Personal finance has a lot of rules, and one of the cardinal rules of it is NEVER EVER buy a new vehicle. This cardinal rule is backed by two arguments; A) New cars depreciate faster and B) Used cars are cheaper and easier to afford. I’ve always followed this rule, and only bought used cars in the past. One thing that’s different this time around is that I’ve never bought a new-er car like this.
Until now, I’ve owned four cars, and this newly purchased vehicle happens to be my fifth. The first car I bought with the help of my parents was 1993 Mazda 323. I drove the car for a year, and in my first year of college en route home from my then girlfriends house I ended up getting into an accident, and wrote the car off. Thankfully I wasn’t deemed at fault, insurance paid me out and that led me to buy my second car, 1991 Golf GTI. I’ve always wanted a V-Dub, so it didn’t take me much to find the car I was looking for. After four years of driving the V-Dub, it started having problems, so I decided to sell the car to a guy who wanted it for the engine. My next car and also my third, I purchased a 1999 Saab 9-3, which only lasted me for two years before the transmission gave out on me leaving me scrambling to buy another car – 2002 Oldsmobile Alero and also my fourth car. The Alero lasted me for four strong years, with no major hiccups, and with 239,000km on the speedometer, a need for a new muffler, I decided not to fork out any money into it and instead opted to buy a new used vehicle.
Now you’re probably wondering what I bought…..so without further ado….drum roll please……………I purchased a new used 2009 BMW 3-Series.
I always found it interesting that almost every personal-finance blogger recommends buying a used car. The universal agreement is that new cars depreciate quickly, are more expensive on insurance and are generally not a good investment for young people. I agree. I’ve read a lot of articles over the years on buying new vs. used cars, and have even written a few pieces my self on how used cars are the way to go. While used cars are a very good way to go, new cars are a great choice for others. Melissa from BrokeTO purchased a new vehicle, it works for her situation and she compiles a good argument on why she bought new. Read her post here.
Despite some compelling arguments on buying a new vehicle, I opted to stick to my guns and purchased a new used vehicle. Here’s why I chose to buy a new used car.
DECIDING TO BUY A NEW USED CAR
I spent months deliberating on whether to fix the Olds or buy a new used car. The Olds has a Black-Book value of around $1,000, and to repair the exhaust I would have had to spend $600. The repair equates to 60% of the car value, which simply didn’t justify the repair. Probably within the next year I would have needed new front brakes and rotors ($300), which further justified my thinking on not wanting to invest anymore into the car. So, instead I opted to to purchase a new used car instead.
QUESTIONS I ASKED MY SELF BEFORE CAR SHOPPING
1. How much can I afford?
I wasn’t focusing as much on the price of the car, and instead I focused on a monthly payment that fit my budget. Initially I wasn’t set on a car make, but was open to seeing what was out on the market. Secondly I wanted to finance the new used car to a maximum of four years (48 months), with my ideal goal of paying it off in full in 36 months.
I also focused heavily on the finance rate, and got quotes from three different financial institutions. Since most of my banking is with RBC, I kicked the tires with them first and the best rate that they were able to offer was 6.26%, and that’s after I negotiated them down from a 6.90% posted rate. I also called TD Bank’s Car Financing center who finances a lot of used car sales in Ontario, and they offered me a rate of 4.99%. Not bad, but I wanted better. Finally, like any other major dealer, BMW offers their own financing, and the rate of 2.90% over 48 months was too good to be true. More on financing in another post, and in the mean time here’s a snapshot of BMW’s financing options.
2. How much will insurance be on the new used car?
This is where it got interesting. I really did my homework, and over a two week span I called ten insurance brokers and/or companies to gauge what I could be expecting to pay for insurance on my new purchase. One thing I should add is that by this point I narrowed my car search down to these brands:
- BMW 3 Series
- Mercedes Benz C Class
- Nissan Maxima
- Lexus 250/300
My insurance research was interesting to say the least. I paid $195 per month on my 2002 Oldsmobile Alero, and that’s with a clean driving record. Yes, insurance is expensive in Toronto, Canada. The insurance quotes I got ranged from $2,200 on the low-end to as high as $3,900, which is insane and it equates to $325/month or an increase of 66% over my existing premium. Thanks, but no thanks. Long story short, I ended up switching insurance companies. I’ll explain this more in detail in another post specifically pertaining to car insurance.
3. What big expenses do I have on the horizon?
I re-created my budget repeatedly, and worked the numbers over and over. I took into consideration my property taxes, income taxes that I knew I’d be owing, student loan repayment, line of credit and other debt that might arise along the way. My goals was to minimize risk in case any large expenses happen on the horizon.
I’m proud to say that I didn’t become that guy after college who lands his first big gig, and his first purchase ends up being a new car. Instead I bought a home at 25, and three years later I’m buying my first new used car. This also happens to be the first car that I financed, as the previous four vehicles were paid in cash.
4. Car Maintenance Cost
Maintaining a car gets relatively more expensive as time goes on because the value of your car is always decreasing while maintenance costs are the generally increasing component through deflation. One of the bigger reasons behind my choice to purchase a BMW over any other brand is because a close friend is a mechanic at one the local BMW dealerships. I would get free assessments, 50% off parts and most importantly the labor would come at the fraction of the cost. There’s another reason for choosing to go with a with this car brand – BMW Certified Series. The base vehicle warranty on any BMW is 4 years/80,000km. The BMW I chose to buy still had 5,000km of warranty left, because the car already had 75,000km at purchase, and after the base warranty expires I got an additional 2 years or 150,000km, whichever of the two comes first. Obviously the 2 years will come way before I hit 150,000km, but a two year manufacturers warranty is a great peace of mind when buying a new used vehicle.
5. Resale Value
At first, I didn’t think much into this idea. After all, I would probably just drive whatever car I got into the ground instead of selling it. So, I thought about what would happen if you sold it in 5 to 7 years. I researched what BMW’s 4-7 years older were selling, and the price points were pretty interesting. Also, during my resale research a close friend purchased a 2004 BMW 3-Series, which also happened to have 234,000km on it for $4,900. Nice price point, especially when I compared my old car was only two years older and had approximately the same mileage, except I’d only be getting 20% of the value of his BMW for my old car. Another interesting number, is that he bought this 2004 BMW 3-Series at virtually the cost, as the BMW dealership he works at was selling it for $6,900 retail.
SO, I BOUGHT A BIMMER
My desire for driving a fancy luxury car finally came true. In the last 18 months I worked hard at eliminating my debt, and now that I’m virtually consumer debt free it felt like the right time to finance a new used vehicle. More importantly, the car purchase felt right in my present life, and I’m excited to see what the future holds for me. The whole buying process took me roughly 3 months, which can be broken down into research, comparison, car shopping and preparing to take on a car payment for the next 48 months at minimum.
I expect this post will generate a lot of debate, and that’s cool. My goal with my car buying guide is to offer you something to take out from my car buying journey. Buying a used car is NOT the only way to go. It’s absolutely not. Buying a new car can be a smart choice if you pick the right car, negotiate extremely well, and get a really good financing rate. I been driving my new used car for the past month, and love every moment of it. I definitely made the right choice, and if I had to do it over again I’d still buy this car. Buying a car is probably the second biggest purchase you’ll make in your life (after your home, and you definitely want to do it right.
Readers, how do you decide when to buy a new car or keep your old one and fix?
Eddie
