that nobody could seem to fix. Good riddance.

    I don’t so much regret buying the new cars in ’06 and ’09, since I plan to drive them for at least 15 years each. But certainly, we will return back to our “old ways” of buying used cars when that time comes. Our longest-living used cars were both Corolla’s-in-a-Chevy-coat.

    • TheMonopolyGuy November 29, 2011, 5:27 am

      Ah yes the Chevy Prizm. Mine is a 1998 model and runs like a champ. Previous owner thought it was junk because it wouldn’t start (replaced starter and gave it a tune-up: ~$300), so I got it for free. I’ll probably be driving that for the next 15 years.

  • Adam Godet November 28, 2011, 2:59 pm

    Great post…at the bottom, a “shop autoweek.com” popped up…which made me laugh!

  • Chris November 29, 2011, 6:31 am

    Could the case not be made to invest 20k at 6% and loan out at 1.9% and therefore have any type of car you want forever paid-for (be it new or used)? If your 20k yields a dividend then all that matters is what sort of cashflow you are willing to part with for your purchase.

    Either way, for most people, a car has become a practical necessity. Perhaps not all of the time, but some of the time. A family getting by without one would be pretty difficult, at least to live any sort of reasonably normal life. It didn’t have to be so, but the raw distance between things has expended so much just to store all the cars when they get to their destination. Pretty sad really.

    • Mr. Frugal Toque November 29, 2011, 7:56 am

      Such a case *could* be made, if it weren’t a trick. Generally speaking, though, it is a trick. They don’t really have money at 1.9%, so they’ve just hidden the actual cost of that loan in the price of the car. Offer cash and the price *should* go down.

      The unfortunate thing is that most people are bad with paying their financing. So what the financing companies do is actually offer the money at 1.9%, knowing that they will make their profit off of people who miss payments and pay huge penalties. The car dealerships look at this and say to you, “1.9% … no discount for paying cash.”

      • Chris November 29, 2011, 9:33 am

        Okay, what if you can get a loan at 3.5% while investing your money at 6%? I call the 20k seed money. If it’s planted rather than spent, then it can grow forever. I think this goes hand-in-hand with freely spending passive/investment income money versus spending work’n money. I think there is a pretty big difference between something sustainable (a system devised to pay you money into perpetuity), versus an unsustainable system i.e. working – eventually the worker dies, but a passive income system will continue to work into the eons.

        Regardless, a car is a finite system, but it’s what’s been forced upon us by it’s very existence!

        I’m looking at a 12k for a used Corolla (56,000 km) plus fees and taxes (about 2k). In Canada, you always pay 13% HST even on a used car which is a real piece of crap. I’ve shopped for used ones at 2006, etc. but there’s no value, same fees and HST and having to deal with dealers. Not many are up for sale locally. In this case, I found a auto auction guy who buys for me. I’ll drive the car for 20 years and kill it like I’ve done with 3 other “undriveable” cars passed down from family.

      • Sarah July 20, 2012, 1:16 pm

        My credit union is currently offering 1.9% financing on car loans. They will finance up to the blue book value of the car so you can use for new or used vehicles. You can also go to the dealer with outside financing in hand, so you can negotiate price without them rolling it into their financing. In this instance couldn’t financing be used just as Chris suggested?

      • Patrick January 13, 2015, 10:56 am

        I disagree strongly. Most dealers have a once per year sale where they will offer 0.0% financing AND you can purchase the car at or below invoice. Why? Most of the time because a new model is being released to dealer lots in a few short months.

        Does it make sense to buy new at 0.0% and at or below invoice? I would still argue no. Depreciation occurs too fast for any new car to make sense. If you buy a 1-2 year old car for 30% off invoice for cash and drive it for 350k miles (easy in a Toyota, you are selling them short MMM: 1999 Toyota 352k miles original clutch/engine/brakes(!)) you will probably come out ahead of many older used cars.

        • Mr. Money Mustache January 16, 2015, 6:16 pm

          I like your anti-new-car attitude, Patrick!

          Alas, the BEST new cars don’t depreciate anywhere close to 30% after just a year or two, at least not according to my own searches and negotiations in the past. Toyotas and Hondas that you buy new under $15k, with low miles tend to re-sell awfully close to sticker price. However, sales tax and registration fees can tend to tilt the field even more towards used cars.

  • darnocpdx November 29, 2011, 11:36 am

    I’m more curious about what the effects would be should diver B put that $9000 (or more likely much less if you keep up on maintenance) into dropping a new transmission and engine (or better yet rebuilt ones with a warranty) into the old car when they go? Lots of vehicles are good for more than 200k.

    Short of major structural damage from accidents or rust. I’d think that you would come out way ahead of keeping the “ol girl” running than looking for newer model.

    I say this taking two a cars well past the 200k mark. I buy my used cars usually with 100k+ miles. And every car buy I plan on being its last owner. I did make the mistake once of letting my wife con me into a new car for her, but even she says “not again” now.

    • MMM November 29, 2011, 9:40 pm

      Yeah, I think you could save more by driving the cars even further – especially if you have a good honest mechanic that can replace parts as they wear out over time. I just wanted to keep the examples simple by assuming you use the car up completely, so I didn’t have to estimate something as highly variable as major rebuild costs.

      With mechanic shops $60-$90 per hour, I also think it is profitable for people to gradually become more skilled at car maintenance as they age – especially early retirees. Just like we do with cooking. There is nothing overly difficult about fixing cars, it basically boils down to undoing the right screws and nuts, then putting them back when you are done. My own goal is to be able to change and rebuild the entire engine and transmission in a car sometime in the next 10 years. Or to rebuild a gas car into all-electric drive!

      • Aaron L March 19, 2014, 8:01 am

        Agcosuto.com I’ve found this website and its host Louis Altazan to be very helpful in understanding vehicle maintenance and repair.
        And you may look into an old 60’s Honda motorcycle (cb77) as your first rebuild project. It wouldn’t take up much room or require a large number of tools.

      • Aaron L March 19, 2014, 8:06 am

  • Fawn November 29, 2011, 5:28 pm

    As ALWAYS, one must look at individual use patterns. As a single parent (no spouse to share vehicle and cost with, just the $$$ sink that teenagers are) that drives for work and gets reimbursed at the federal tax rate per mile–even a 5% interest rate on a newish vehicle keeps me working. That is money in the bank. Yes, it is better to have the money saved for the newish car, but if auto deterioration or teen driving makes another vehicle needed NOW, I will borrow if need be.
    Obviously, YMMV.

  • Carolina on My Mind November 29, 2011, 8:55 pm

    This is a fascinating discussion. I’m a car ignoramus and would love to learn more about the logistics of buying a car on Craigslist (or really buying a used car in general), so that I can do it right next time. Like, do you pay the seller with actual cash, or with a check? Do you get a mechanic to check out the car first, or would you at least recommend that for somebody who isn’t an automotive DIY’er? What warning signs do you look for to make sure you’re not getting a lemon? What kinds of questions do you ask the seller?

    • MMM November 29, 2011, 9:21 pm

      You might be interested in the “How to come out way ahead when buying a used car” article from a while ago: http://www.mrmoneymustache.com/2011/04/19/how-to-come-out-way-ahead-when-buying-a-used-car/

      You pay the seller with a certified (cashier’s) check from your bank account. For older cars, the mechanic idea is a good one if you can handle the inconvenience – or at least bringing along a friend who is knowledgeable about cars. In general, though, you can judge the car’s quality partially by the seller’s quality. If you buy a consumer-reports-recommended car from a meticulous, wealthy person who followed all the scheduled maintenance and can show you his big book of service receipts, you have nothing to worry about and the mechanic checkup is unnecessary.

  • SlickFinances November 29, 2011, 10:45 pm

    An article so good I wish I wrote it myself! I kept repeating, “EXACTLY, Someone else gets it” after every point you made.

    I really loved how the example you used was even at a great rate of 1.9%, it kills me knowing that most people are not even getting that rate and are paying over 5% for the luxury of a new car. Just ridiculous!

    I think one of the problems if the mental hurdle that we have regarding car ownership in this country. At just 16 years old many teenagers expect a car. Even though they have been using public transportation up until that point. This mindset becomes ingrained into how they view car ownership. Then 5-7 years later when they graduate college they want another new car!

  • Peter November 30, 2011, 8:38 am

    I’d love to see a follow up post on leasing to show the wife. Maybe she’ll believe someone with the MMM pedigree …

  • poorplayer November 30, 2011, 9:22 pm

    When talking about car ownership, this type of discussion is possible today because of the greater reliability of cars, and for that we all need to get down and give thanks to the Japanese, Consumer Reports, and Ralph Nader. In my 30s one of the reasons people bought new was because used cars were downright unreliable. US cars back in the late 70s and throughout the 80s and the early 90s all had planned obsolescence built into them, and the quality was so shoddy that by 75K miles the car was pretty much unreliable and undriveable – you were risking you life or at least a breakdown every time you got behind a wheel. I avoided US cars like the plague in those days, buying VWs and Toyotas precisely because of their reliability and/or ease of repair. I only started buying Fords again in ’04 because I got the employee price for a time through my brother. So MMM’s theories work today largely in part to the fact that market forces (the Japanese were eating the US car companies’ lunch in sales) have made cars far more reliable and durable today than they ever have been. And that’s been a good thing for mustachians of today.

    • andasbackpack November 11, 2015, 8:59 am

      THIS. And there are plenty of people who still believe used cars are unreliable, or perhaps they just want to further justify their new vehicle purchases. My dad argued against my purchase of a used (2007) Pontiac Vibe with 79,000 miles, saying the mileage was too high. Ummm…this is a nice car that I expect to easily get to 170K-200K. Also it had slight hail damage so I got it at a discounted price for minor cosmetic flaws that are hardly noticeable. I paid cash and two years later I’m still happy with my purchase. Cars have come a long way, thankfully.

      • dave November 11, 2015, 10:12 am

        I’m looking for a Vibe or Matrix too they are solid vehicles. Right now is a good time to bargain. I think people think if they don’t sell it now before the snow starts it will just sit all winter and they will get even less in the spring.

  • Carrie December 7, 2011, 5:58 am

    NOT having a car payment is one of the things people can do to act like rich people. There is nothing in the world that feels like buying a car with cash, as my husband and I just did!

  • Kevin December 13, 2011, 9:33 pm

    Great analysis!
    This is what I did the last time I needed a car. I bought a 2005 Scion Tc for $7500. Great car!

    However, I still question your math on this all the way through. You left out the idea of leasing a car. This is what I did with my last car, a 2009 Toyota Corrolla. So let’s compare what I did with Mustache Mary:

    My total down was $1500
    MM’s was $9000, then $7500.

    My monthly lease price was $237 (would have been less, but, my credit was only in the “good” range at the time, now it is “excellent” which would have brought the payment down a bit.

    Let’s just say I lease for 13 years at $237 a month. My total OVERALL costs are going to be about $42,000 ($6k for lease fee and $36k monthly payments). However, I’m all along the way able to invest the extra money ($7500 then $6000 that MM had to spend), so $13500 and let’s say that’s at 5% per year, so another $8775.

    So we subtract the $8775 from my total of $42k and over the course of the 13 years I’m around $33k. Then, factor in repairs. My cars will all be new-3 years old. Repairs will be close to 0. MM still may win out, but not by much. I do beat Consumer Carl for sure. Point is, it’s worth mentioning leasing as another alternative- and maybe doing a bit more scientific analysis than what I just did.

    • MMM December 13, 2011, 11:23 pm

      Interesting – is there any downpayment, taxes or fees that go along with a lease payment of $237, or is all that all rolled into the payment? Would there be an annual mileage limitation that would throw off our comparison calculations?

      I know the registration and insurance costs would add several thousand to the lease option vs. a used car.. but they should be equivalent to those incurred with a new car.

      • Kevin December 14, 2011, 9:16 am

        The downpayment is the $1500 I mentioned. If my credit was worse, the down payment would be higher. The annual limit was 12,000 miles, and I was easily driving 900mi/month.

        Reg & insurance wasn’t much more, but yeah, something else to consider.

        Another way to go is http://www.leasetrader.com where you can take over someone else’s lease and minimize your down payments.

        Lots of outside the box options!

    • Glen March 31, 2012, 11:02 pm

      You are comparing your expenses with no time value to Mary’s with time value. That is, giving yourself credit for $8775 and not subtracting your own opportunity costs.

      Even if you earn 8.5%, you will have spent the same initial $9000 as Mary in only 3 years. Excel: =PV(0.085/12,3*12,-237)+1500 ~= $9000
      The difference is that you will not have a car.

      If you do a present value of both (at 5%), I think you will find the sequential leases require over 17k more money today than Mary. Even if you had no “down”, it is about 13k more.

      • Kevin April 1, 2012, 6:24 pm

        What do you mean by opportunity costs? I think your point is this:

        Mary spends $9k all in one lump sum.
        I spend $9k in 3 years. So, at the end of 3 years, we’re even in terms of what we can invest, then there’s the next 10 years of me making payments and Mary owning a car.

        Therefore, I only have the initial 3 years to invest that cash, other than that, saving the money and leasing isn’t an advantage.

        Is that about right?

        The only thing not being factored in here is repairs, which Mary would have a higher cost. In order to compete with Mary, It seems I would have to find $0 down leases at $100-$125/month, which isn’t impossible, but definitely more difficult.

        • Glen April 2, 2012, 12:56 am

          Yes, that’s it. $0 Down and $0 Acq Fee. We are not factoring in repairs, but neither are we factoring in insurance, lic/reg, taxes, and remaining value at the end of the period. You are getting a much newer car; that comes at a premium.

  • Ryan December 15, 2011, 10:37 am

    My current situation:

    2010 Hyundai Elantra (5 speed/ 40 mpg :P) lease
    15,000 miles/year

    $187/month aggregate over 13 years is $29,172. Factor in the $8,775 investment income quoted above and I’m at $20,397 total outlay or $1,569 annually.

    I’m beating Mustache Mary by $6,874 and Consumer Carl by $17,872 and never have to lift a finger for repairs, worry about breaking down or wondering about that weird smell from the vents. That doesn’t even count the $2,405 savings for 13 years of AAA membership I won’t need. Comprehensive insurance only adds about $5/month and for the price, I would consider carrying it on a good used car too.

    Am I missing something?


    • MMM December 15, 2011, 8:58 pm

      Hmm.. when I do a future value calculation with 156 monthly payments of $149 at 5% (0.41666% per period), I get a value of $32,645 – more than Mustache Mary but less than Carl, probably because the Elantra is less expensive than the Corolla. (http://www.calculatorsoup.com/calculators/financial/future-value.php)

      You definitely have a great choice of car there with a 40MPG Elantra, I’m just suggesting that you’d save more on average by buying used Elantras in cash that had depreciated about 50% down from their new purchase price.

      The real place my suggestions start to shine, however, is for lower mileage drivers, like people who only drive 5,000 miles per year or so. That’s part of the whole package – you reduce your driving, AND you start keeping older cars, bought with cash. The reducing driving part is actually the biggest savings, but I wrote this article with a high level of annual mileage just to show that it works out better to use older cars even in that situation.

      great question!

    • Patrick January 13, 2015, 11:07 am

      Yes, because a Corolla with 200k miles on it is still worth 2000-3000$ depending on condition. So Mary has an additional $5000 in assets in the above situation. In addition, she shouldn’t need a second Corolla because her first can go 400k with minimal maintenance on original engine and transmission (if 5 speed). In that case her original Corolla with 400k miles is still worth $1500 (to part out if nothing else).

  • Ryan December 16, 2011, 9:56 am

    So was it that I left out the potential loss of investment income on the payments? If so, that makes sense, otherwise I’m lost. Do we have a way to calculate the loss of income from periodic repairs on a used car? Might it be comparable?

    I agree with your premise, used cars are generally cheaper. For me though, it’s become how much cheaper, really? I’ve owned used cars exclusively up until now and did all my own upkeep including engine/tranny swaps and paint/body work and, unless it’s a classic, I’m totally over it. My experience tells me that the cash savings over the cheapest lease you can get (the only kind for me!) amount to about $80/month at best. My time and sanity are worth that.

    Now, here’s where it gets interesting for me. I only use the car once a week for a 30 mile round trip to town. Let’s call it 200 miles a month to make it easy. That is 2400 miles a year…clearly a waste of money to lease, right? The other 10,000 or so miles I use for trips. I used to rent due to bad childhood memories of breaking down on every vacation, but the cost of renting is now about $350/week. I get 4 weeks of travel time annually which amounts to $1400/year in rental fees. If I’m using your numbers correctly (subtracting the investment income of $8775 from your total cost figure of $32,645) I’m spending $1836 for the lease total. This means I’m paying $436/year over what I would spend anyway to have the luxury of a car at my disposal whenever needed.

    Since I have a phobia of taking used cars on long trips and the cost margin over a good used Corolla seems to be so close, would leasing be so bad for me?

    Hope I’m not bugging you too much with this, but this is a fortuitous post for me right now as my lease comes due in a few months.


    • Kevin December 16, 2011, 10:14 am


      Thanks for your posts, this is interesting to me.

      I truly think leasing may be slightly cheaper over the long haul.
      But, you have to have excellent credit. And, if you can use a site like leasetrader.com, you will cut down on your down payments quite a bit. Many of their leases are $0 down, and you can find some as low as $133 a month for a Corrolla or Camry (usually more like a Kia, but not always that low). With this method, you might be trading cars a bit more often, and you have to pay the lease transfer fee (not sure how much but probably much lower than the $1500 or $2k down at the dealer).


      • Ryan December 16, 2011, 5:02 pm


        I’m thinking you may be right on the leasing is cheaper idea. It seems counterintuitive at first glance, but I’m gaining confidence in the strategy, especially after this exercise.

        There are definitely many qualitative advantages that are hard to monetize. Sending my wife and kids out without worrying so much is one thing that comes to mind. Not having to play mechanic on weekends and always having the latest technology/safety features are others.

        One factor I suspect is at play is that the resale on the Toyotas/Hondas, etc. we are discussing here is relatively high because everyone knows they are reliable. No one around here is selling used Corollas etc, at base bottom prices. This makes it easier for manufacturers to offer good lease deals on new ones…they will often make money on the resale too.

        If cars are treated like a “service” rather than an “asset” everything changes. Your “take over the existing lease” idea might be the best of all worlds for getting what you need when you need it. I’m looking into it as we speak.


    • MMM December 16, 2011, 3:18 pm

      Hey Ryan – you’re doing a great job, thinking it out in so much detail!

      I think it might be a close call for you either way, so the lease might not be that much of a killer for you. But also do shop around for your car rental – if you are in the US, I’d expect it to be much lower than $350/week. I usually pay about $200-$250 per week for car rentals, including taxes and fees. Booking through a comparison site like travelocity often reveals some amazingly cheap prices on these things and I’m amazed they can stay in business with prices like that.. but if they are offering it, I’ll take it!

  • mfl December 19, 2011, 12:20 pm

    Cars are a personal possession & so the cost doesn’t have to be purely logical. My husband & I bought a 2011 VW Golf TDI on credit at 1.9%. We definitely paid too much. I bargained on the price but then ended up buying the extended warranty. It was a long 12 hr day & we were both quite tired. We put $10K down on the car.

    We decided to buy the TDI because it gets great gas mileage – we average 45 mpg. My husband drives a lot for work & gets mileage reimbursement which helps offset the cost of depreciation. The car is also very comfortable to ride in & we plan to go cross country in it in a couple of years.

    I don’t regret buying this new car. I do regret getting the extended warranty – profitable for the dealer & uneccessary for us. We took out a 4 1/2 year loan but plan to pay it off in 2 1/2 years. Was it the best financial decision we ever made? No. Was it the worst? No.

  • jlcollinsnh January 11, 2012, 9:35 pm

    Interesting conversation, especially re: leasing.

    I keep a spreadsheet of my cars and log in all their expenses. I also tally a total titled “lease comparison” this is comprised of Opportunity Costs (for the
    cash tied up in the car) maintenance and depreciation. For our 07 subaru forester:

    2007: 3004
    2008: 2335
    2009: 2761
    2010: 3122
    2011: 2115

    so unless I could find a lease for that vehicle for less than those annual totals I am better off buying. cash, of course.

    Oh, and while I buy new cars, it is only because at this point I can so easily afford to. Mr. MM is absolutely correct in that used is cheaper.

    I tend to keep them for a very long time. Our 1993 Accord we drove for 13 years and 150k before I gave it to a pal of mine. He put another 50k and 5 years on it until it blew its engine this past fall. RIP.

    An exception was our 2006 Camry. I hated every moment of driving that car. unloaded it after only 18 months for the Forester, which we love and will pass on to our daughter in another couple of years.

    The there was my Spifire…..

  • Liz February 17, 2012, 4:41 pm

    I have a 1998 Jeep Cherokee Sport and it’s been great for me. I do all the wrong things (short trips, cold starts, and I live on the ocean in the Northeast so it gets the salt/outdoor storage/snow trifecta) and it’s STILL MUCH cheaper than owning a new car. I have spent about $800 a year in repairs, have cheap insurance and it’s 4 wheel drive. Bonus: It was free!

  • Scott January 29, 2013, 6:37 pm

    “I just looked it up and found that the average price of a new car sold in the United States these days is about $28,000.”

    There are two things probably affecting that number:
    * New cars aren’t sold for negative, so the mean (average) price will be notably higher than the median, since it takes many $13k cars to counter one $100k+ R8 or similar. Wiki says that (as of 2004) the mean household income was almost 40% higher than the median, so using that would put the median price of a new car down to $20k, still non-mustachian, but not nearly as bad.
    * Frugality tends to go to used cars, as you encourage here, so all those inexpensive car purchases don’t affect the “new” car average price. It would be interesting to know the mean and median prices of cars including both…

  • Cas February 22, 2013, 5:12 pm

    Just one point to make… My husband seldom drives his F-150. It’s a 2004 with 112000kms, bought second hand. The truck has cost us a lot in maintenance, due to our Ottawa winters and a lack of a garage. He drives it once a week. The brakes and some pulleys have deteriorated due to lack of use and weather. How do you avoid these costs when you have reduced your driving? We are not true moustachians, able to give up the truck entirely. My husband says we “need” a garage (honestly, it is a goal; workshop, auto maintenance, etc. Hubby is very handy given the right space.)

  • Josh Frets March 25, 2013, 8:47 am

    This is an excellent article, but in some situations the numbers between new and used converge quite a bit.

    I need a slightly larger car* to safely** transport my expensive stuff a large number of miles***.

    And with the used car market being so inflated, nine-year-old 4 cyl/5 spd Accords with 120k miles are fetching 11 and 12 thousand dollars.

    At some point the calculation I made was that it was, if not smarter, then at least acceptable, to buy a new Subaru Impreza**** instead of a used Honda Accord.

    The Subaru cost about $9k more, but (assuming 200k mile life for both cars) it also buys an extra 100-120k miles. A second $11k nine-year-old Accord 5 years from now would actually be $2k more than I spent. Factor in selling the first Accord and that’s about break-even.

    Now Mr. Money Mustache I am not. I am but a lowly aspiring Jr. Mustache, so I invite one and all to challenge these assumptions and poke holes in my math. It’ll be fun!

    *the trunk of an Accord is big enough to hold an acoustic guitar & a modern PA system! It used to take a CRV with the seats folded down! Will the wonders never cease?!
    ** all of this stuff of course also fits into a tiny hatchback with the seats folded down, but then I’d be relying on not-exactly-legal limo tints to keep my gear from being seen and stolen.
    ***sadly about 20k miles per year
    ****if you’d like to get strange looks from a bunch of car salesmen, I highly recommend toting all of your gear into the dealership, popping the trunk on a car and trying to Tetris it all in.

    • Mr. Money Mustache March 25, 2013, 9:49 am

      Nice logic, Josh! I think the thing you’re missing is how to get the used cars at a fair price: most used listings (especially dealers) attempt to list older cars at up to 200% of fair market value.

      Almost any car with 120k miles should be well under 8 grand. For example, my 1999 Honda Odyssey EX-L work van (new price was $29,000) came with 113k miles and cost me $4800. At the time, many dealers were asking $10k or more for the same van – typically 2001-2003 but with with higher mileage (mileage matters more than year).

      Similarly, on the “Big Sedan” front, a friend of mine bought a 2001 Lexus ES300 with 78k miles for $7000. If you are buying a big car, Lexus and Infiniti can be great (even BMWs if you can handle the maintenance), as they are usually bought new by ultraconsumers, who then upgrade soon afterwards and dump them for a low value.

      Have you read this post: http://www.mrmoneymustache.com/2011/04/19/how-to-come-out-way-ahead-when-buying-a-used-car/

      and this one:


      New is virtually NEVER the way to go, unless you are so wealthy that the $10-$20k of extra expense is not worth a few days of searching effort. (Never forget the much higher registration and insurance charges on new cars, plus sales tax. It can add $5k+ to your costs).

  • Sham April 28, 2013, 6:48 am

    I’ve just discovered your website and went through some of your articles ; I love it, and even I cannot pretend I’m a full Mustachian, I tend to use some of your advises on a daily basis.
    This is specially true regarding my car : I’ve been driving the very same VW Rabbit Mk2 (I live in France where these are quite afordable) for the past 17 years, and it’s still going strong, I have no intention of changing it.
    This make most of my friends mock me, saying that I spending way too much money in repairs on this car… Well, they get loans for brand new BMWs, which they reimburse around 300€/month, plus insurance. The insurance on my car is the lowest you can imagine, and 300€ is the average annual amount I spend in repairs… As you can guess, they don’t have a lot of arguments left when I tell them so.
    The engine is now almost 300.000km and is getting weak… But well, I can get a complete 100.000km engine to swap for 200€ (I’ll do the swapping meself), so I think I’ll keep my old rabbit for a loooooong time.
    I’ll add that my car has a couple of minor bumps and scratches, but I wlll not spend $$$ to fix them, I’m OK with that. While my friends can’t stand a single scratch on their beloved BMWs…

    So, in the light of this, I ask them, what are your arguments for a brand new car? “Oh, but you don’t have GPS, nor airbags, cruise control, etc.”
    Yep, right, I don’t. So what? My car costs me a fraction of yours, and still gets me from point A to point B. I don’t need this kind of luxury.

    Thank you for confirming I’m not insane, MMM!

  • nath July 4, 2013, 6:15 pm

    An alternative view.

    Save up your $20-30k for the new car.
    But instead of paying cash for the car, and watching it depreciate. Buy the $20-30k corolla brand new and on finance, you may be able to tax deduct the loan interest as a “business expense”.

    Then use that $30k cash money to put a deposit on an investment property worth $300k.

    Over the next 5 years, even if the investment property only goes up 10% in value, you have made a 100% return on your intitial investment. plus rental and tax benefits covering the mortgage.

    Sell / update the corolla whenever you feel like it as its just a finance roll over, and keep investing. Thats the way to get rich.

    Paying “cash” for cars when you have a home mortgage balance, is like borrowing for a car over 30years. Even if the interest rates are reasonable it can still be tens of thousands of dollars in interest in that period of time.

    But If you have plenty of investments and no home mortgage like MMM, then sure cash is king. But at that stage you probabaly dont need to commute anymore as you will be retired so is a car even necessary?

  • Reggie August 4, 2013, 9:58 pm

    Even with great auto, health, disability, and life insurance, a car wreck can cost tens of thousands or even hundreds of thousands of dollars.

    Without decent health, disability, and life insurance, the medical, rehabilitation, lost wages/earning capacity/death of a breadwinner/etc. losses can run a million or more. So when figuring the cost of a vehicle, be sure to include safety into the equation.

  • Andrew Lynch August 13, 2013, 2:25 pm


    Quick question: I can get a brand new car on a 5 year 0% APR finance deal – essentially they just take the cost of the car, divide by 60, and that’s how much I pay per month for 5 years, then the car’s mine. No hidden charges, no interest, just paying for the car over 5 years rather than up front. For about £9,500 (£160 per month), I get a new car that will save me:

    – £75 p/a in tax
    – £200 p/a in fuel
    – £300 p/a approx by not having to maintain it (it comes with a lifetime warranty)

    = £2,875 in savings over 5 years

    Over the five years that I’ll be paying this off, it will have depreciated from £9,500 to around £3,500-4,000 depending on the condition and mileage (I drive roughly 8,000 miles per year).

    Doing the math on this, over five years:
    Cost: 9500

    minus residual value of 3500

    = 6000

    minus £2875 in savings over my old car

    = £3,125

    This is the additional cost, over 5 years, of having a new car versus continuing to maintain my 10 year old car. To me, this seems a reasonable price to pay for peace of mind and reliability.

    My question to you is: what do you think? Have I missed something obvious? Am I being a complete idiot by getting a brand new car at the age of 24? I can easily afford the monthly payments, but I’m still not sure if it’s a smart decision, even with no interest to pay and a decent discount on the sticker price in the first place.

    • Mr. Money Mustache August 13, 2013, 2:52 pm

      Hmm, good questions Andrew. And things may be different in the UK than they are where I live. For example, when you get a new car here in Boulder County, Colorado, your registration taxes go through the roof for the first 3-5 years ($1000 or so per year!). And car insurance is often higher as well: in the US the finance companies mandate full coverage for a financed car, while with an older car with no loan, wise people usually drop this coverage to save hundreds per year. How are your insurance rates?

      Your 10-year-old car (2002? 2003?) is still nearly new by my standards. Is the maintenance really that much of an issue? And how do the numbers look if you get a fuel-efficient used car from around 2005?

      What about somebody else’s 5-year-old car who just completed a stint of what you are proposing doing, and is now selling their 5-years-new car for £3500?

      All interesting things to ponder. But remember the overall rule: if you can’t EASILY come up with £9,500 to buy a car in cash, you probably can’t really afford such a big luxury purchase and should keep working and investing. If you DO have that money, and would prefer to invest it and take the free financing, and the numbers still work out favorably, there are conceivably some times when a new car might be cost-effective. They are just very rare in general.

      • Andrew Lynch August 14, 2013, 5:05 am

        Strangely, the insurance is actually cheaper on the new car I’m looking at than the old one I have at the moment – partly because it’s a smaller engine, and it’s a car less associated with “boy racers” than my current car, and also because insurers take into account the age of the car and assume that, with a newer car, you’ll be driving it more cautiously because it’s nice and new and shiny.

        I think you’re probably right that it would be better looking at 3-5 year old cars with 30k-50k miles on them – my only issue is with how fuel economies and emissions have improved over the past few years, meaning lower running costs for new cars, plus the fact that they wouldn’t come with a warranty (although in all likelihood they wouldn’t need very much maintenance at all).

        I’ll keep having a think about it and work out some more maths. Thanks a lot for your help! :)

      • Josh September 18, 2014, 1:17 pm

        I went from a used car to a new car and my car insurance halved for much greater coverage. Plus the loan was just over 1% APR. Maintenance is also cheaper for the air filter and other parts. That’s my personal story, though. I probably could have saved some money buying used, but that was before I started trying to follow Mustachian ways.

  • Daniel October 18, 2013, 10:58 am

    Ok guys,

    So i before i discovered this blog, I did exactly the opposite of what Mr. MMM recommended and I got a new car: $32,000 at 2.00% APR for 5 years. My dream car you might say but nonetheless a decision made out of vanity. So what do I do know, what is recommended to get back on track?

    • Daniel Conway April 8, 2014, 8:47 am

      Sell it for what you can get and buy something used, that meets your needs, affordable, that’s good on gas!

  • Disastronomical April 11, 2014, 5:19 pm

    Financing can actually be a good deal, under these specific conditions (this comment is about a million years after the original post, so I hope it’s not redundant):

    I recently bought a used car from a dealer who did not do their own financing, they had pre-arranged rates from various banks. I was able to pay cash, but the dealer was being annoying about dropping the price to where I wanted. I had read some stuff saying dealers make a lot of money on auto financing, so just to be sure, I asked if doing so would get me a better deal on the price. They said that the bank they finance through (I think it was Chase) would give them $800 if I financed at a ridiculously high rate – like 5% or something.

    I offered to split difference with the dealer, so I got $400 off the price, and they got an extra $400 from Chase. The caveat was that I had to make 4 payments before I could pay off the remaining principle. The interest on 4 months was about $70, so when I wrote the check to pay off the car after the mandatory time, I had saved about $330.

    If you have the ability to pay in cash, and you find yourself buying from a dealer for some reason (like you haven’t found this blog yet and you are afflicted with unwanted Nose Hairs of Unnecessary Expenses instead of a rich, fluffy Money Mustache), then it may be worthwhile to ask if financing, then quickly paying off the principle, will get you a better sale price.

    • Slee July 15, 2015, 5:21 pm

      Contrary to popular belief, buying any car (new or used) with ‘CAAAASH’ from a dealer is usually MORE expensive precisely because of the incentives the loan originator provides to the dealer. Just as you described.

      Obviously, if you’ve got CAAAASH, its probably an advantage buying used from a private owner.

      I chuckle a bit when I read the comments about ” And I have CAAASH’ ‘ along with the corresponding expectations of getting a better deal. Pure hilarity.

      What you did is similar to what I did, but I refinanced from a 3.1% initial loan to a 1.99% used loan instead of paying it off with ‘CAAAASH’.

      Darnit…Now I’m going to be saying ‘I’ve got CAAAAASH’ all night long now.

      I admit that I bought more car than I needed though and will pay the opportunity cost unless I settle on selling it. I’m still debating.

  • dave houston June 18, 2014, 1:06 pm

    Re insuring an older car. I was reading new cars because they have more safety features can be cheaper to insure than an older car. Also some of the most stolen cars are 6 year old honda civics so they may pay more insurance because of that

    • Mr. Money Mustache June 19, 2014, 8:16 am

      The real savings comes from the fact that you can afford to forego comprehensive/collision insurance on a less expensive car. Thus, there is no premium increase on a Civic because your company won’t cover it if it is stolen anyway. (And so of course, you should take reasonable precautions against theft yourself).

      Also note that a 6-year-old Civic would be a 2008 right now, which I would consider “Extremely frickin’ brand new” rather than “older”. My 2005 Scion is still sparkling like a diamond because it is so embarrassingly new.

  • Frank Frugal July 31, 2014, 9:35 am

    Hi there,

    I enjoyed reading the entirety of this thread.

    I see there is a balance between cost, value, reliability, comfort, frugality and saving a marriage! In my case, the former is a priority. My wife is fed up with our 2003 Jetta GLS with 140K miles on it. Resell value $2,500 – $3,000 here in the Chicago market.

    After crunching number, buying a brand new spanking 2014 Camry LE seems to make sense. I can’t find any more arguments against this, and unless you help me, my wife wins. She is a brilliant cookie.

    Here is the math

    I can get a 2014 OTD Camry LE for about $22K and 0% APR with $750 cash back. It took a tremendous amount of work to get this preice, and I may even go $500-$1000 lower. We may buy a house soon and I want to have 20% available for the down payment. I will put 10K down, but I could also pay cash for it.

    A used Camry with 100+ K miles resells in our area for about half, let’s say 10K – 11K.

    The insurance on the new car will be definetely higher. I will guess ( yes, guess) $400 -$500 per year in comparison to the 2003 and 2000 cars we have now. I will assume a 2005 Camry won’t see this drastic change. Either way, let’s increase the car cost by $2K. So, the tag is $24K for the car.

    Repairs will be higher on the used car: tire rods, water pump, shocks, sensors, starter, etc. There are repairs that are more likely to appear after during the 100K-200K car, and less likely to affect a new car ( 0K-100K). I would call it even with the higher insurance costs.

    There is a higher risk when buying a used car. I could inspect the car for tire rods, power steering, vacuum issues, bearings, fuel pressure, engine compression, radiator pressure, oil stains, headgasket, rust, etc, but I dont’ have xray vision to make sure there is no pitting or extreme wear out due to irregular oil changes or abuse. Au contraire, the new car gives a piece of mind.

    There is a higher rist when buying a new car based only on an accident that could total your car or make it look like a 100K+ car.

    Yes, the cost per mile per used and new car seems to be the same in this case.

    Of course, we are talking about a higher per mile cost in comparison to a 1988 car, but as I said above we value and cost are two different variables.

    Any comments?


  • Fred Keebler August 22, 2014, 3:49 pm

    The idea of not having a car and having a job seems impossible. Although, I have always lived as close to my jobs as possible. Only once for 1.5 years have I been within non car distance of work. In Michigan, at least 5 months of the year , there is no alternative to car. Especially, in winters like last year.

    As far as driving an older vehicle, I did and it cost me, I calculate, about $250,000 dollars. I was a software engineer that did not get promoted because I was not allowed to go to customers sites, because of the “bad image” I projected. “Our company’s image is success, your car says failure.” Missing two 6% raises and a 10% promotion at the beginning of my career had the cumulative effective over the last 20 years of a -$250,000.

    • Mr. Money Mustache August 23, 2014, 8:05 am

      Is it possible that a more optimistic attitude regarding challenges would be even more profitable than buying a new car for oneself? ;-)

      I know at least a few hundred of the readers here ride bikes year-round in Michigan (I grew up right nearby in Hamilton and always managed to find a way myself).

      On a more practical note, a clever strategy for looking ‘successful’ is to drive an 8-years-new smaller Mercedes or BMW. These have such steep depreciation that they barely cost more than a Corolla of similar age. A friend of mine bought a $59,000 Mercedes CLK in 1999. Fast forwarding to today, he is shopping for a new car and the dealer looked over his old car for a trade-in. Great condition, 100% maintained, never winter driven, and only 60k miles on the clock.

      The offer was $1500.

      My beaten-up 1999 Honda Minivan that I use for construction is now worth far more than this a $60k Mercedes. An amazing economic lesson in there on what not to buy new.

  • Brikenjon August 24, 2014, 9:36 pm


    Is Consumer Reports one of the services you believe in enough to pay for? Most of their rating information appears to be locked down without a subscription.

    • Mr. Money Mustache August 25, 2014, 11:32 am

      Hi Brikenjon,

      Yeah, they do great work. But since I rarely make major purchases and almost everything is from Craigslist, the considerations are a little different. I’ll still get a 1-month subscription occasionally if I really want to research a certain product category or a car before going Craigslisting.

      • Slappy December 2, 2014, 5:10 am

        That’s what the library is for …..dropping in & reading Consumers Reports, no?

  • Nimmi October 7, 2014, 9:50 am

    I had financed a brand new Mini Cooper S in December 2012 for $30k @1.9%. I was making $500 monthly payments on the car. It was June 2013 when I came across this website and that’s when I realized how stupid I was to put myself in this new car trap. I went to carmax in August 2013 to get a quote from them so that I can get rid of the car. They offered me $21k whereas I owed about 24k on the car. Went in again this June to get a quote and sold the car for 20k where I owed about 19k. So I came out with a $1k check in the hand (even though I had paid off $10k of the loan). It was a tough decision to sell the car but all the things that I learnt from reading this blog helped me to hang in there till I signed the papers. I feel it is one of the best decisions that I made and has made me mentally tougher to be able to part with and not buy junk which doesn’t lead to any real happiness. Since then I have been telling my story to friends who are joining new jobs and talking about buying brand new Jaguars and other insanely priced cars. Asking them not to repeat my mistake and buy only reliable used cars with cash. Hoping it will make a difference to their decisions. My way of paying it forward :).
    Thanks MMM! Forever grateful…

    • Mr. Money Mustache October 7, 2014, 12:17 pm

      Great story Nimmi!

      Next you’ll be ready for Craigslist, where you can make car dealers obsolete and get much more when selling your used cars, while buying them for much less: http://www.mrmoneymustache.com/2011/08/11/get-rich-with-craigslist/

      • Nimmi October 9, 2014, 1:42 pm

        I waited for one month to get a response on the Craiglist listing for the car before going to Carmax. The KBB price was around 23k so I was hoping to get an offer close to that. But then again getting such a big amount from a private car sale did not seem plausible at that time.

        • Slee July 15, 2015, 5:31 pm

          CL is hit and miss, possibly more miss for larger price tag items.

          I sold a fairly pricey ($30k) used car on it though.

          Admittedly, I’m weird. I have bought a couple ‘expensive’ used cars and sold them several years later w/o overly painful depreciation. Certainly too much for a denizen of the Stache though.

          I do plan on killing this habit very shortly though.

  • Erin Shumway November 28, 2014, 1:47 pm

    Dear Mr. MMM, I have been reading your blog starting from the beginning a few months ago to gather ideas on how to stop being a consumer and also to teach my 11 year old how to not make the financial mistakes I made. Don’t get me wrong, we are in a good place to begin shutting off the consumer valve of destruction and focus on the frugal and fulfilling lifestyle. 6 figure salary, homeowner, had (note past tense) monthly maid and lawn service outsourced. I justified with single mom working full time and raising a kid needs to have a break from the mundane tasks. I am 45 with $300k in cash in 401k, roth 401k, roth IRA and mutual funds, plus $75k in equity in the home and $30K in my kid’s college 529. And a LOT of room to cut out the extras and fast track some years off the working dregs. The $300K I have left in the mortgage is killing me but I promised not to move until she finishes 8th grade in 2017 so I pay as much extra as I can to get that interest down. Once she is done with 8th, plan to downsize to get as much savings as I can.

    I was finally empowered to post with this car article to share my story. I made the mistake of buying a new, fully financed car in 2007. $24000 at 6.5% for 7 years for a brand new Toyota Rav4. Note, no bells or whistles, just the basics on the car. I had been carless for a few years and I felt at the time it was needed as I was moving my child and I to a home a little further out of the city of Chicago to get her into a better school. Went through the buyers remorse and the anger at the interest I was paying and paid it off in three years without reducing any of my crazy consumerism. You should (and may have since I’m still reading 2011 articles) about how targeted parents are to buy buy buy for their children. And targeting children in insidious ads anywhere they can. Anyway, I found a house still in the city, close to the train and in 7.5 years I now have a pristine Toyota, paid off and well maintained that has less than 30,000 miles on it. I plan to run “besse” until she heaves her final gasoline breath. I now have to fight off offers every time I take her for an oil change because she is a dream for the used car industry. So I was hanging my head during your articles at my ignorance in new car buying and financing and I’m also still paying a bit more for insurance because this car is still irreplaceable but in a couple of years I can reduce my insurance and have a fabulous 4 cylinder (sorry automatic) car that I will have for many years until the rust gets her. It is garaged, I get her fully maintained and I’m going to put her away for only longer trips and get the bike out for my 1.5 mile trip to the train and grocery store instead. I hear you MMM, my daughter walks/bikes to school a mile away, I can walk, bike the 1.5 to the train or grocery and feel better for it.

    I guess my reason for this post is that you can make a big financial mistake like buying new and fully financing and still recover and have the benefits of a fully paid off (early) car that you know has never been in a car accident and has been maintained well and then have years of the benefits of having the used car every dealership wishes would show up for them to sell at premium. What do you think?

    • Mr. Money Mustache November 29, 2014, 4:32 pm

      It sounds like you’re on the path to recovery now, Erin. Congratulations!

      But for others looking to follow in your path: note that she could have bought a 2003 RAV4 (or more fuel efficient 2004 Toyota Matrix) back in the day for about half the price, saved $15,000 or more in financing and insurance and other fees, and it would still be in nearly new condition today. The less you drive, the older your car should be.

  • Aaron Tang February 15, 2015, 9:44 am

    Hey Mr. Money Mustache,

    Greetings from Malaysia! First of all, I wanted to say you’re my hero. I’ve learned so much from you — and now have a situation I’d humbly like to request your advice on.

    Currently, I drive a 20-year old car. Its primary purpose is just to ferry me from home to the nearby train station every weekday. And bring me to go see my girlfriend every weekend. I estimate I only travel about 100 miles every week — a grand total of 5,000 – 6,000 miles yearly.

    My friends laugh at me, commenting that I can “afford” a better car — but thanks to you, I know better. My current 20-year old car (a gift from my dad) is worth about $1,500. The problem is — its starting to require repairs frequently. Not to mention that its fuel consumption is terrible. I only get away with it because I drive so little. Currently projecting a total cost of ownership (fuel + maintenance) of $1,500 this year.

    When’s the right time to switch cars?

    Emotionally, the repair trips to the workshop (forgive me for my lack of skills in cars) irritates the hell out of me. Yet, cars are expensive in Malaysia (due to high taxes by the Government). A 10-11 year old Toyota (no.1 on the shortlist) will cost about $8,500. Total cost of ownership is projected to be about half of my current car: $750 / year.

    So now my dilemma is, how long do I continue to slug it out with my current car: [nothing] + $1500/year. And when do I bite the bullet and get another car: [$8,000] + $750 / year.

    Also, what are your thoughts on getting financing for second-hand cars? Assuming I did go ahead with the $8,500 Toyota — I could pay cash, but it would wipe out a big chunk of my investments. A loan costs 3.85%, but I could instead park my money in my home mortgage — which would save me 4.4% interest.

    I’ve considered cycling, but the climate here makes that impractical for work (I sweat too much and I’m lazy). Did some calculations on Uber / Grabcar / Taxis too, but that’s still currently more expensive than a good second-hand car.

    Thanks a lot!

    • Mr. Money Mustache February 15, 2015, 12:05 pm

      How about an electric bike? A good compromise between car and bike, and you can breeze through the air to cool down for the last part of your journey. Also, cycling regularly will eliminate your laziness problem and your body will adapt to deal with the climate properly.

      • Aaron Tang February 15, 2015, 10:11 pm

        Thanks MMM — that’s something I hadn’t considered.

        Unfortunately I’m still leaning towards a good second hand car, as the girlfriend stays out of biking distance, and it’s still too expensive for cabs. Any advice on when to ditch an older car for a less old car?

  • Donna S April 2, 2015, 12:49 pm

    After reading this article, I came up with a formula to determine if a used car is a good value or not. In using this formula, I have determined that purchasing a used vehicle from a dealer that has high mileage is a bad idea. Here is my example showing same.

    Step 1: Assume (per Mr. Money Mustache) that every vehicle can be driven for 200,000 miles. For the car you are considering, take the mileage and subtract it from 200,000. This means that if I have a 2007 Honda CR-V with 150,333 miles, I would subtract the 150,333 from the 200,000. 200,000-150,333=49,667 miles left in the vehicle.

    Step 2: The next step is to divide the miles left in the vehicle by the number of anticipated miles you would put on the vehicle very year. For my example, I am going to assume I would place 12,000 miles on the vehicle every year. Using the Step 1 example, I would do this: 49,667 (miles left) / 12,000 (miles to be on vehicle every year) = 4.13 years left of life on the vehicle.

    Step 3: The 3rd step is to divide the cost of the vehicle by the number of years left on the vehicle to determine how much the vehicle would cost if I spread the cost over the life of the vehicle. Using my example, let’s assume the vehicle I am looking at costs $10,890. So, I would do this: $10,890/4.13= $2,636 (amount the vehicle costs per year if I spread the total over the life of the vehicle.)

    I have found that dealers price their high mileage vehicles extremely high which means the amount a high mileage vehicle costs over time is much, much higher than for the same model, SAME YEAR of the vehicle with low miles. So I would encourage folks buying from a dealer to buy a vehicle with low miles versus high miles.

    I would encourage folks to try this formula on different vehicles for sale and provide me with feedback about this idea which I think allows you to determine if you are paying a good and fair price for a used vehicle and which also allows you to compare DIFFERENT VEHICLES to see if you are getting a good price.

    • Mr. Money Mustache April 2, 2015, 1:10 pm

      I fully agree, Donna – great technique. Dealers have RIDICULOUS prices most of the time, and in the used car market, there is usually FAR too little discount for high mileage.

      I would just add in the opportunity cost of tying up that money when doing your calculations, especially for low-mileage drivers. For example, I drive maybe 4,000 miles a year which means a new car would last me 50 years. Instead of spending $20k or even $15k for a new car, I’d be better off spending $4k for a car with 160k miles on it, and thus “only” 40,000 miles of life left. Even if I had to spend more than that, I’d benefit.

  • Bia1986 December 8, 2015, 10:19 am

    Hi MMM,
    I an relatively new to your website but have spent the last 48 hours literally doing nothing but absorbing all the information I can.
    I have many questions but will start with this one.
    A little about me – I am 29 and am new to the whole idea of retiring early, and very committed to making all the life styles that I possibly can in order to obtain financial freedom. I am lucky that in 18 months I will see an increase in my income from 60K to around 300K, once I finish my medical training.
    Until that point, I want to start doing all that I can to make my goal a reality, and one of those things are correcting mistakes I have made in the past. Currently I am saving only 5% of my income – and that is due to debts that I made which include an overpriced engagement ring, a small but expensive wedding, and a new car that I purchased in 2013 and currently still own about 18K on it. Mazda CX5, small SUV, which gives me around 27-29 miles per gallon. I pay 400 a month for it. Luckily, i have no student loan debt.
    Before I enter the world of investing, I believe I need to get rid of my debt. I will be able to pay off the above mentioned engagement ring in about 5 months.
    My question to you is – do you think it is better to make extra payments on my car in order to pay it off completely soon; or should I go the opposite direction and exchange it to an older model so that I no longer have any car payments?
    Appreciate all advice you may be able to give me, and thank you for all that you already do for all of us.

    • Mr. Money Mustache December 8, 2015, 11:22 am

      Hey Bia – yes, although it isn’t urgent given your eventual increase in income, I would personally sell the SUV on Craigslist and buy a 2011 Prius or similar. 45 MPG, lower cost, higher reliability, and still carries just as many people.

  • Bryan February 4, 2016, 10:39 am

    Dear MMM,

    Thank you so much for your blog. I heard you on the Art of Manliness a few months ago, and have been enjoying reading your articles ever since. Now that I am living in the US again for the first time in 8 years, I have to buy a car – something I have never done in my life. So I’ve been taking lots of notes from your site.

    I understand very well the need to have enough miles left on the car so that you can drive for 10 years and come in around 200,000 miles. But, I’m having troubles understanding how you connect that to car year in your table. I’ve written out a few questions to help me understand this, should you find the time:

    1. Does this describe your logic behind that table?
    I drive 9,000 miles per year, therefore I need a car that has no more than 110,000 miles, so that in 10 years I will have reached about 200,000 miles. Looking at an the EPA’s estimated miles driven per car (15,000/yr), this would probably be a used car that is 7 years old (7 x 15,000 = 105,000). If I find a 7 year old car with less miles than 105,000 it is probably a deal.

    2. If #1 is correct, would you still not buy a car newer than 5 years, regardless of the number of miles you drive per year? I ask because if I drive 15,000 miles a year, I would need a car that has no more than 50,000 miles on it. According to the EPA estimate, that is a 3 year old car (45,000 miles), but your table starts at 5 years old (2011 article date – 2006).

    3. If #1 is correct, would you buy a car older than 13 years (EPA 15,000 x 13 = 195,000) if the remaining miles before 200,000 were enough for your driving style and 10 years of driving?

    4. Do miles on the car always trump model year?

    Bonus question: what do you do with the cars after they hit 200,000 miles? Drive them until they break? And up to what cost (% of original purchase?) would you pay to repair a car before scrapping it?

    Thank you so much for your time

  • Mark July 13, 2016, 10:02 am

    This website is great, unfortunately I didn’t find it 25yrs ago. I’m 46 and spent most of my life in dept. I’ve been thinking about retiring at 50 using my home business to supplement my income needs. I started reading your blog early last year. Since then I’ve paid off over $35,000 in credit card and student loan dept. None of that left.

    I’m maxing out my 401k and currently have $100,000 in there. My company matches %120 of the first 6% of my salary on my 401K so the first 6% is a no brainer. I did buy a new Honda CRV in 2012 (before I found your blog) and have about $14,000 left on that loan along with a Sion XB my wife drives that has $7700 left on that loan. On the CRV I have a part time business and write off the millage and some of the payment for it on my taxes.

    Question: Should I pay off the car loans with 401K?

    • Mr. Money Mustache July 13, 2016, 3:00 pm

      Hi Mark!

      No to the 401(k) but you should definitely sell both cars and get 1-2 less expensive cars that you can buy in cash.

      A 2012 CR-V would be an indulgence even for a multimillionaire – in your situation you should be looking at bikes first, then a basic car second.

      • Mark July 16, 2016, 7:55 pm

        Were not in a biking town. You put a target on your back here when you ride a bike on the streets. One of the guys I work with rides his bike everyday to work. He’s been hit 3 times by cars. The last time almost disabled him. People throw drinks at him for slowing traffic. Almost ever month someone is killed riding on a bike here. I do have a bike and do ride it in the park but not on the road.

        I have thought about selling my CRV and getting a more affordable ride but I’m cash poor and would have to finance it.


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