I bought a brand new car a few months ago. I’ve talked about it a little, but I haven’t written out the full story. The topic of buying new vs used cars has come up a lot lately on internet forums, so I figured typing it out would help because a) I can provide more details and b) I can stop rewriting my answer every time it comes up! I’ll also talk a bit about why I ended up choosing a Honda Fit…you’ll see a post soon that explains that choice much more thoroughly.
Saving Up Cash To Buy A New Car
I’ve been saving for a car for 11 years. I bought my previous car in early 2005, less than a year into my career. For the non-military folks, this is called a “Lieutenant Mobile” because it’s a standard joke that new officers always buy a shiny new car when they commission. Enlisted members have a similar response to that military paycheck.
I paid that car off pretty quickly, back in my Dave Ramsey phase. As soon as I paid it off, I started putting away a small sum each month to save up for my next car. I knew I didn’t want a car loan ever again. Don’t @ me about how I should finance a car if the rate is low. This decision wasn’t based on math.
What I didn’t know at the time was how long I’d keep my Honda Civic. I planned to keep it for “a long time” but in my family that meant more than 3 years. The reality ended up being that I kept that car for 12 years. It was a great car.
After several years of monthly savings, I had more than enough for my next (used) car, so I stopped the monthly savings. That money remained waiting in the wings for years, slowly growing; first from savings account interest and then from investment earnings.
Oh yeah…when I realized I wasn’t in any hurry to buy a new car, I put the money into a taxable investment account. I figured the higher earnings would end up being worth more than any tax hit I might incur.
I sold my car in early 2017 because I didn’t need it, and remained car free for over a year. My plan was to be car free for over 2 years. But then I received orders out of the DC area a year earlier than expected, so I needed a car again. That brings us to spring 2018.
I Planned on Buying a Used Car
I “knew for a fact” I was going to buy a used car. It’s the smart choice, right? That’s what all the books and articles say, and I agreed. I’m not much of a car person, so I don’t care about getting all the newest styling and the radio knob that’s ever-so-slightly more ergonomic.
In April 2018, I started shopping. I needed a hatchback for specific reasons that you’ll understand once I publish my followup post. I could get a crappy 10 year old hatchback with 150,000+ miles for $5000-$7000, but that didn’t sound great and they weren’t in very good condition. Note that I’m planning to keep this car for at least 10 years. I need something in good condition.
I found a few hatchbacks in the 2-5 year old range for $10,000-$13,000, but they didn’t meet my needs. Mostly the interior dimensions were the problem, but for some of them it was other things like pervasive smell of smoke. Some had surprisingly low gas mileage for what is a relatively small vehicle. I found one car that seemed great – 2 years old, drove well, comfortable, and a decent price. Then the dealer pointed out that this 2-year-old car had 88,000 miles on it. And it was over $18,000. No thanks.
I started focusing my search a little more, using car company websites to determine the basics and resources like Consumer Reports for comparisons. Here’s what I was looking for:
- a hatchback or crossover SUV
- at least 35 mpg gas mileage (this was going to be my daily driver, remember!)
- preferably less than 5 years old (exception: I would’ve loved a Honda Element, which was discontinued in 2011)
- easy to drive
- reliable
- up-to-date safety features
- less than $20,000, hopefully far less
Based on my research I narrowed it down to about 10 different models. Then I narrowed the list further to a Honda Fit, Kia Soul, Volkswagen Golf hatchback, and a few crossovers. I really like the Honda CRV, for instance.
But when I started test driving I decided the crossovers were too big for my needs so I was down to the Fit, Soul, and Golf. I still looked at a few others but nothing impressed me. And the Soul seemed great, but when I measured the interior it was quickly discarded as an option because it simply wouldn’t fit what I had planned. So…Fit and Golf it is.
I found several promising leads.
The problem was, I was doing research and everything said I should be able to buy these cars for significantly cheaper than those prices. But the prices on the stickers didn’t match the prices people reported they were paying. Yes, I know that negotiating changes that. But these were much, much higher prices than I expected to see.
Should I Buy A New Car?
Then my buddy told me to go check out the brand new Fits because of the incentive pricing on them. Honda was about to bring their 2019 Fits onto the lot, so they were offering deals. The sticker price (before any negotiating!) on the Fit trim level I was looking at was ~$18,600. That’s not bad.
I went to a Honda dealership and found that they had a bunch of 2018s and a couple of 2017s left that had never been purchased. And the 2019s were arriving soon. In the end, I ended up purchasing my car 4 days after the first 2019 showed up on the lot. Thank goodness I needed a car at the perfect time!
After negotiating a bit, I worked out that I could get the leftover new 2017 in the trim level I wanted for $17,000. It had about 200 miles. Or I could get the 2018, same trim level but with all the 2018 additions and 18 miles on it, for $17,981.
Here is a comparison between the 2017 and 2018 models in the EX trim level.
The safety equipment in the 2018 was a big draw. And having now used the car on two road trips, including a cross-country trip, I can tell you I really like those features. The Apple Car Play is great, too, because I get the apps I already use on my phone “for free” – GoogleMaps (no need for a navigation system), Amazon Music, podcasts, etc. And I have built in speakerphone capability. It even reads my texts to me and allows me to respond via voice prompts.
This may not be new tech to some of you but I was pretty impressed! Remember I’d been driving a 2005 car before this. The automotive world has progressed a lot since I last bought a car. Erin at Reaching for FI and Angela at Tread Lightly, Retire Early can tell you how excited I was about the voice texting feature. I texted them constantly as I drove long hours on my cross-country road trip. But I did it safely!
Making the Decision
So the Honda Fit advertised options varied from:
- 2015/30K miles/$16,100
- 2016/15K miles/$16,500
- 2017/10K miles/$17,800
- New model year (2019) – I didn’t really consider this
And once I started negotiating, I got two hard offers:
- 2017 (but never owned)/200 miles/$17,000
- 2018/18 miles/$17,981 with thousands of dollars of safety equipment & entertainment added in
The leading contenders were the 2016 and the two that I had hard offers on. In my mind, it was a no brainer to pay $1,481 more for the 2018 vs the 2016. It was 2 years newer, 15,000 miles newer, never owned, and had more safety features. That’s $500 per 5,000 miles, plus newer tech “for free.” I probably could’ve gotten the 2016 price down to about $16,000, but that’s still only ~$2000 cheaper for a 2 year older car. When I go to sell the car in 10+ years, I’ll make that $2000 back no problem.
The 2017 vs 2018 decision took a little more thought, because I would save nearly $1000 by taking the slightly older but never owned 2017. I went back to the dealership and checked out both cars, including another test drive. In the end, though, I decided the added safety features and entertainment package was worth paying a little more. Plus, I figured having a slightly newer car will benefit me in a 10+ years when I go to sell it. That year probably has several hundred dollars attached to its label.
So I Bought A Brand New Car
I don’t regret it for a moment.
My car is comfortable, easy to drive, has great gas mileage (I’m averaging 38.6 mpg right now), and perfectly fit what I needed it to fit. The safety features are intuitive and have come in handy a couple of times. And I’m a big fan of Apple Car Play.
Yes, I could have found a good older Fit for less. Yes, I could have chosen a different make and model. But instead I went with buying the exact car I wanted, with features I didn’t expect to get, under my budget, and I don’t have to worry about anything a previous owner did with it. And considering I plan to keep this car for over a decade, I’m pretty happy with my decision.
By the way, I did end up financing the car – because they gave me $500 if I did. I both asked about paying it off early and confirmed there was no penalty by actually reading the contract. I paid the car off in full this past week. My total interest paid was less than $40. So I did make the “get a loan”/”pay in cash” decision based on math. But I made the “keep a loan”/”pay it off” decision based on my feelings about consumer debt. I’m pretty happy about that decision, too.
Those are awesome cars, affordable, economical, and despite how they look they’re spacious. My friend Ann puts two full rd bikes in the hatchback , no bike rack needed. That thing should last a very long time!
I hope so! I’m pretty happy with it and think I will enjoy this car for a long time.
Fit owners are smart 😉
I did almost the exact same thing last year but bought the 2017 Golf. I got an upgraded never driven car for $18.5k and the other option was the basic 2017 model with 30k miles for $17.5k. Wasn’t planning on buying a new car but it was the best option for me. Also got the $500 “recent grad” discount since I finished my masters about 22 months prior to buying.
Whoa, who would choose the used car under those circumstances??
I did the same thing yesterday. But I’m finding the driver’s seat excruciatingly uncomfortable.
Are you having that issue too?
Nope, it works for me. But I test drove it three times before buying so I knew it worked for me. What about it bothers you? I’ve driven some cars that were absolutely terrible IMO but my friends like them, so I know it’s different for everybody.
we bought our mazda 6’s new. we got one in 2006 and still own it. it’s been problem free except for standard replacement stuff like tires and brake pads. the other one is a 2014 that i financed at 0.9%. i saved up the money to pay it off in the 1st year or so and invested that $ in after tax brokerage too. great minds, eh? i don’t think i ever paid more than 8 or 9 bucks in interest in a given month. when we needed some extra cash flow in the house with changing incomes i paid off the last 3-4k. i should have gotten the mazda 3 hatchback though. happy motoring. 38mpg is astounding.
Great minds!!
You aren’t the first person I’ve heard from who has gone through the process to figure out that a brand new car ends up being the best option. My ‘08 has only 90k miles on it, so I will hopefully not have to go through the car buying process for a looooooong time yet, but I’m definitely more open to brand new now that I ever was in the past.
Oh, and now if the voice to text could realize you aren’t texting Aaron, that would be great.
It’s annoying enough that it assumes the male in general, but especially annoying when I’m already in a text message to Erin. Figure it out, magical texting algorithm!
Sounds like a wise decision.
Yeah, my boss negotiated the price on a new car and when he told them he was paying cash the finance department said the price would go up. Cash is not always king, eh? 😉
So he financed it, got the lower price and paid it off the next month.
They are betting that we won’t really go through with paying it off. Hey, if they want to take that bet I’ll let them!
I’m not sure if you’re a Costco member, but the last time I bought a car I got a $900 discount on top of the price we negotiated. I didn’t bring up the fact that Costco referred me to them until the very end. It was a used car, but already $2,000 less than all of the KBB/Edmunds quotes and similar vehicles in the metro area – so it turned out to be an even sweeter deal.
I was a Costco customer at the time, and I looked into it, but it wasn’t going to save me any money on this particular car.
You mean Aaron at Reaching for FI? 😉 Texting safely is awesome, plus we’ve gotten some laughs out of the mistakes the voice-to-text makes haha.
Too bad your stalking of your neighbor’s Element didn’t work out, but you definitely made the right choice!
Hahahaha I did love that Element, though!
Four years ago I bought a brand new VW Golf for cash.
My reasoning was that, not being a car person, I’ll have YEARS of trouble-free driving before it starts getting niggling problems. I plan on keeping it for at least 10 years. The safety features were a drawcard, too.
Four years on, I still love my car.
I really liked the Golf. If it had been just a bit cheaper, I might’ve gone with it.
We’ve been buying used for several years but this last round felt impossible! It took us 6 months to find the used car we needed for anything close to a reasonable price (we were looking for something $10K and under) for the miles it had and we were starting to consider new. But new was $30K and up so that was out too. We’re still driving the 2004 era cars so when it comes time to replace again, may that be several more years away, it’s going to feel like we’re shopping for spaceships! As it is, rental cars are really confusing with all the bells and whistles 🙂
Glad you’re enjoying the new car safely!
Yeah, the new car definitely has some spaceship aspects. I’m jealous if you think rental cars have bells and whistles though – you must get good ones. The rental cars I get on work trips are very, very basic. Two trips ago it didn’t even have remote keys – I had to actually stick the key in the door to lock and unlock! Pretty strange to find that on cars that are less than 2 years old.
Thank you for this brief glimpse into what a new used car will be like for me when I purchase a 2018 model year vehicles in another 5-7 years 🙂 I was amazing when I went from 2000 to 2009 (sold the civic, bought the 2009 Toyota minivan). I’m sure I’ll be amazed again.
In our case, we paid $8000 for a 100k mile, 7 year old minivan vs $30k new. But we weren’t in a hurry to buy the car so we sat and waited quite a bit till the right one came along. Lots of dealers and private parties were asking $10-12k for the same car or older, crappier options.
You are going to love the tech & entertainment system!
Hello there!
Like you, I made a promise to myself not to ever have another car note again. I have driven my 2003 Ford Explorer for the last 15 years. It has 200k miles and I have not had a car not in almost a decade. I put that money to work for me in investments. Good job!!! Get that money. $500 is pretty sweet.
Warmest regards,
Miriam
Thanks Miriam!
I have a mixed feedback about your issue. If you buy a pretty old car then it has a lower maintenance cost. But if you buy a very old car then maintenance cost will be higher. So it’s great to have a new car instead of buying an old one.
Woww.. This is amazing. I must say very very informative article and surely helpful for many individuals like me who are looking to buy a new car.
Good for you Mil Dollar! There is nothing wrong with buying a brand new car. It is a personal decision and one that fits within your savings, budget, and needs. Can’t argue with anything there!
Where did you end up being stationed after DC? DC can certainly be a fun place, I’ve been to Fort Myer but wasn’t stationed there myself.
I’m now in the western US at a small duty location.
Congrats on your new car!! What was the actual out the door price, with tax, title, tag, and dealer fees? This extra ~$2,000 is what I have the hardest time with.
I’m stuck right now! Right before finding Dave Ramsey then FI at the beginning of 2018, I bought a used 2017 Chevy Equinox LT with 23k miles for ~$18,900K or $21K (total, including all tax, title, tag and dealer fees) The car is paid for now, like you, I paid less than $100 in interest. This small SUV only gets between 26-29mpg.
I thought I would just sell it, and find that 8-10 yr old Toyota or Honda {like everyone in the FI groups say I should drive}
However, I would lose that $2K that I paid on those fees. Not sure I could even get what I paid for the car now…….then I would be paying those fees again or buying from a private seller with high mileage and no warranty. So, I guess I am stuck with this car, unless you have any advice for me. Lol!!
Thank you,
Sharon 🙂
Thanks Sharon!
The $17,981 was the out the door price. When I was negotiating with the dealer I told them I didn’t care about the monthly payments or the sale price – I only wanted to talk in out the door prices.
Have you looked into how much you could sell the Equinox for if you sold it private party? I’m seeing some in my surrounding states selling for $19k with ~40k miles. If you could get $19k for it, then you wouldn’t be “losing” the $2k, it just would be the amount you paid to use it for 2018. This might be worth looking into!
Great story! I purchased a new ’18 Avalon hybrid last year, 50 miles on the odometer. The ’19 models (a redesign!) were coming around and so the ’18 models had to go. For a long time I was looking for a CPO car of, say 2 or 3 years old, and I wanted a hybrid, because I wanted something different. With the gas prices they are, it wouldn’t make much sense financially , but as I said, I just wanted to try something different. The car gives me freaking 700 miles on a tank. I paid almost 32K for a car that had a MSRP of 40K, so yes, 8 grant off and with that discount, it didn’t make a lot of sense to go for a CPO. I went for new and although sometimes I wonder “what did I do to go for a 32K car?”, I do enjoy the newness of this car. I keep it meticulously clean, no food, no drinks, no smoke, no junk in de car. I bought the car with an empty cabin and that is how it is now. There is ZERO clutter. The leather helps in maintaining a pleasant smell in the car. I clean it inside/outside biweekly (which I enjoy) and there is absolutely NO spec or stain ANYWHERE. I use the leather moisturizer for the seats and it helps. When I have a passenger in my car, even just recently, he said: “you just got this car?” I enjoy driving this car, and although I don’t intend to drive this car for 12 years or so like you did, I am not planning to be tired of it yet…