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New or used?

Chris Farrell May 22, 2009

Question: I wasn’t sure whether to ask you or the Car Talk Car Guys about this – Maybe a joint consult? I just got half a book advance, and have $15,000 to do something with. My finances are secure – no credit card or other debt, own my home with an easy mortgage payment as well as a paid-off condo. I live off secure rental incomes and have $10,000 in regular savings account.

I’ve always invested in real estate and have no experience in, or much desire to get into stocks, even if they weren’t so crazy these days. I’ll get another $15,000 in September, but even $30,000 isn’t much to work with in real estate these days. Meanwhile, I have a 1994 Honda Accord with 105,000 miles. It runs fine, but I’m thinking since I have the money and no real interest-earning investment ideas, perhaps I should buy a newer, lower-mileage, but still used Honda Accord.

Then a friend said for that price I could just buy a brand new Toyota or something. But I’ve always understood that the moment you drive a new car off the lot you loose 1/4 of its value. Is this still true? I’m not a new car person, just looking for another 15 year run of trouble-free driving and the best “investment” of my money. What should I do?
Thanks, Victoria, Washington, DC

Answer: When it comes to cars I’ll defer to the Car Talk guys. But since you asked I’ll throw in my two cents. Right now, there are good deals for both new and used cars.

It’s disconcerting to think that when you buy a new car and drive it off the lot for the first time its value falls by some 20%. And that is after you’ve done comparison shopping, online research and final negotiations to get the best price possible. Still, it’s an irrelevant fact if you buy new and own the car for a long time, driving it into the ground. How fast and how much it depreciates doesn’t really matter.

Used car prices are cheap, and the used car business has become far more respectable over the past decade. Still, the one thing to remember when buying used is that you’re inheriting someone else’s problem with the car. I know nothing about cars. Engines are a mystery and repair shops are an alien. That’s why I’ve always been a charter member of the buy new and then own for a long time school of car ownership. Some of my more car savvy friends would never purchase a new car, however. But they know what they are doing. I don’t.

Here’s my real question: Why spend the money? Why not just save it for now? Sure, you’ll make a fractional rate of interest on the savings. But so what? Your car is fine. There’s no need or rush to replace it. I would just put the money into your savings account, let it lie there safely and, when a good investment opportunity or a smart purchase comes along in the next couple of years, you’ll have the money to tap.

By the way, what is the book on?

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