Long story short, I am in a position where I have to buy a car within the month. I am a student who also works full-time and I have $15,000 in savings. I'm looking to get a small, reliable hatchback that will last me a long time. I was set on buying a used Honda Fit, Toyota Matrix or Yaris. Then my father, who was an quality engineer for Toyota for 20 years, advised me that in this market, it is a better investment to put a big down payment on a new Corolla hatchback, and finance the rest. Building my credit, and giving me a newer car that will last me for years to come. I love the new corolla hatches, but I'm still uncomfortable with the idea of financing, and wanted to hear your thoughts. I know you said to wait until the market goes down, but my new job requires me to drive everyday, and I can't borrow my mom's car forever.
Thanks for your time.
Buy a sedan or compact. Not an SUV.
Yes, I am lookin to get a compact.
New cars are a terrible investment because they depreciate so rapidly. Buyers often end up owing more than the car is worth. There are plenty of other things you can do to build your credit, and which offer better return on investment (real estate, tools for profession, business loans, etc.)
I wouldn't recommend getting a new car, just as Scotty says many times, the value drops too quickly, and if anything happens and you lose the vehicle, insurance providers will not give you enough to cover the car, and you may be stuck paying off the remainder of the debt, as well as not have a vehicle (this just happened recently to someone I know).
You can still build credit buying used, or even through private sale.
Not sure if it's exactly the same as in the US, but here in Canada, I'd just go to the bank or credit union and ask for a line of credit for a car (alternatively, a car loan if I know exactly how much I'd pay for it including taxes etc).
A co-signer like a parent with good credit would help you secure more funding, though this puts risk on them, yet may make you more accountable.
Good luck!
In this market, your father is correct. I would put a big down payment on a new car.
There are a few reasons for this:
1. Unless you plan on paying cash for every single thing in life (cars, house, never needing a loan, etc.), credit is extremely important and useful. My wife is a loan officer for a credit union and many people in their 20's and 30's come in to get a loan, usually a mortgage, thinking they have excellent credit because they've always paid cash. They get instantly denied because they have no proven record of being financially responsible because they have no credit history. So saying "I pay cash for everything" is great....if you are independently wealthy and never have an emergency that your cash can't cover.
2. You said you'll be driving it for work every day. Having a new car that can take the mileage without breaking down every 10k miles would be a money saver. Also, when/if it does break down, you have a warranty to fall back on. And not some smoke and mirrors aftermarket warranty but a manufacturer's warranty.
3. You're going to overpay for a used car right now. No way around it. So if you are going to spend the money, I recommend doing it on a new vehicle instead of donating to some car flipper's retirement fund.
Those are the biggest reasons I would recommend buying new. Everyone gets hung up on "new cars depreciate". With extremely few exceptions, everything depreciates. Period. I, myself, am not willing to drive a junker that I constantly have to work on and live in a cardboard box all my life just so I can die with a ton of cash in the bank that I broke my back for but did nothing with.
So I'll be the guy who says buy new. {black}:wink:
Hyperbole.
"With extremely few exceptions, everything depreciates. "
Cars, yes. But the worst of it happens at the beginning. New cars are overrated, and I'm happy to let the previous sucker eat the depreciation.
You don't have to get a junker. You can get a car that's a couple of years old for much, much less, and still has warranty and low miles and you won't be "constantly" working on it. You're more likely to end up in a cardboard box with those new car payments. 😆 Or having to sell at a loss like people I know.
IMO, I'd still recommend new. Especially in current conditions. You just have to stay within your means. If you are someone who is not financially responsible, having payments will be problematic. But if you buy a car you can afford, with a down payment like that, you could easily finance it 24-36 months at 0% or close to. If you have no plans of selling it, depreciation doesn't matter. Suppose you bought a 10 year old Civic with 150k on it and no issues to repair, which is unlikely but for the sake of argument we will say it needs nothing. You can get, what, another 150k out of it at most before you're starting to sink major money into it for repairs. And that's assuming it was well maintained its whole life. With a new Civic, you could easily get that same 300k miles knowing the history of the car. And if you plan on driving whatever car you buy until the wheels fall off, depreciation becomes a non-issue. Back when I was trading cars frequently, yes, it made more sense to buy used to avoid the depreciation impact and make trading out easier. But right now both of my cars are trading for more than I owe. With my Accord, it is trading for more than I originally paid. So depreciation is totally eliminated. And if it is trading for such a high amount, you know the dealer is going to sell it higher...they have to. So you'd have to pay more than the MSRP of a new one to get it, which makes no sense. Now you become the sucker for overpaying on a used car. Just some food for thought. I know recommending buying a new car here is not popular and goes over like a lead balloon. But in this case, I think it is justified.
If you are planning on buying new and selling in three years, I would not do that, since when this market cools off, you are going to be very far under water on your loan when you go to trade it in in three years. It's hard to imagine any bank is going to roll in tons of negative equity into a new loan on the next car if prices cool three years from now. In that case, I think LEASING new right now makes the most sense, since most of the lease deals are structured around the manufacturers nationally advertised deals, which are more favorable than outright buying of the vehicle. After three years (hopefully when the present market conditions end), you can go back to financing a car or doing whatever you've done in the past. From my perusal locally, I think Toyota and Honda have the most new vehicle inventory on their lots.
"you could easily finance it 24-36 months at 0% or close to."
If I buy one outright, I also have no interest, because I have no debt or payments to make!
" If you have no plans of selling it, depreciation doesn't matter."
Incorrect. If you get in a bad wreck, insurance only pays you market value.
" Suppose you bought a 10 year old Civic with 150k ... You can get, what, another 150k out of it"
Don't buy a 10 year old car if you can help it. Buy one that's a couple of years old with less than 50k miles. You save a ton of money, and it will last you a very, very long time. Great value!
Scotty is still driving his Celica and I don't think he put a ton of money into it.
Forget the last 10 months. Things are really messed up right now.
You can always get GAP insurance on your car, which I do on every vehicle period. It will cover the difference between what insurance pays vs what you owe and is very reasonable. On my Ridgeline, it was like $700 or something negligible like that. Scotty may still be driving his Celica, but not daily and he doesn't drive as much as most of us with longer commutes. Not arguing buying a few years older vehicle can be a good deal. But IMO I like to buy new, have the warranty, and then sell it later on down the road once I get over about 100k - 130k miles or so. Everything depreciates, so it just depends on what your individual preferences are. I used to buy used all the time, but in this market used cars are selling so high....may as well buy new. And when the market cools (IF), the used car prices would theoretically fall as well. Now you're upside down on an older vehicle and stuck. Unless you pay cash. And there are many reasons not to do that, but that's a topic that takes far too long to type out here.
Well he's right if you want to build credit but me and never give a crap about credit I always use cash. You can never beat finding a good deal on a used car if you can find someone who joined the army and they're selling their car or old people can't drive anymore there's always reasons if you look hard cuz let's face it you buy a new car you getting ripped off it's worth about half what you paid for it the minute you drive it off a lot
Money is cheap, the cost of a loan is minimal. You are better off investing the cash than putting a huge chunk down on a car to avoid a 2% finance rate.
As to new or used, it depends. If you compare a late model used corolla to a new carolla and the difference in price is only like 3K due to the crazy market, I would lean towards new.
There are a lot of compacts that are not much more than 15K. I bought 2 new cars in my life time and there is nothing like a new car. But I bought new for the first time when I was 35 and had a decent income. Since then I have bought several low mileage used cars. I finally went for a new car recently but now I am sixty and paid cash. Did not buy the extra junk like wheel , keyfob and extended warranty. The dealer was pissed. They hate cash and they hate not selling those extras. I figured I don't need to be friends with the dealer. If fact I don't mind offending them. In the end when you wave the check they get hypnotized. I walked into the dealer after a week and presented a check for $5k less that what they wanted. I walked out with the keys. And guess what they were my best buddies after that. Enough of that. Scotti's right. Your to young for a new car. look around for a used compact with low mileage. You can always keep your savings and go to a bank and take out a loan even on a used car. Your a student. I figure you need to wrap at least two cars around trees before your ready for a new car.
