Test drive the numbers before you test drive the car

Updated: Feb 3

Cars are a huge money pit for Americans. The rate at which they depreciate is pretty outrageous, not to mention insurance, gas, maintenance, parking fees, taxes, registration, licenses and more.

I will often hear people justify buying vehicles that are totally out of proportion to their lifestyle because of wanting to “save money” by getting cars that are low maintenance and/or gas efficient.

Trust me, Drew and I have had our share of car problems. It’s REALLY not fun. We went through a phase in college when we were dating where anytime one of us was driving to visit the other something would go wrong. A blown tire, cam shaft, starter, radiator, you name it. One time we were on the side of the interstate with a flat tire (the spare was flat as well). We sprayed starting fluid inside the spare and lit it on fire (right before running and jumping behind the guardrail) hoping the explosion would create enough force to reseat the tire on the rim...SPOILER ALERT it didn’t work. Another time his muffler fell off and after we pulled over at a gas station he jumped in a dumpster, pulled out a beer can, and used that along with some duct tape to reattach it.

No one wants a clunker that become a financial drain, but that also doesn’t warrant walking into a dealership and coming out with a new car that is going to stunt your financial growth for the foreseeable future (obviously I’m not talking to the very wealthy here). In reality, a vehicle will ALWAYS require maintenance, regardless of how new it is. The only way to find a happy medium is to really do your research, run the SPECIFIC numbers, and use your best powers of prediction.

Let’s examine two hypotheticals:

1. You are deciding between a 2005 Toyota Sienna with 102,000 miles in good condition for $7,000 and a 2010 Toyota Sienna with 90,000 miles in good condition for $13,000. If you spend $5,000 more on the one that is newer/has fewer miles, which gives you the potential benefit of spending, say, $500 less per year in maintenance, it would take 10 years to recoup the extra amount. Let’s say you put 20k miles on it before you are ready to sell it. Both are going to be roughly in the same mileage category when all is said and done (one at 110k and the other at 122k - not a significant difference for mileage points that buyers are looking for).

2. Or this one--you are deciding between one 2002 Toyota Rav4 with 180,000 in fair condition for $1,900 and one 2008 Toyota Rav4 with 80,000 miles in good condition for $6,900. Let’s say the choice to spend 5k more saves you 1,000k/yr in maintenance. That will take 5 years to pay off, but you also have a car that is probably safer, and is going to hold its value better based on the mileage point. Using the same 20k number, selling a car at 100k miles is much easier than selling on once you have passed the 200k marker, so you have a better chance of regaining a fair percentage of what you put into it. In this scenario, it’s not black and white, but it seems reasonable that spending the extra 5k might be worth it.

How about fuel efficiency? Environmental impact is a huge consideration, and one that I feel deserves more money invested into it if you can afford it (I’m still not talking about NEW cars though--the impact of producing a new vehicle is significant). But for our purposes, I’m only talking about the price of gas and how much it costs to get around.

Let's say you spend 10k more to get a vehicle that gets 10 more miles to a gallon (30 instead of 20). You drive 600 miles per month. That’s 20 gallons of gas. At 2.60/gallon, that is $52/mo. At 20 MPG, you would have spent $78 per month, which is a difference of $26/mo. Spending 10k more to save on gas would mean that you would have to keep driving that car for nearly 384.6 months, or 32 years, to recoup that 10k.

If you took a loan on that vehicle, you have to consider the interest you would be paying on that 10k during that time (at 3.5 APR you are looking at around $35/mo). In that case, you have lost any value that you “gained” by saving on gas money.

If you didn’t take a loan and you had that cash available, consider the implications of investing that money in a conservatively producing investment account, let’s say 8% return compounded annually without any additional investment. You would have $117,370.83 after 32 years, the same length of time it would take to recoup your savings.

The nuts and bolts of finding the happy medium:

In my opinion, the most important considerations with buying used vehicles are as follows:

--Vehicle reputation BY YEAR

This is important. Subarus have a great overall reputation, but before a particular year had really awful head gasket issues. Look up your vehicle by the exact year, make, and model and look at trustworthy sources citing common issues. These sources will also give you things to look out for at certain mileage points (timing belt for example).

--How well it has been cared for

A mechanic could look at the engine and tell you a lot about that. When I look at a used car, I pay close attention to the interior/exterior condition as well. That usually says something about how the car was cared for by its owner.

--Then I would consider the other common items such as mileage, number of owners, accidents/recalls, etc.

Not all miles are created equal, and I would take a car that had 150,000 miles that was truly cared for, was backed with great service records, and had a good reputation for longevity over a car with 100,000 miles that didn’t have those things.

General tips:

--ALWAYS take it to a 3rd party mechanic first to look over:

We have skipped this before and really regretted it. We have spent anywhere from $20-$80 on this step, and yes, it is a risk if you end up not getting the car, but less of a risk than going in blind and coming away with potentially thousands worth of work that needs to be done.

--If you are on a tight budget, go for the basic models without all the bells and whistles:

Let’s say your budget is 7k. That 7k could go toward a better cared for lower mileage vehicle, or it could go toward having navigation, heated seats, etc. We have had those things in cars before and they are great, but the basic models are going to give you more of the things that really matter.

--I tend to steer toward buying from either private parties or small dealerships:

This last time we bought from a tiny dealership about 3 minutes from our house that prices their vehicles primarily for fast internet sales. No processing fees and very little overhead. However, NH law means that they still have accountability for the vehicle having to pass inspection, or else they have to take care of the issue for you. I also like that his son is the same age as DK and will be going to the same kindergarten, so as he put it, “I want to be able to confidently say hi to you at drop off”. It also saved us from our time/money investment of driving to various places on weekends within a 2-3 hour radius looking at cars.

--Consider the price of parts for maintenance and upkeep:

Let’s say you buy a used Audi for 9k, which was in your price range. But with this model, you have to use premium gas and if the air suspension goes out it's a 10k fix. Buying cars with the bells and whistles also means that you have to be able to afford the upkeep, not to mention higher insurance rates.

About 7 years ago I was REALLY set on having a VW Jetta. I was so surprised that some years and mileage points weren’t out of our price range at about 6k. Both Drew & my father-in-law warned me that working on a VW was harder and more costly than brands like Honda or Toyota, but I was pretty set on it. We bought a 2003 with 104,000 miles on it. Flash forward, thousands of dollars of maintenance costs over the 2 ish years we owned it. Since Drew & my father-in-law do most of the work, they actually had to build machines that could handle performing certain maintenance tasks.

What about about selling?

I think the most compelling reason to trade in a car to the dealer, rather than selling private party, is because there is no lapse in time in between having a vehicle. Especially for working folks, not having a vehicle isn’t an option most of the time. Not to mention the time/stress savings. However, this blog is about money, so let’s face it. You are NEVER going to get from a dealer what you could get private party. Two examples from our life:

2003 VW Jetta - we were offered 1,800 by the dealer, we sold it for 3,500 private party (1,700 difference).

2009 F150 - we were offered 9,000 by the dealer, we sold it for 14,500 private party (5,500 difference).

Was it more time and work? Yep. Did it pay off? Yep.

One car I actually sold for more than I bought it for with more miles and no work done on it other than spark plugs.

What we did

This summer after selling our F150, we purchased a 2011 Subaru Outback. It not only gave us cash in hand (sold the truck for 14,500 and bought the Subaru for 7,700, but it is also saving us around $100/mo in gas). Our insurance went down by around $10/mo, and the parts and maintenance are cheaper. I also feel much better about or impact on the environment. Our needs and our financial trajectory were different when we bought the truck. When things changed, we had to change too.

I don’t see myself ever buying a brand new car, even if/when I have the money to do that. It just really isn’t a good investment. But don’t get me wrong, when I can afford it without making sacrifices and with other necessary considerations, you better believe imma get me a smooothhh ride with some of the bells and whistles (I have a BMW or Audi plan…). That’s the key though - you can’t jump the gun and live a lifestyle that you can’t support otherwise. Do the hard work, and when it pays off it will be that much sweeter in the end.