Monday, June 25, 2007

True Cost of a New Car: It Ain't Pretty

My previous post covering my "save money or pay off car loan" dilemma garnered a lot of great comments from readers. One comment, slapped up here by someone with the moniker of "Reason," went like this:

Sell the car, pay off the loan, and buy a lesser car with the money left over. No more debt. You can keep your savings. And you can start saving up for the next car.

Ah yes ... spoken in true, Dave Ramsey "sell the car" style. To be clear, that's not something I'm going to do. But it got me to thinking: Just how big a hit has my net worth taken thanks to my purchase of a new Honda back in late 2005?

Let's start with what price a 2006 Accord SE with 13k miles might fetch from a private buyer in this area. NADA and Kelley Blue Book show me, respectively:

Okay. So I'll "guesstimate" that the car's now worth $18,900 in the private market. Now to do some math, courtesy of Excel 2007:

There you go: In the 19 months that we've owned the Accord, it has nicked our net worth by over $4,200. It's worth noting that my interest rate on our auto loan is fixed at a measly 3.95 percent, so while the loan interest is a factor here, it isn't the primary culprit. Given the $221 "cost per month" shown above, interest accounts for less than twenty percent of that amount per month.

What I wish I had done was write down somewhere what I might've paid for, say, a 2004 Honda Accord LX with 30k miles back then. Then I could play with the numbers on that, too, and see how much less it would've cost me over these 19 months. That would make for an interesting comparison.

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— Posted by Michael @ 11:30 AM


Don't forget to factor in higher maintenance and repair costs for a car that's a bit older and with more miles on it! ;-)


1) My experience has been that maintenance costs from new cars to used cars with 90k miles is crap shoot. It just can't be determined what or when something's going to break.

2) Good luck selling that Honda by private party for "blue book" private party. Low dollar cars can usually be sold quickly. A high dollar car is going to take 4 to 6 months to sell. After advertising expenses, you'll do well get half way between that number and wholesale.

Anonymous Anonymous
, at 9:00 AM, June 26, 2007  

1) My experience has been that maintenance costs from new cars to used cars with 90k miles is crap shoot.

An oft occuring phenomenon with used cars is that machines tend to break when their usage pattern is changed.

Also, a new car has the benefit of a warranty for the first couple of years (assuming "normal" mileage).

What would the numbers show if you kept the car for, say, 84 months?

Cherokee Owner from previous post

Anonymous Anonymous
, at 9:22 AM, June 26, 2007  

Let me say that at some point, probably in 5-years with proper maintenance, the numbers would begin to show just how smart you were for buying a quality car and KEEPING it.

The numbers may not look good now, but rest assured when you have paid it off and are still driving it in 2013, you will have done the right thing. The numbers just dont look all that hot right now, but they will.

Fact is, to own and operate a crap box takes a lot of money and time and that is why I am amazed at folks that go out and spend $25,000 AND WAY MORE on their cars when you KNOW the numbers aren't good from the start. We all know the dreaded story of losing THOUSANDS the moment the car leaves the lot.

My theory is, you shouldn't buy a car you can't afford and I think for many folks, the amount they could afford is MUCH less than they want to afford.

My guess couldn't afford the Honda and shouldn't have purchased it. Instead you should have bought something for half, pre-owned.

For some reason, our society has gone bonkers with cars. Folks that make $30K a year, drive around in $35K BMW's and complian they dont have anything saved and live at home with mum and dad.

If you can truly afford a new car, you wouldn't have to do a blog entry about how bad it sucks. That's why you buy something that you can handle and focus on life's pressing issues..

Anonymous Anonymous
, at 2:48 PM, June 26, 2007  

@ Anon #3:

Well, yes, since I couldn't pay for the new Honda with cash back in '05, then by all rights I really couldn't afford it, and should've just bought an Accord from a local private owner.

The point of this post wasn't intended to be "Buying a new car sucks," but rather that "Buying a new car sucks money." I'm simply illustrating the point that new cars (some makes worse than others, for sure) are pricey to a degree that isn't always readily obvious.

But then, if one has the piles of cash to handle that money suckage, then it's all good. Right?


I am dying to trash my DH's ford focus. The thing is a lemon. But I can't because it's paid for. But seriously the thing is a money sucker for a new car. It explains how and why american cars depreciate so much so quickly.

On the other hand I've barely done more than oil changes for my corolla and the thing is motoring along 1 year older with more miles than the focus and doing lovely.

So you pay more for imports, I am really starting to believe there is good reason why. And you don't get as awesome a deal on a used Honda and Toyota usually. Fords you get a stellar deal, but I'll never buy another Ford.


hmm... this got me thinking about my car. an 89 toyota camry I bought 7 years ago for 2300. 2 major repairs since then (engine, 2000, and transmission 3000) I love my car, so I keep fixing it.

total cost: $7300
- private sale value $1600
gives me $5700

which gives me a cost of about $68 per month. add to that the fact that my insurance is next to nil since I only need liability, and I think I like the numbers. plus that engine and transmission should last a while. : )

mileage: 266,000 and counting.


It's sad, but the 1991 Toyota Corolla I bought for $1500 a year ago replaced a 1995 Buick Regal I paid too much for in 2000. That Buick gave me many problems and finally I just got rid of it and bought an older car that was kept worth the money I paid. It's my third Corolla (first car was a '79 Corolla that I crunched in '93, then replaced it with another '79 Corolla) and I have to say it's held up very well. Other than replacing a clutch, which I knew was necessary when I bought the car, I've done general maintenance on it.

Your Honda will probably last you a long time, so when you're done with those payments you can hold on to it for quite a while (assuming no crunches) and save up a lot of money. :)


Also be aware that slick car dealers can take you on the front end, and you may never realize it. Check out this news headlines page to learn about car dealer fraud.


If you have already been making payments for 20 months, it may not save you much to pay the thing off in a lump sum. My experience is these loans are structured like mortgages - you pay the most interest at the beginning, so the total owing toward the end is mostly principal anyway. Also assuming there are no penalties for paying the thing off early - lots of people are surprised to find there are when they check the contract.

Anonymous Anonymous
, at 2:18 AM, July 01, 2007  

My wife and I are making two vehicle payments (one for 4 years and one for 5). We bought new vehicles but traded in paid for used vehicles so we aren't "upside down". the cost of the loans is close to 1000.00.. we have the money in the bank to pay them off but we don't intend to do that. we got the loans for 1.5% and the bank is paying nearly 5 on a money market acct. With this interest rate and our income, we are still saving money, buying junk for new grand baby and taking vacations.. sure we could be saving MORE money but shessh.. we gotta have some fun too. That Dave Ramsey deal about sell and buy used just seems way out there. and I really don't think I am in Denial. I like Micheal's site cause he doesn't seem to be always after money like you get from Dave, Susie etc. love the site enjoy the car. I think we can also stress too much about the perfect "out of debt" senario and that isn't wealth either

Anonymous coke_can_do
, at 11:52 PM, July 01, 2007  
** Comments Closed on this Post **

Thoughts on my personal finances, goals, experiences, motivations, and accomplishments (or lack thereof).

My financial life began turning around when I took responsibility for it.
— Dave Ramsey


Start (2005-12): ~$21,900
Currently: $0
[About Our Debt Paydown]


Savings Goal: $15,000
Currently: ~$15,115
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