So, our car was just totaled out following an accident, and the value assigned will just barely cover what we owe on it. We are now having to choose between buying a new car or a used car in the next week or two. Not having a car is not an option where we live. We are lowish income, so we are talking the cheapest new car we can find with an automatic transmission or a used car. The interest rate doesn’t seem to be much different between them and we have no down payment. Which way should we be looking? New? Used? Cheap clunker and hope for the best?
I would look for a good quality 2-4 year old used car. Probably coming off a lease. Good luck.
I’d look carefully at what you are seeing offered. Looking at cars recently, I was surprised what little difference there is in price between a car a few years old and brand new. I learned from a little research that new car sales have been pretty sluggish the past 10 months and many dealers are offering incentives/responding to negotiations to get them moved off their lots.
Sorry about your car but glad everyone appears to be okay.
Do you have any car mechanic knowledge or skills? If so, then you may be better able to evaluate and take the risk on an older cheaper used car.
The cheapest new cars these days after typical discounts are probably around $12k (Chevrolet Spark or Ford Fiesta, check the newspaper car dealer ads), though MSRPs are $15k or more.
How much buying used would save over new of the same model depends on the model. Models with lower resale value will result in greater savings buying used.
I’m seeing that there seems to be very little price difference between new and barely used in my research, which surprised me. We are looking at accents, souls, and sparks at the moment. The totaled car was a Fit, but unfortunately we had nothing but trouble with it and I would never want another one. We have no mechanical knowledge at all- can’t even change the oil between us, unfortunately.
Note that there is a large “bid ask spread”* in used cars (bid = trade-in price, ask = dealer retail price). So you lose a lot if you sell your barely used car that you bought new recently, but buying a barely used car from a dealer will not save as much versus a new one. A private party sale should split the trade-in and dealer retail price.
*This is a term from securities trading, but cars are analogous. See https://www.investopedia.com/terms/b/bid-askspread.asp where you are the “price taker” and the dealer is the “market maker”.
If you are truly “lowish income” I’d say the smartest choice would be used. Look long and hard for a 5 year old vehicle with low mileage.
regardless of income level, most people who are not living paycheck-to-paycheck seem to feel some extra sense of security by buying new. My mother was like that – she always bought new and never kept a car more than 4 or 5 years. There’s nothing wrong with that as long as the consumer understands the cost they are truly paying and can afford the expense. It’s not a good idea if the checking account is near empty at the end of every month.
Me, I have three vehicles, all bought used. Two are paid off and running well. The third I bought two years ago and is also running well. It is 10 years old and has an extremely low payment. I can afford a higher payment, but a higher payment doesn’t make sense for what I want out of a car.
Good luck.
Do you belong to a credit union that offers a car-buying service? AAA does as well in our area. This was a life-saver for us both times we needed to buy cars. Pick the model and features that you want, and they do the dickering for you.
Be careful with low mileage, since some low mileage cars have spent most of their miles in city driving, which is much harder on the car than highway driving. Also, odometer fraud is more of a worry with low mileage cars.
If you know any relatives or friends who have a car that they are willing to sell that you know they took care of well, that may be an option to consider.
“Note that there is a large “bid ask spread”* in used cars”
Same can be said for new cars these days. As stated above, with a few exceptions, new cars aren’t moving well right now and manufacturers/dealers are willing to negotiate more than usual to move inventory. Benefit of newer cars is longer warranties and knowing you don’t have to worry about how a previous owner treated the car.
We are indeed generally out of money at the end of every month and I’m worried about another car loan. We had 18 months left on the one that we’ve now lost and starting over is scary to me. We will have a huge life change in about 5 years and I don’t want a car payment at that time. For most of my life I had really cheap used cars and they always had really cheap used car problems. When we bought the Fit it was new and was the most extravagant purchase we’d ever made. Thank goodness for that new car warranty though, because it required so many repairs on the first two years that were all covered. That is what gives me pause. Weighing the warranty over the upfront savings of used- and it seems we’d have to go pretty high miles or a bit older to save. I’m going to test drive two new cars tomorrow but will look around at some used while I’m there. I’m open to anything at this point that doesn’t up our monthly payment and that can be paid off in four years or less.
Hopefully you’ll get a chunk of $ from your insurance company that would result in payments that aren’t too high for you?
@doschicos We won’t be be getting money. The amount they offered is just basically paying our loan off. We will be starting from scratch and have no savings.
Right now we are looking at Hyundai accents, Kia souls, and Chevy sparks. New seems to have lower prices in some cases than recently used, so that’s where we are focused. Any important cons to any of these before I test drive them?
@milgymfam , it depends on what you’re looking for. It sounds like you’re setting yourself up to buy a new car, if you’re comparing a new car price only to a 1 or 2-year old used car price.
Those three models all seem perfectly fine. Check the complaints listed on Edmunds and KBB.com. Check the used car ratings of those models on Consumer Reports. If you find anything worrisome about one particular model, focus your search on the others.
My friend just bought a new Kia. As others have mentioned, it is hard to find a good used car. One way to shave $$$ is to look for the car that dealers used for a test drive, or one that was driven by an employee with a few thousand miles on it. Also, some colors are more difficult to sell, so bargain on those. I bought a car that was ten months old that was a “leader”, meaning it appeared as a special in newspaper.
We found the same very small gap between new and used cars. My son is going new and just taking an extra year of car payments over more uncertainty in repair incidences. Subaru here has a .9% interest rate. Where he lives, all wheel drive makes a difference.
Do you have a mechanic you trust - maybe from all those years with cheap cars and cheap car problems? Often they have cars for sale that they can specifically vouch for. Alternately, they can give you recommendations on car makes and models that they have observed to be more reliable and durable.
Check out what Enterprise car sales has. These are retired low mileage rental fleet vehicles.
My DIL has driven an Accent for a few years. It’s small but has been very reliable.
Can you put out a call to friends/family members you trust? Someone might know someone who is getting rid of a car - and they might know it’s history as well.