Buy New or Used Car? Pay Cash or Loan?

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  Euphemistic on 06/01/2016 - 22:07

  I'm firmly in the used car, no loan camp. Car loans tend to be higher interest rate than redraw on a mortgage so if you are smart about paying the amount off in the time a car loan would take 3-5yrs then you will be ahead. Work out how much your payments would be on a car loan and put that back into the mortgage. Paying it off over 30yrs isn't smart, and costs lots more.

  I haven't bought a new car, and won't, preferring to get something 2-4 years old for our good car, and 10yo plus for our second car. When I had a company car, and before we had kids my wife drove a cheap car, but now we've got kids and I don't have a company car we have a good car for my wife and I get the older car.

  I took out a car loan twice, before I had a mortgage and paid them off quick as possible, and have used mortgage offset for the last few cars. I have spent moe on cars using the mortgage offset over the years than I intended, but our situation changed meaning we outgrew our cars and wanted to upgrade.

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  SlickMick on 06/01/2016 - 22:13

  +5

  Conversations like this make me long for a competent government to implement a good public transport system

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  MrFrugalSpend on 06/01/2016 - 22:35

  +7

  Whether you plan to keep it until it dies or not is irrelevant - Buy what you can afford cash. Search for a bargain on a near new used car its always a better deal.

  Take my examples - I have two cars in my family.

  One was bought with 40,000kms on it for $10,000 private sale second hand no warranty. It was $28,500 new. I've had it for 6 years and only had to replace consumables recently (i.e. tyres, brake pads, battery - total probably $800), except for one fuel pressure problem that cost hardly anything to fix (like $300). Get a good highly recommended private mechanic (not a dealer) and it will cost you less for repairs and log book servicing than a new car anyway I pay like $150 each service per year. It could still be sold for at least $5000. So the first owner lost $18,500 in 3 years on depreciation, if I sell it for $5000, it has cost me hardly anything - like $1000 per year plus normal running costs! I bought it cash by saving up and have not paid a cent in finance costs. If the first owner paid finance to buy new for $28,500 - they probably lost $1400 per year on finance plus $6166 per year on depreciation, or $7566 per year, 7 times what it cost me!! And its fine, it doesn't really matter what kind of car you drive, nobody really cares.

  My other car was bought with 44,000kms on it for $28,500 private sale second hand - it cost a whopping $64,000 new. This one did have some unforseen mechanical problems. It cost me $1250 to fix it first year out of warranty. Whilst I was annoyed at the time because it was unforseen, that is absolutely small change. The first owner lost $35,500 in depreciation plus finance costs in the first 3 years of ownership!! Why would anyone conscious of their wallet buy new!? Had I bought it through a second hand dealer with a warranty, that would have expired, and I would have paid the redbook value of approx $33,000 for the car at the time being $4500 more than I paid. Not many cars that are a good model/brand with less than 50,000kms would have problems that cost over this to fix. Most of them won't have much wrong, so why definitely pay out much more money to gain a warranty to cover repairs that may happen and will likely cost you about the same or less to fix in the rare event they do happen.
  I've now had this car for 9 years and had a handful of problems here and there probably totalling an average of $300-$500 per year - so what, that's nothing. All cars have running expenses. Pay cash, buy a good brand / well reviewed model second hand (near new with low kms), and you'd save this up front 10 times over. Its still saleable for $11,000ish so that's only approx $1944 per year in depreciation (compare that to the $11,833 per year the first owner lost!). Yes not all models depreciate as much as this, but the numbers usually work out in favour of a near new low km private sale.

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  Grayfox on 07/01/2016 - 02:15

  Always buy cash outright if you can afford it. Instant saving on interest. Also it does not matter how much the car depreciates in my view, as long as you plan to keep the car. On the other hand if you only plan to keep it 3 years and then buy new again, yes it matters. Different brands of cars depreciate at different rates. I.E I bought a 2009 Yaris brand new. I'm still driving it today and plan to do so until it dies. I service it myself, changing oil and oil filter every six months and other items are inspected and replaced when necessary. Since I don't plan to sell the car it makes no difference to me what it's worth today. Main thing is, I have a good reliable car.

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  barginhunter11 on 07/01/2016 - 09:55

  +1

  Salary sacrifice ?

  every paid for pre tax

  ive found only works out well if you do travel the km's eg 50 - 70km a day

  we used to live close to work and it wasn't working in our favor

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    nafe on 07/01/2016 - 11:24

    Don't forget your FBT liability.

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    ShortyX on 08/01/2016 - 15:22

    Salary sacrifice?

    Usually better than a loan but usually worse than paying cash.

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    xsacha on 09/01/2016 - 23:17

    Had a good look at this and you don't really save much at all (if anything). It really depends how generous your FBT is. For some people it's going to be great but then you probably have the flexibility to get something else out of the FBT too.
    I noticed lots of shops giving very misleading info about it:
    1) Saying things such as you don't pay GST with salary sacrifice/fleet options. Yes, the upfront cost doesn't include it because, in fact, GST is added in the repayments.
    2) Some shops tried to suggest fuel and servicing are 'free' — of course they're not. They are added to the upfront cost and if you go over the allocated amount, you pay on top of this.
    3) Some dealers suggested that because you are part of a 'fleet' (workplace) you get some 'special' discount. These ones were charging the most!
    4) Most dealers (who didn't say fuel was free) said you save on fuel because you get a special fuel card with a discount in it — usually BP, which is the most expensive by about 10c every day here. Worse, your allocated fuel is on this card so you have to use it now or you're paying interest on it for no reason. Well, you pay interest on it before you use it anyway!

    So I can see why people would get confused about the benefits.

    The only benefit is: your financing gets put through your FBT. That's it.
    If someone can think of anything else, please enlighten me — I would really like to know.

    Also, I could never get a car discounted when it was salary sacrifice (similar to financing). They would only give a typical $2k discount instead of the much larger cash-only discounts available if you say you are not financing/sacrificing.

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  Dazza610 on 07/01/2016 - 10:24

  It's NOT rocket science…
  If you have the cash use it.
  If you prefer NEW buy NEW, (you won't have to deal with that horrible feeling of 'what was the previous owners reason for ditching it.?
  Probable reasons for 'ditching' a LOW mileage (sorry I'm old) vehicle.
  Just my opinion:
  a) Involved in a serious accident and off the road for an extended period, hence very low 'mileage', which is on an older vehicle.
  b) Been flooded, and again, off the road for an extended period to dry out, (it can take quite a while to strip a car down to the carpet felt underlay not to mention mechanical overhaul. (That's why Ins Companies 'Right off' flooded cars. Not worth the labour costs.
  But then some unscrupulous owners will buy back the vehicle from the Ins Company, (very cheaply), and (try to) do the work themselves. The result is a car that will RUST into the ground within a couple of years.
  If you want NEW buy new… Then all you have to worry about is, Have I bought a LEMON.
  Good Luck & Buyer Beware.

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    Euphemistic on 07/01/2016 - 21:08

    Plenty of other reasons for changing a vehicle. New job with a car, won lotto, got an inheritance, extra child, want to keep depreciation to minimum, just like to keep the new car smell to name a few. Although I drive an older vehicle by choice over the years I've probably got a new car every three years or so between myself and my wife mostly due to change in circumstance.

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  ednamekin on 07/01/2016 - 16:50

  I may get negged and that's fine, but here are some important questions to ask first:
  -why are you buying another car in the first place?
  -Is the hatchback too small to carry everything?
  -Do you have more than 5 members in your family (including pets)?
  -What do you use the hatchback for mainly?
  -If you get this SUV will it mean that you have at least one car just lying there gathering dust and depreciation 90% of the time?

  Edit: grammatical error fixed

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    Looking4Bargians on 07/01/2016 - 17:16

    +3

    Buying SUV due to big Family and won't fit in small HatchBack. Hatchback will be used by me or mywife to drive to work for more convenience

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  CryssieJade on 07/01/2016 - 20:13

  +2

  Used car with cash.

  Never get a loan on a depreciating asset.

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  snajper on 07/01/2016 - 21:13

  Depends on the car. Most SUV vehicles tend to keep better resale value. For eg.

  New cx5 base is $30k, three years later they sell for $24-25k…
  No brainer

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  Ace26 on 07/01/2016 - 21:58

  Depreciation rate really depends on the make and model but new cars depreciate faster in the first few years.

  Recently, I bought (privately) Nissan Pathfinder Ti 2WD 18 months old, with 34k kms on clock for $41.5k, car had full service history and under warranty for another 18 months. I was quoted 66k brand new (surely could have gotten it for 4-5k cheaper) But I saved about 30% or about 19.5k buying second hand.

  I was able to pay cash and avoid taking loan (compared to a new purchase which would have been on loan) so my insurance is cheap and pretty happy with it.

  In 2008 I bought a lancer for 24k, I wanted to upgrade 3 years after but was offered around 12-15k so had to run with it for 8 years and sold it recently for 9k.

  My suggestion, buy second hand which has at least 6-12 months factory warranty on it, if possible pay cash.

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  Giraffe on 07/01/2016 - 22:37

  What are some tips when purchasing a used car via private sale? Other than checking service history, what else should you ask/look for at test drive?

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    ncmx5 on 08/01/2016 - 09:37

    Test a brand new car if possible, and compare the difference.

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    AlanHB on 08/01/2016 - 20:02

    Hire a mechanic to look at it before any money changes hands.

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  Bullion78 on 07/01/2016 - 23:18

  +1

  I bought a cheap 3yo Getz with 45k kms on it for 6300 at the beginning of 2012. Has just ticked over the 100k and I hope to sell it for $3500. That is cheap motoring, albeit a less than comfortable drive..especially on long trips. The car aside from doing my own servicing has never skipped a beat. I am not a car person so couldn't care less about the status of what car I drive nor the price. I am now on the hunt for a deal that will return me the same result.

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  sund00bie on 08/01/2016 - 10:55

  I had the option of salary sacrificing a car and had a SelectUs company rep come to our office to try and sell their product. In his own words "There is no better alternative than cash"

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    Euphemistic on 09/01/2016 - 07:56

    I also looked at the salary sacrifice option a while back. It wasn't flexible enough, the payments seemed pretty high and I needed to have a lump of cash available at the end too. sure the payments are fixed and you can budget them, but somewhere in the payment is a proportion of profit for the lease company that comes out of your pocket.

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  geoffs87 on 08/01/2016 - 12:58

  +1

  use a 12 month interest free balance transfer - transfer the cash to a credit card you haven't got a debt on. Its like a 12 months interest free loan, providing you make the minimum repayments each month :)

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  nephilim on 08/01/2016 - 16:35

  +1

  I have found gumtree is amazing for good deals over the years, as soon as you list a ad 100 morons will offer you 1/2 the price. If you act genuine, people can be pretty good.

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  -.- on 08/01/2016 - 17:51

  +1

  Getting a car loan (particularly at a discount rate) isn't as bad as people make it out to be. Why? You can more than make up for the extra premium that you pay the lender on top of the risk-free rate (remember time-value of money), through some investments, i.e. shares. At the end of the day, you could be significantly better off (or significantly worse!). So it really depends on your risk appetite at the end of the day.

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