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Transportation: When to Buy a New Car

old car

As my wife’s car sat in a repair shop and I awaited the bill to be tallied, I had a thought – people ask me all the time when they should buy a new car; why haven’t I written about this?!  So with that in mind, I bet you can guess what today’s post is all about – deciding when it is the right time to buy another car.  The title of my post is a little misleading, because I don’t believe you should ever buy a new car.  Unless you’re so rich you don’t know what to do with all your money, let someone else be the chump and eat the depreciation (decline in value) on a new car.  You should be shopping based on your budget, which for 95% of Americans means shopping used.  We’re also not talking about a lease here, because a lease is just a bad mathematical deal.  You will not come out ahead on a lease, even if you plan to buy the car at the end of the lease period or trade out and get something else every few years.  Leases don’t make mathematical sense.  Also, if at all possible, set emotion aside when considering your shopping decision.  If you WANT another ride but are driving around in something that meets your current needs, I won’t fuss too much if you go shopping, but recognize you’re spending money unnecessarily if you do that.  It is best to wait until there is a need to replace your ride.

With those disclaimers out of the way, when should you go car shopping?  The simplest answer is to start by looking at the math. Let’s say your car just broke down.  It will cost $1,000 to fix it – should you spend that $1,000 or go shopping for something else?  Compare what the car is worth as it sits to how much it would be worth fixed.  Let’s say it is worth $4,500 as it sits and worth $5,000 when repaired.  You’re technically losing $500 to fix it.  In other words, instead of fixing the car, you could sell it for $4,500 and take the $1,000 you’d have to spend to fix it and go buy a $5,500 car.  See the difference?  Unless you have a strong emotional attachment to your car (and an extra $500 to blow), it may be time to buy something else.

On the flipside of that equation, maybe the car is worth $3,500 as it sits and $5,000 when repaired.  In that case, it makes perfect sense to sink $1,000 into the car because you’re spending $1,000 to get $1,500 increase in the car’s value.  That math makes sense.

The next things you need to consider (especially if the math of the value of the car is close) are the tax and insurance issues.  Depending on where you live, taxes and insurance vary dramatically on personal vehicles.  If you sell one car for another, you may end up paying a lot in taxes and a higher insurance premium.  So before you leap, find out the taxes on a car within your budget (in my area, that’s as simple as making a phone call to the local government office responsible for tags and title).  Then call your insurance company and see if the vehicle you’d be considering for purchase is in a different risk class than what you have now.  Two phone calls can answer those questions and give you some peace of mind about your decision to keep or sell.

The last thing you need to consider is hassle.  Inevitably when you go buy another car, you’ll need accessories to make it yours.  Maybe the cup holder was engineered by satan and requires an aftermarket replacement.  Maybe the CD player is actually a tape deck or 8-track player.  You gotta replace that!  You get my point.  You’ll usually buy the car, then find you want a few extra things after it is yours.  It really is a hassle to buy a car and get it set up like you want.   Don’t leave that out of your consideration.  If you truly love the car you’re in and don’t want to get rid of it, it may be worth $500 extra just to keep it.  I won’t fault you for that as long as you can pay for it.

My final point is this: there are thousands of cars bought and sold each day in America, and I’d bet 90% or more of those transactions are based on a whim.  Someone buys or sells simply because they’re bored, or heard some marketing pitch on TV or the radio that convinced them to buy a different car.  There really is a right and wrong time to sell and buy a different car.  I hope these simple guidelines help you determine that timing for yourself.

Like this?  Check out my post on How to Get the Best Deal on Your Next Ride.

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  1. melissa alder

    this is very good advice. my problem is that I bought my truck from a dealer, used. I owe about 22,000 on it now. I guess I’m kinda stuck with it for now. I have to pay it off and then try and sell it. It has 87XXX miles on it now. I hope and pray nothing major goes wrong with it. I’ll be out a vehicle. Not to mention I have to carry full coverage on it since I still owe the credit union for the vehicle. I really messed up buying it. Am I on the right track in my thinking with this vehicle? should i pay it off and then try and sell it? I would like something that is way cheaper on fuel for sure,

    1. Barry

      You shouldn’t sell a vehicle strictly for fuel mileage. I wrote an article on my wife’s website about this – http://www.stacymakescents.com/buying-a-car-for-better-fuel-economy and did some math to back up my thoughts. That being said, if you want to sell a vehicle you owe more on than it is worth your only two options are to 1) pay it down below that value then sell or 2) sell it for what it is worth and take out a small personal loan to pay the difference so the loan can be cleared and title signed over legally. It may be that you are stuck, but often-times you just need to save a bit of cash and consider the options. I would NOT trade it in because you’ll definitely lose money in doing that.

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