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Save Money on Cars

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[This is one of the many posts I have on saving money. There are more tips on how to do everything on cars here.]

This Monday, I'm focusing on covering some ways to save money on cars - or just about any vehicle. Since a car is many people's most expensive depreciating purchase, saving money in just this area can make a huge difference in your bottom line.

  • Stay with the car you have - With a few exceptions, the cheapest car is the car you already own. When you buy a new car and sell your old one, you typically end up paying a little extra either to a dealer or in advertising your previous car.
    • Some Exceptions:
    • If you have a long commute with a car with very inefficient fuel mileage, you can save money on gas.
    • If you own a really, really expensive car and can't make the payments, trading down to something used and/or cheaper can make a big difference.
  • Buy used - Cars can lose 50% of their value after three years. If you buy a $30,000 car, that means that you'll spend around $15,000 in the first three years - or about $5,000/yr on the car itself. However, if you bought the same car after those three years were over, you could probably get another 8-10 years for $15,000. This translates to around $1,500-$1,875 a year. If you get 11-13 years out of a $30,000 car you are paying between $2300-$2725 a year. That's a savings of around $800 a year. It might not sound like much, but if you put just that $800 you saved in the first year in an investment that earns 4% over inflation, you'll have $3840 in 40 years. Now imagine what happens if you do that every year? It's a good size nest egg, from just a minimal change.
  • Consider resale value - If you take the previous advice to buy a car used you want one with a low resale value. These cars will have lost much of their value and you should be able to find a bargain on them. Cars.com has a list of cars with the best and worst resale value. According to that data, the Kia Rio retains just 30% of it's value. This means that you could pick up a 3-year old Rio (MSRP: $13,495) for just $4050. If you drive that for 8 years, you'll pay around $500 a year on the car itself.

    If you must have something new, consider cars with a high resale value. For the same Cars.com data, a Mini Cooper retains 68% of it's value. If you bought a new Mini Cooper (MSRP: $18050) and had to sell it after three years, you could still get more than $12,000 for it. You'd have paid about $5775 for three years of driving - or $1925 a year. It's not as cheap as the Kia Rio, but for the ownership of a new car it's not bad.

    You might not want to confuse these because if you buy a car with a poor resale value new, you could end up paying thousands per year.

  • Consider fuel efficiency - This can be a significant factor if you drive a lot and/or you think gas prices will be high. At 10,000 miles a year, 20mpg, you'll buy 500 gallons of gas. If you buy a car that gets 25mpg you'll buy 400 gallons - a savings of about $300 a year if gas is $3/gallon. With the rising gas prices, this is becoming more and more significant. I won't go into the environmental and political side of driving a highly fuel efficient car simply because it doesn't apply to this topic or blog. However, it is another thing to consider.
  • Consider gas credit cards - As long as you pay it off each month get a gas credit card. I save 5% off gas with my Chase card. I couldn't find the same promotion currently running, but I found one that will get you 6% for the first 90 days and 3% after that. That would be the Chase PerfectCard. At $3 a gallon, that can add up to more than $1 a fill-up.
  • Consider maintenance costs - This is where research from Consumer Reports and Edmunds.com can really come in handy. Edmunds.com factors this into the price of the car directly. Consumer Reports gives extra information about how well-built a car is giving you an idea of what the maintenance costs could be.

For some, driving is a luxury and worth every penny of the vehicle they decide on. When I was younger, I would classify myself in this group. However, I have done a lot of changing with the way I view money. For my next car, it will be really tempting to purchase that used Kia Rio. I'll have to look into the maintenance costs before I make the plunge. At $500 a year, my cost for that car would be less than $50 a month, where many people pay $300 or more. I'll be able to put $250 a month more than many people towards appreciating investments. Over a long time, with compounding interest, I might be able to retire years early just due to this decision.

Last updated on January 20, 2013.

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19 Responses to “Save Money on Cars”

  1. David says:

    That thing about the Mini Cooper is so true. Ours is 1.5 years old and we bought it $24,000 in 2006 and it is still worth $21,485 according to KBB.

  2. Brian says:

    I love my 06′ VW Jetta TDI (diesel). Sporty looking (not ugly like the Prius) and 40MPG. Even with 20,000 miles on it, I could sell it for what I paid for it.

  3. Baz L says:

    I can attest to the Chase card. It’s great! I “made” about $300 the first three months. Now, although the APR is a bit high, it’s my primary card because of the 3% on gas and 1% on all other purchases.

  4. Joseph Sangl says:

    I would add “Pay cash for your next vehicle”. You can get a GREAT deal just by offering cash – especially in a private party sale when someone has inherited grandma’s car and wants some money right now!

  5. Lazy Man says:

    I thought about the pay cash idea, but I’ve seen some good rates for those willing to take financing.

  6. Toby says:

    Make sure you cross-reference cars with poor resale value with the repair records reported at Consumer reports. I would bet that the cars with poor resale value are also those with lousy reliability ratings. Your new “cheap” car may end up being a money pit.

  7. Lazy Man says:

    I’m not overly worried about the money pit Toby. I’m not advocating getting really old cars. The resale value that I’m using is just after three years. Even low-end, “cheap” cars should last another 5 years with no significant repair. In the Kia Rio example, that’s $1000/mo. or less by year 8 – and more savings if you drive longer. If you bought a new cheap car at $13,000, you’ll need to drive 13 years to get to that $1000/mo. point.

    It’s worth the cross referencing to Consumer reports as Toby mentioned. It’s worth taking many of these factors into account. It doesn’t help to pick up a used Hummer at a bargain price, if you need to drive it a ton (losing all your money in gas). I keep coming back to the used Kia Rio as it seems to be the cheapest all around average car.

  8. Deals says:

    I have got to get myself a Mini Cooper. Those cars are so cool, and the resale value thing just makes the cake……gotta getta mini……..gotta getta mini……….gotta getta mini….

    Guess I won’t look for much savings in a used car in this case.

  9. Jongasm says:

    Please do not buy a Kia Rio.
    Please buy a Honda or Toyota instead. :)
    The Kia is cheap because it is low quality. Low reliability.
    I like typing in lines like this. I’m not sure why.
    But yeah, read the reliability reports. Kia is hit or miss.
    Good luck either way.

  10. Lazy Man says:

    I won’t be buying a Toyota, I’ve written that before.

    The Kia just popped in my head without doing any research (I hopefully have years on my current car). Honda’s are interesting, but I think they retain their resale value too well, there’s not going to be much of a deal on a used one. Hyundia’s could be an option as well.

  11. Jongasm says:

    According to my research…

    The most reliable brands are: Honda, Toyota, Lexus, Acura, Scion, Subaru, Mazda, and Buick.

    The least reliable brands are: Chevrolet, Kia, VW, and older Hyundai models (newer models have gotten better).

    Any brand not listed falls somewhere in the middle.

  12. rstlne says:

    I’ve only had two cars so far, but I always buy new and use it until it turns to dust. Of course, I’ll admit that part about buying new is somewhat of an extravagance, but I can be frugal in other ways.

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