Monday, 24 November 2014

Is It Actually Cheaper To Buy A Used Car?

So much room in the driveway now!
To Recap:

We are a one car family.  Our in-laws gave us their old car over the summer.  We've had a slew of car troubles.  We've questioned whether or not we should even bother trying to sell the second car.


The Update:

We sold the car!


When it comes to buying cars, I've always believed that the smartest financial advice to was buy a late model car with cash and then drive it to the ground.

This time we didn't get the chance to drive our car into the ground.  So, I was extra interested to evaluate our decision to buy used.

In the last few years, I've heard some intriguing car strategies:

  • buy new with a 0% finance rate and a full warranty;
  • get a super cheap monthly lease on a new car;
  • buy used and flip the cars regularly; and,
  • buy junkers and never put a penny in them.

So, I decided to use my 20/20 vision to look back to see how much our used car actually cost us.  So, when our new (2003 Honda Accord) dies, we can work with actual numbers when making decisions on how to get our next car.



What Our Used Car Cost Per Month


Expense$$$$$

Purchase Cost - 2007 Mazda 3 - October 2010

$11,249

2010 Maintenance

$0
2011 Maintenance$660
2012 Maintenance$937
2013 Maintenance$1901
2014 Maintenance$238

Selling Costs - November 2014

$2,166
Sale Price- $3,500

Total Cost

$13,651
Months Owned/ 50 months

Cost per Month

$273/month



Depreciation on Our Used Car


We bought the car for $11,249 and four years and two months later sold it for $3,500.  It depreciated $1,860 a year.  I had estimated it would depreciate about $1,000 a year when we bought it (yup, I was estimating it to last was 15 years).

We sold the car to a friend of the family at what turned out to be the wholesale price.  The retail price, according to the calculations for remitting our sales tax, was $5,500.  At retail prices, the car still depreciated $1,379 per year, or over 12% of the purchase price per year.

The value of the car also dropped because it wasn't the most pleasing to look at.  I had scraped the front on a pillar in an IKEA parking lot.  A school bus had hit the back corner then drove off when it was parked on the road.  A friend had backed into the other front corner when I was parked in their driveway.  Oh and it was a boring beige colour.

If we had known that we would be selling, we probably would have fixed the mishaps along the way, but we weren't too bothered driving around in a dented car. When we put it up for sale we knew that even though it had good kilometres, the cosmetic problems were going to stop us from getting top price for the car.


What lessons did we learn?
  1. Buy the car privately to get a better deal off the bat.    
  2. Let your friends pay to fix damage they make to your car.
  3. Even late model used cars depreciate pretty fast.


Cost of Regular Maintenance For Our Used Car


Looking at the full years 2011-2013, there was $3,498 in maintenance and repairs or $1,166 per year.  That seems to fall in line with our $1200 per year amount set aside in our budget.

There were no big surprises from our car.  But, each year we seemed to need have one sizeable repair.  First we replaced the brakes, then we put on new tires, and then we replaced the air conditioner (there's no cool basement in a car).



The Big Costs to Sell Our Little Car


We spent over $2,000 to sell our car.

The selling costs included small charges like the sellers package we were required to buy from our Ministry of Transportation, our multiple emissions tests and our multiple safety tests.


Why did they test for emissions when they said we hadn't driven enough kilometres since the batter was disconnected? 

Wouldn't they notice we needed a new parking brake system and wiper blades the first time we got the safety done? 


Any way, the bulk of the selling costs was doing all the repairs that we'd put off: replacing the brake pads; fixing the chip in the wind shield that had been around for a couple years; replacing the light bulb on the top of the trunk; patching an apparently flat tire.

If we ended up driving the car into the ground like we'd planned, we would probably not bother to pay to have these fixed.  Well, eventually we'd need to at least replace the breaks...

The dead alternator was a surprise for us the day we were supposed to have our first potential buyer come take a look.  I'm not knowledgeable enough with cars to speculate why this part died when it did.  But we have a new mechanic now, so we're moving on.

We hadn't expected it to take so long or to cost as much as it did to finally sell our car.  We'll be more prepared if we ever end up needing to sell a car again.



Conclusion


When we wanted to buy a car, we did what we thought was the most frugal thing.  We bought a late model car for cash.  In the end the car ended up costing us $273 per month plus gas, registration and insurance.

We hadn't planned to sell the car four years later.  Even so, I'm not sure that we could have found a better deal leasing a car or buying one brand new.



What About You?



What do you think is the smartest way to buy a car?

Have you been burned by a car decision in the past?

What made you decide to let your last car go?




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