This week: A couple isn't sure how to replace their two broken-down cars.
Question: Me and my girlfriend have been together long enough that the cars we brought into the relationship have finally crapped out.
She wants us to buy two new compact cars from one dealer and save some cash. I want to buy two luxury used cars from a discount lot — because for the same money, we can get more car, even if they’re a few years old.
Of course, we could each buy what we want, but we want to make a compromise. So we’re asking experts like you and have agreed to abide by the first one that gets back to us.
— Chris in Wisconsin
Howard Dvorkin CPA answers…
I don’t know if I’m the first to reply, but I hope I am – because this is a topic I feel strongly about.
While your instincts are correct and you’ll save money by buying from one place, I urge you to choose an entirely different option, Chris.
Is your credit rating holding you back? Find out how to fix it.
First, let’s review what you and your girlfriend are considering.
Why new isn’t always nice
Buying two new cars at the same time makes me nervous. Here’s why…
“The average vehicle cost about $3,900 in the early 1970s but didn’t last anywhere near as long as cars do now. Today, that cost has jumped to over $33,000, and the average age of passenger vehicles is 11.5 years. With proper routine maintenance, the typical car should deliver at least 200,000 miles of safe, dependable, efficient and enjoyable performance.”
Those wise words are from Rich White, executive director of the nonprofit Car Care Council.
As car prices have crept up, so have the length of the loans to pay for them. Before the Great Recession, five years was the longest term you’d likely be offered. To entice buyers, lenders stretched that to six years, then seven. By 2016, we were up to eight-year loans.
Now, if you have excellent credit and a steady income, there’s no reason you can’t negotiate a low APR on a modest loan and enjoy that new-car smell. However, many personal finance experts drive cars they paid for in cash.
Ask your girlfriend, Chris: Will both new cars last at least six years? If not, you run the risk of owing an old loan (or two) while you shop for a new car (or two).
Why used can be scary
As for buying used cars from a used-car dealer, I’m leery. Instead, I’d suggest buying “pre-owned” cars from an established dealer.
I’m often asked what’s the difference between used and pre-owned. Frankly, the latter is just a marketing term created by new-car dealers who were selling off-lease or trade-in vehicles. Now it’s emerged as a profitable chunk of new-car dealers.
The term really refers to dealers who are offering warranties and guarantees that smaller, independent used-car dealers can’t and don’t. I’ve heard too many horror stories over the years about used-car lots that went out of business or changed ownership, and whatever promises were made have suddenly perished.
Of course, keeping an older car is much like living in an older body — regular checkups are no longer optional. You can extend the life of your car (and your own life) with scheduled maintenance.
If you really want to save money, you’ll need to separate your emotions from your finances. That’s difficult to do with many purchases, but cars are among the hardest. So, I’d recommend shopping for one inexpensive pre-owned car and one slightly nicer car at the same dealer.
I’d look for one car that could safely handle a vacation drive, combined with one suitable for local commutes. I’d also study what you and your girlfriend earn each month and only spend as much as you can comfortably afford to pay off in three years.
If you want more specific advice on car shopping, I’d recommend this post from Debt.com partner Stacy Johnson called 7 Steps to Buying a Reliable Used Car. What makes his advice better than most: Johnson is nearly 60 years old and quite successful, yet he’s never bought a new car in his life. He considers it a waste of money.
Something to think about.
Have a debt question? Can’t find what you need to know? We can! Submit any debt or finance question you have, and we’ll tap a pro who will respond as quickly as possible.
Published by Debt.com, LLC