Used Isn’t A Beater

This is a $3,000 car. Not quite a "beater" yet.

…And not buying a new car now doesn’t mean that you’ll never get a new car and you’ll be doomed to a life of beaters!

My last post seemed to bring about a bit of controversy/conversation on the idea that you could own a car without ever having a car payment.

I will prefice this post by saying that this is a mathematical exercise and NOT something I’ve done. As I mentioned in my last post, I only have bought one car in my life but it was new and I financed. I now have the title for the car and am not making car payments.
Okay, let’s give this a whirl!

Hypothetical scenario: You need a new car! You have $3,000 for a down payment because you’re super awesome.

Let’s say we have two options

Option 1: Finance a new car! With $3,000 down making $30-50,000/yr you should be able to easily qualify for a $16,000 car loan. Let’s say that you get said car loan with 3% interest for 48 months (a pretty standard car loan for those of us with slightly above average credit).

For the purpose of this experiment I’m going to say that we bought a 2011 base model Ford Focus. It is a pretty popular car, and we can compare it to older models. =)

You’re looking at a car payment of $354 for 48 months. Plus you’ll need full insurance while under finance, which I would estimate to be $100-200/month depending on your state.

Over the term of the loan you’ll pay $16,999. Or about $1,000 more than the cost of the car.

According to, for a 2011 off the lot Ford Focus, you’ll pay $6,427 in the first year you own the car  ON TOP OF CAR PAYMENTS in the form of maintenance, financing, depreciation, financing, taxes and fees. Over the first 5 years you own the car, you’ll put another $12,000 into the car in insurance, maintenance, repairs, depreciation, and taxes. The total cost of that  $16,000 car? $27,483 over the next 5 years.

Not too shabby? Let’s check out how we’ll do with scenario #2…

Scenario #2: Buy without credit. First, let’s say that we take our down payment and instead buy in cash a used Ford Focus. For $3,000 you can buy a used 2003 Ford Focus. Why am I using this as an example? Well, because this is the (near) exact car I drive, and thus I can tell you exactly what the cost of ownership.

We paid $3,000 for this car. Most 8 year old cars have some life in them, especially if they are in decent shape when you buy them. For instance, if you bought my car you’d most likely get another 5-6 years of good life out of it. Let’s say though that you only get 3 years.

The average that I pay for car repairs is $1,000 per year on my car of the same age, make, model, etc. My tax, titling and registration is much less because it is a used car. Let’s say around another $500 total (intentionally high value). So for year 1 we’re looking at spending $1,500 on this car and then $1,000 per year for the next two years after that. Let’s be generous and say that we’ll probably have to replace something really big at it costs us an extra $2,000. So in 3 years we’re spending $5,500 on this car.

However, we don’t have any car payments. So we can be putting that $354 that we were putting towards our car payment in scenario #1 every month into an interest bearing account. Let’s say we go with something modest like ING where we get 1.5% interest.

At the end of 3 years, if we didn’t have to pull anything out of that savings account, we’d have $13,397.05 in it assuming quarterly compounded interest. Subtract from that the $5,500 that we spent on repairs on the car and we have $7,897 sitting in the bank.

And you know what… yah… we did have to drive around a Ford Focus for a while, but coming from someone who drives an old Ford Focus – it isn’t that bad!

Now we have $7,897 – what can we do with it? Well, if we wanted to we could take that money and buy a 4 YEAR OLD Ford Focus in cash (assuming today’s MSRP and depreciation values).  Or if you wanted, you could just keep a couple thousand in that account and buy a five year old Ford Focus for $2,000 less. Let’s say we do that and we keep $2,000 in our savings account and continue to save our $354 per month with 1.5% interest. Since we have a newer car we can drive it a lot longer. Probably 5 years at least! Let’s just assume that we’re still spending $1,000/yr on repairs. So in 5 years we spend $5,000 on repairs for our car.

How much would we be saving during this time? $24,198.16

So by paying ourselves, having interest work in our favor, and by putting off today our nice car for 3-4 years and instead getting a passable used car we’ve over the course of time been able to save $24,198. What can you buy for that amount? Well, you could buy a brand new Ford Focus. Or really a new, affordable car of your choice.

Or you could just buy yourself a new $16,000 car or a slightly used car and just let the rest of the money earn interest for you towards your next car!

Okay… let’s be real… as long as you’re driving a car you WILL have car payments. But would you rather OWE someone for your car and lose money in the long run or buy your car in cash and GAIN money in the long run? You’re either paying some bank $354 per month for the “privilege” of a nicer car before you can really afford it or you’re paying yourself $354 per month and putting interest to work for you!

BTW… sometimes I feel like everyone in the world is like this guy, including myself at times:

How do I afford a $33,000 car while in College?

I went car shopping Saturday for a decent $10,000 Honda Accord, I wanted no older than 05 and I was not satisfied with the prices I was being offered so I walked out on 3 dealers. I have $1,800 I was going to put down but I still wasn’t getting any decent offers.

But then I saw the most gorgeous Camaro… unfortunately it was WAY out of my price range with $33,000 and I didn’t want to get it because the whole idea of me getting a better car was to keep my monthly payments at no more than $350 a month.

SO… I was curious as to how to get my payments around $300 with a $33,000 car?

I’m obviously going to save a lot more money, I was thinking a $10,000 down payment?
I make about $650 average a paycheck… So every month I get close to $1,400 a month and I’m hoping to go back in Mid-March with as much money as possible… How do I make my monthly payments really low with such an expensive car?


13 Responses to Used Isn’t A Beater

  1. Daisy says:

    I have had both of my cars gifted to me.
    My mom gave her car to me after she got a new one, & I drove it for 3 years. When It crapped out my dad gave me a car – he has tons – & I am still driving it.
    I’m lucky for that – but I know that when time comes that I have ot buy a car, I”ll be getting something used & cheap, like a used honda civic.

  2. Red says:

    Great post! Like I was saying on Twitter… I just don’t get excited by the idea of a new car. My 2005 Dodge Stratus looked new when I bought it in 2009. It had 40,000 miles on it and cost $4,500. In the two years that I’ve owned it, I’ve only paid for routine maintenance of the vehicle (oil changes), except for the time a recycling truck tore the front bumper off. But that was covered by the university’s insurance so no cost to me. (Yeah, a university recycling truck tore off my bumper AND STARTED DRIVING OFF! Thankfully, my mother was able to chase him down.) My insurance on this car is only $47 a month, and I’ve got full coverage. (Marriage discount!)

    As someone who’s only ever owned used cars, it’s hard to imagine forking over the money to buy one new. But if that becomes a priority later in life, I’ll be okay saving cash for one. As long as I have a stereo with an iPod jack and decent speakers, I’m a happy driver. 🙂

  3. Jerry says:

    I would buy the car without financing. We’ve done both and I tell you the latter leads to a lot less headaches in my opinion. There are some repairs you will have to do on them but that’s inevitable for any car. And, the insurance is cheaper which is also a plus.

  4. Great post. My Toyota Tercel is 12 years old now and I don’t know how much life she has left in her so this was a great read. I will definitely buy used when my car dies.

    I’m debating trying to sell it now and get maybe a grand for it, or just drive it until it completely dies and get a new-to-me car when I HAVE to.

  5. A difference though, is that unless you know a mechanic you trust that can go over that used car for you and make sure it’s in good shape… the used Ford Focus you have decided to keep is going to be better quality than the average used Ford Focus that is on the market. People sell cars that break down, they are more likely to keep cars that are in good condition. If your Ford Focus had much higher repair costs, you would probably have gotten rid of it by now (and it would be on the market for someone else to buy).

    So costs will probably be higher for a car on the market unless you know a lot about where the car came from and so on.

  6. eemusings says:

    Wow, cars really are cheap there! No way you could get such a new Focus here for $3k. We bought our 12 year old Mazda for $5k with just over 100,000kms.

  7. TeacHer says:

    I’m coming in a little late to this conversation, but the PF blogger obsession with no car payments will never cease to boggle my mind. In an ideal world, of course, we would all be saving for a home, a car, a vacation, retirement, etc. I, however, live in the real world where rent is sky high and my salary is low.

    I just can’t do it all! To me, it’s better to make payments on a more reliable car and throw my extra cash at higher interest debt or savings. I understand that to some people it’s really important not to have a car payment and I don’t begrudge them that, it’s just not that important to me.

    Another way of putting it is that I look at cars like houses: you need both, and shouldn’t buy more of either than you can afford, but it’s unrealistic to think that you’ll have the cash on hand to buy either outright.

    • SS4BC says:

      I think the obsession is that we just get fed up with debt. We’re fed up with throwing away money on interest rates and creditors.

      A car is something that you can buy without debt quite easily and end up making money on as well. So why not? Reliability and not-financing are not mutually exclusive concepts.

      A house? That’s a different story. I would love to be able to afford a house without a loan, but practically I also know I don’t want to save for 15 years before I buy one.

  8. TeacHer says:

    I intellectually understand that the difference between borrowing for a car and borrowing for a house is the difference between borrowing for something that depreciates versus borrowing for something that appreciates in value. That’s an argument I can get behind.

    I just can’t stomach the idea of anyone – myself included – spending years chipping away at a car loan – then spending years saving up for a new/used car when the first is paid off – when that money could be working so much harder in investments. Again, presuming that the car loan is at a low interest rate (mine is 2.99%) I just don’t see the logic in busting my butt to be car payment-free….just for the sake of saying I have no debt.

    Maybe I’m just a reformed creditor. I used to think that credit was a way of life, then I went through a phase where I thought credit and debt were evil – I now respect credit and feel that it can be used wisely, and I’m not afraid of having a little debt if it means that my extra cash will be going to a more lucrative purpose.

    • KH says:

      Good grief it’s really good to see a PF blogger who doesn’t have the knee-jerk “debt is evil” mindset. It really seems that people who go off on anti-new-car and anti-car-payment rants are awfully holier-than-thou about it.

      I am about to buy a used car for cash because right now I don’t want or need anything more than a commuter car. But I have bought new cars before and have made car payments before and it’s not evil, as long as you’re not being ridiculous about it.

    • SS4BC says:

      For sure, like I said on this post and my FPU week 4 post, while I intellectually understand all of this, I’m unconvinced that I wouldn’t just finance at a low rate anyway.

  9. Pingback: Financial Peace University – Week 5 « Small Steps for Big Change

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