The 3rd Decade Podcast

Buying A Car (Pros & Cons of New vs. Used)

March 08, 2023 3rd Decade Episode 47
The 3rd Decade Podcast
Buying A Car (Pros & Cons of New vs. Used)
Show Notes Transcript

Join Nikita & Nina as they discuss the many factors to consider when determining what car to buy (and whether to seek a new or used car). 

When making a purchase, it's essential to weigh the pros and cons of both options to ensure that you make the right decision for your needs and budget. We'll give you some guidelines to determine what you can afford, as well as some thoughts on how your values, needs, and priorities might influence the decision. 

We'll explore the benefits of buying new, including the warranty and the peace of mind that often comes with a new purchase. We'll also consider the advantages of buying used, such as lower prices and the potential for finding a car that can be worked on outside of a dealership.

Ultimately, the decision to buy new or used comes down to personal preference and individual circumstances. Join us as we explore the factors to consider when making this decision, and how to ensure you make the best choice for your needs and budget.

Nikita:

Hey, third decade community. I'm your host, Nikita Wolff, and today I'm joined by Nina, our AmeriCorps Vista to discuss the benefits and drawbacks of buying a car, be it new or used, and just provide some knowledge in order to help you make an informed decision when that time comes for you next. So buying a car can be a major decision, and unlike buying a house and investing in the stock market or getting married a car is one of the first financial undertakings that we take as we move into adulthood. A lot of us even purchase a car when we're teenagers. So making the right choice really can make a significant impact on your finances as you enter adulthood. And if you're already in adulthood, continuing to make wise decisions for the cars that you purchase can make a big difference in how easy your retirement planning is. So Nina and I have had a lot of great discussion off the podcast about this topic, and one of the things we talked about was how cars really can represent different things for different people. Nina, I would love if you would share your perspective on that.

Nina:

So I think on a basic level, for a lot of people, cars just represent freedom. So it's how we feel independent, it's how we feel that we can get from place to place. And for some people they're a status symbol. And so when you're buying a car, and we're talking through this today, it's important to know what having a car means for you when making a decision that aligns with your value. So in some areas that you know might be more rural, a car really isn't a luxury, it's a necessity. So you may be living in a community where public transportation may be limited or even in some cases completely unavailable. So a car that's safe and reliable isn't a luxury, but it's something that you need to get to work to school, to the doctor, and to enjoy really good quality of life. So given how important a car is to your life, how do you select one? And today we hope to not argue, but come to a really good discussion and consensus on how to select the right car that fits your budget and your life.

Nikita:

So I think it's important to note that, you know, third decade takes an analytical approach when we're talking about car buying. So it's important that we evaluate the opportunity costs associated with buying new versus used. We'll be talking about that plenty today, but both of us recording today, as uh, Nina has already alluded to do hold different opinions and you might find that one resonates more with you than the other. But we're gonna outline important considerations as you make the choice that's right for you. So to start us off, I wanted to discuss pricing before you start shopping around, it's important to determine what you can afford. And again, we are a big proponent for making sure that your retirement is fully funded before deciding how much discretionary money that you have to play with. Our general recommendation is at least 15% of your gross income being invested into long-term retirement accounts. We encourage the same prioritization for people considering buying a home as well because we know how hard it is to work backwards after you take on debt and then you try to scrounge up the money that you need to contribute to retirement. So instead, if you make retirement contributions automatic and one of the cemented pieces of your budget each month, then you can really do what you'd like with the remainder of your money and know that you won't be suffering in your retirement because of it. So with that being said, if you're already investing 15% or more of your income, it's recommended to look at your total debt to income ratio and ensure that it is less than or equal to 36% of your gross pay. Your total debt to income ratio would include your debt payments to student loans, auto loans, credit cards, mortgage or rent if you don't have a mortgage and any other financing that you have. So let's say that you make$45,000 a year. If you're already investing 15% of your gross income and you can fit rent in all of your other debt payments and potential near future debt payments comfortably within that 36% guideline, that would be$1,350. You could then determine what's a sustainable allocation of that on a car per month.

Nina:

Wow, that is a mouthful.

Nikita:

Yeah, I think it's, it's an important thing to consider because a lot of us start immediately thinking of like, oh, what's my dream car? And it's like your dream car. Yes, my dream car is a$60,000 car, but the car that I know is not gonna be interfering with my wellbeing, my financial wellbeing, my dream car might look different. Like there's different tiers to dream cars, there's the realistic dream car and then there's the like money's no object dream car. So I think that's kind of why I start off on the mathematical approach,

Nina:

Which is really good because we talked about this just briefly before hopping on today. And if you look online you'll find a lot of different sort of calculators of how much a car should cost you every month. So there are lots of different like websites and places that you can look that kind of give you an idea of how much you should look to spend on a car each month. So what Nikita really started with was the fact driven way of making sure that you are planning for your retirement living comfortably and then having that discretionary money to look at a vehicle. So when we're talking about a car, Nikita, what do you think the average used payment was in 2022?

Nikita:

Prior to doing my research for this episode, I would've expected it, it was like$300 a month. Um, it was a little jarred when I found out the actual number, so I'll let you launch into that Nina<laugh>.

Nina:

So the actual number is$525 a month for a used car. Now obviously I think we all have to kind of think about Covid because I think most of us knew that Covid really impacted the used car market and even the new car market. So 5 25 a month for used car in 2022 for a new vehicle that was$700 a month. So you can see how these payments wouldn't shake out for someone who's low or middle income. So if we go back to that example of making$45,000 a year, you want to find a car that really fits comfortable within your price point and that would be about$250 a month. So if you find a loan that's five years, you'd be able to afford a car that cost right about$13,000. If you instead wanted a three year loan, you'd be looking for a car that was only 8,500. And both of these assume an interest rate of 4.5%, which is the standard right now.

Nikita:

So if you look at these numbers, you can see how a normal car payment would feel pretty tight for someone in that income range unless they're frugal in a lot of other ways in potentially sharing housing or living expenses. Um, it's a little more feasible if you're making a bit more money. Uh, this number might look different for you depending on your income like I just said. But the total debt to income ratio of less than 36% of your gross income, it's an important guideline to keep in mind when figuring out what you can safely afford. We generally recommend aiming for lower than that if at all possible because 36% can feel a bit overextending. But that is technically the industry guideline.

Nina:

So one of the benefits of new, and I'm not saying which side I'm on, but one of the benefits of new is you typically get a better interest rate at either the dealership or bank. So in many cases that use see on a day-to-day basis, people are usually trying to get you into something that's more expensive and sweetened that pot to get you into something like that. And car buying really isn't that different. So a lot of car dealerships and banks want to get you into a new vehicle because it's usually more expensive and you're going to have a longer loan term. So you do get a better interest rate for a new vehicle, but you can get a better bang for your buck if you buy from a private party rather than a dealership where there's a lot of overhead and commissions being made. It's also a good idea to check not just with your bank but credit unions that typically have better reads for pre-owned vehicles than larger banks do. And there are usually a lot of stipulations that you need to think about when you're financing. So for some banks, your credit unions, you have to have a certain number of miles. Um, when Nik and I have talked about this a lot and it's usually about 150,000 miles and also important is you need to have a clean title. So we're going to provide you just with some tips to help support you in the process of finding a card that fits your budget and also negotiating good terms on a loan if that's the route you plan to take rather than cash.

Nikita:

Yeah, exactly. It's interesting to me, I think that um, that 0% or 2% APR that is advertised on new cars can really be enticing for some people. It's important to remember though, there are financial analysts who set these prices and you know, the depreciation on new vehicles is built into that 0%. So we don't want you to just look at it as, oh great, I'm saving money cuz I'm not paying interest. That money is, is being uh, paid out of your pocket elsewhere. So it's just smart to evaluate the whole picture whenever you're looking at these numbers. So as in all financial decisions, having your financial house in order makes a big impact. When car shopping, as you know, the better the credit you have, better the chance that you're gonna get approved and that you'll get a favorable interest rate. So as you begin shopping you can start with a credit check and make sure that you're in a good position. If you're not, maybe you take a few months to try to get that credit score up. Some banks will offer you a blanket pre-approval letter. Um, you can always check with the local ones in your area, but essentially based on your banking relationships and related factors, they are prepared to loan you a certain amount. With a prefixed interest rate, this is great if you have a general idea of your price point. Um, some banks will only finance a specific car, so you'd have to have the sale price and the VIN number already determined before the bank would give you an approval, which is not always realistic. Might make it harder to avoid a dealership in this instance, uh, rather than buying private party. And third, if you go with a dealer, they generally have lending options though they also tend to be higher interest, they might be more generous in their lending offers, but again, that could work against you if they approve you for a loan that overextends your finances. So as an aside, if you've purchased a car under less than ideal circumstances, you might be able to refinance later as your credit improves. But we tell you to proceed with caution because we'd hate for you to go into a dealership sign papers for unfavorable rates with the plan to refinance down the road cuz there's really no predicting the future of what interest rates are gonna look like or what could happen to you financially. So option A is choosing a a good financing agreement in the first place.

Nina:

No, it's nice to go in strong and have your plan in place first. Like many things other than going in knowing you're not getting the best deal and then just hoping for something better in the future. And one of the things that we've talked about a lot is the difference between new or pre-owned. And what's really always kind of struggling to think about is that when you are purchasing a car, a lot of things are already built into that car. So when we were doing the research for this, I was really surprised to learn that a car loses 20% of its value in the first year of its life. So whatever new car you end up buying, you can just kind of factor in that you lose 20% of it year one and within five years that same car loses 40% of its value. Meaning that if you buy a new car off the lot, essentially within five years you've cut that value in half. So if you're looking to be strategic one of their decade seven core principles, this is something you really wanna pay attention to. If you choose to finance a car somewhere around the two to five year mark, the biggest hit of depreciation has already taken place. You might even be at this sweet spot where it's just coming out of warranty has had immaculate maintenance records. If you're going to buy a car that's older than 10 years, we always recommend paying for it outright. So the thing about financing a car is that it's really a triple threat. You're going to be one paying for interest on a depreciating value and then you're going to have ongoing maintenance costs. This is why we're pretty reserved in our recommendations for financing. If you're able to pay cash, that would be our first recommendation. But you don't want this to come at the expense of your emergency fund or other important cash reserves. So a lot of us don't have 13,000 or$15,000 just kind of hanging around in a bank able to make that purchase. And I think most of us know that when it's time to replace the vehicle, it always seems to come at the worst time. Yep. It's never when you somehow save$20,000 and you're thinking, what am I gonna do with this extra money? Oh, I think it's time to replace the car. I feel like it's usually after you've paid off a medical bill or something is happening in your life and then you get that report from your mechanic that it's like, well you need a new engine.

Nikita:

Yep. So I think another thing to consider too, and marketing plays on this so much, but thinking about your lifestyle when you consider picking your next car. So car companies like most other businesses spend millions each year in advertising to help get their product in your hands. But realistically it's important to think about what you need, what you're gonna utilize. I'm gonna pick on trucks for just a second cuz I feel like I see so many trucks, especially like the new ones.

Nina:

Why do you the trucks, what do the trucks do to you?

Nikita:

I have a truck, my husband and I own a truck. What I'm picking on is when people buy like a$70,000 truck cuz they are so expensive new, but you look at them and they are like immaculate, shiny, you know that they never use them. Like they aren't truly being used for their purpose. So that's a little bit of my bias coming out there, but I think it it relates to this talking point here because if you are somebody who is never gonna haul lumber, what, what is the motivation for the truck? Or if you're never gonna haul anything in it, like what is the motivation for it kind of, I think it's just important to consider that the car you're getting is something that is fulfilling at least some amount of a utilitarian purpose. So all of that is to say just think about what you need. You know, are you a single adult with no children? Maybe a minivans not gonna be up your alley. Are you a single adult who lances as a photographer and is constantly carrying around huge cases of equipment? Maybe something mid-sized or a minivan would make sense. Um, you know, if you live somewhere mountainous or snowy, perhaps a truck is appropriate or an all-wheel drive vehicle. Um, do you live in a city where a small car is key to be able to manage parking? Maybe that's the avenue that you go instead. So it's just good to take a look at your lifestyle and think about what works for you.

Nina:

Marketing is so scary because I remember years ago for a very brief time I had a Jeep and I desperately wanted this jeep because I thought, well I love to hike and I love to be outdoors and I like to pretend that I'm a rugged individualist, which I'm not, but I like to pretend. And so all of that just was so focused on those Jeep commercials. Yeah. You know, you had the people that would would drive up the mountain and that they lay out the blanket on top of this beautiful field and had this picnic and I thought, well I love to do those things so clearly I need a jeep. A jeep is the way to go. And when you actually start factoring the cost of that vehicle with the taxes and tags and maintenance and everything that goes along with it, you really need to think about the marketing that goes into your decision to purchase a vehicle. And it is amazing how strong it becomes in your psyche that if I know you feel like you are this person, you should be driving this car.

Nikita:

I feel like Subaru is the best of the game in, in terms of their marketing. They are so good at like appealing to dog parents and you know, people with young children or people who wanna be outdoorsy, like they have like put a grip even on my brain and I don't even own a Subaru, but I'm like, Subarus are great someday when I have a lot of money, I want a Subaru

Nina:

<laugh>. Yeah, no, I mean really it's, it's scary if you, if you think about it, how, how great their marketing teams are. If you care about the environment and puppies and don't you wanna do good, you're going to get a Subaru. Right? And if you love hiking, why wouldn't you get a Jeep? And if you wanna spend$90,000 on a truck that doesn't get dirty, you need that really expensive truck. In fact, there was that commercial not too long ago with the guy who had that beautiful truck and the interior was perfect and he was really offended when his wife wanted to come into the truck cab. She had gone mountain biking and he didn't wanna get his truck dirty. And so yeah, when you're thinking about it, it is, um, marketing does play a huge impact and just like all of our financial decisions when we talk about shoes or clothes or houses or anything, part of the things that we purchase, we think of as a reflection of ourselves. So finding a way to sort of disassociate the marketing piece and the practicality piece are really important.

Nikita:

Yeah, well said.

Nina:

So how long do you think you should keep a car? Because I know you have obsessively long relationships with your car. I you have relationships with your car longer than people I know who have stayed married. You've been with cars. I

Nikita:

Have been with my husband for almost 10 years and I had had my car longer<laugh> than, than how long I've been with him. So yeah, I am, um, I'm a special case probably. I'm like very much so of the mentality that if your car is running and just requires reasonable maintenance and not like an engine repair, I was ready to drive my civic into the ground. Um, I bought it in high school for 3,200 bucks and I drove it for 10 years, uh, until I sold it in December. But I had it for just a couple months over 10 years. And the thing that made me choose to finally give up on it was that it's air conditioning went out, which in Tucson, Arizona is not a sustainable thing and the cost to replace it was about what the card was valued at at this point amongst many other stacking up, you know, mild to moderate size repairs. So I'm the wrong person to ask is what I'm getting at. Um, I would say a car should be driven 10 to 15 years or longer if it can, but um, I think Progressive had some information on that. Do you wanna share about that Nina?

Nina:

So Progressive says you can keep a car for about 12 years or 200,000 miles if you drive like the other person on this podcast, your car might actually reach 300,000 miles<laugh>. So just like when we're talking about lots of other things, the way that you maintain and care for your vehicle will really keep it running longer. Yeah. So just those basic tips about not heartbreaking, hard stopping or maybe carrying lumber, but being really kind to your car can really impact its longevity. So some makes and models have a reputation of lasting longer. I think most of us know that Toyotas and Hondas tend to have that, that long-lasting relationship, but how you drive and maintain your car is really imperative. So this is always a really difficult thing to talk about because a vehicle is a really expensive part of our life, but it's not really an asset, is it? It's a depreciating asset, right. So unlike your house or your retirement, that should increase with time. A car will do nothing but decrease in time. Yep. Unless you, I don't know, get the James Bond car and keep it forever, it's going to just decrease. And I looked at it the wrong way for a really long time. So when I bought my first new car, I loved her and I babied her and I supported her. So she got her weekly waxes. I did all of her maintenance at the dealership because I wanted to make sure that she was getting the best care ever and I treated it like a little princess and within three months of her being paid off, I was rear-ended and it totaled out the car mm-hmm.<affirmative> because of, of the impact. And what I found out was that despite how much I took care of that car and that I had planned to drive it for 300,000 miles, the reality was that the insurance company went by the Blue Book Standard and they gave me that, that blue book amount. So I might have gotten just a tiny little bit more because they were able to read it as an excellent condition. But if you look at Blue Book, there's not a huge difference between those categories. It's like a couple hundred times. So the moral of my story is that you might take exceptional care of your vehicle, but the reality is if something happens to it, you only get the value that it's assigned.

Nikita:

Yeah. And it, that's such a tricky balance to have cuz you do wanna take great care of your vehicle, but on certain things it's like, do I compromise on a w on a weekly waxing or something Like, especially if it's, if if it is, um, you know, financial sacrifice to you from to some extent like just having a more moderate approach to it and doing the necessities rather than maybe the luxuries as much unless you're okay with the trade off of, you know, I'm not gonna necessarily see this value back, but it makes me happy to have my car look beautiful all the time just to know that and make that decision consciously.

Nina:

Yeah. That, that moderation piece was really important to me and I wanted it to just look showroom new and having to really make those balances of knowing that you wanna take care of it and you wanna maintain your vehicle, but at the same time you can't prevent any everything from happening to it. So if you're in the parking lot and it gets dinged, if you get into a fender bender, um, it's, it's different than a house. So also if you are thinking about long term, which is selling your car in the future or trading it in, you wanna think about how you maintain your car, but then also some other factors. So what do you think are some factors that you should think about when maintaining your car?

Nikita:

Are we talking about resale value here?

Nina:

Mm-hmm.<affirmative>,

Nikita:

I would say definitely making sure to do the, you know, medium sized maintenance like brakes, obviously oil changes and fluid changes, uh, timing belts, uh, taking care of my car by not, you know, hitting objects in parking lots,<laugh>. Um, just making sure that physically, especially the outside, which is probably a problematic way of looking at that, but I feel like when your car looks better on the outside it helps three sale value even though it's inside that matters more. Um, yeah, those are some of the things that come to mind for me.

Nina:

Yeah, no, that's perfect. And you wanna think about the color that you picked for your car. So you might really love hot pink. Like hot pink might be your, your color dam, but if you're going to sell that within a year, that hot pink civic might not have the same value as blue or black or white. So thinking about those colors can make a huge difference.

Nikita:

I'm pretty sure I've seen it that white cars hold their value the most. Right? I think

Nina:

It's just light or black.

Nikita:

I'm, I would guess white, um, at least in Arizona where a lot of people's car paint actually fades from the severity of the sun. White paint has like a thickness to it that none of the like metallic paints have. So you rarely see like a fading white car. Um, so I, I'm pretty sure it's white cars, but I could be be wrong on that.

Nina:

White makes white makes sense. So yeah, when you're thinking about that, think about the resale value of your car and try to avoid as many of those bumper stickers as you can or decals or wraps if you choose to wrap your car. All of those things really impact your value as you're getting ready to sell it in the future.

Nikita:

Yeah, and I know another thing that impacts the value too is, is the mileage. Um, and I know it, I don't know that it makes a difference at dealerships if you're doing a trade-in, but private party people definitely prefer to be buying cars that um, have highway mileage more on them than city mileage. And I actually learned a trick from my mechanics, I'm gonna share it with you all to to know whether or not a used vehicle that you're buying has been driven primarily in the city is actually how worn out the brake pedal looks. If there's lots of stop and go traffic, you'll be able to see more wear on it then you would on a car that's mostly highway mouses. So that's something I learned recently. I'll pass along that little nugget of knowledge.

Nina:

No, that's a really good, that's a really good nugget of knowledge because I feel like a lot of times when people are going to buy a used car from a private party, you always hear the story of, oh, it's out in my garage and um, I just drove it on weekends or it was mostly highway miles. I feel like there are very few people that are completely honest and say I drove it back and forth to work in rush hour traffic. I slammed on my brakes a lot. It has 30,000 miles, but they're 30,000 really hard miles. Right.

Nikita:

Took years of life off this car with those 30,000 miles

Nina:

<laugh>. Yeah, she, she's a hard looking 30. So it's nice that you cut, you can kind of take people at their, their face value, but then there are some nice ways to kind of look at that as well. Yeah. So I know we talk about cars a lot, but I've heard that trucks and SUVs hold their value better than sedans. Do they do? Is that, is that accurate?

Nikita:

It is accurate. I don't know. I don't know On these new, new trucks, I feel like trucks in the last handful of years have become exorbitantly more expensive. Um, when I said, you know, 60,$70,000, I'm not exaggerating. Um, but I do know as well that like the bottom out like okay, for instance, uh, my husband and I bought his truck in March of 2020 and we spent just over 15,000 on it and today it's worth basically the same amount on, on Kelly Blue book and it's, it's um, it was made in 2011. So at the time that we bought it, it was almost 10 years old and that is essentially close to its bottom out point in its, its value. Whereas with a sedan, your bottom out value like on my civic was like$1,500. Whereas you know, the truck so long as it, the engine is still in good shape and it's running in stuff is, you know, above 10,000. So I, in that way I know factually that the, the trucks and SUVs maintain their value a little bit better proportionately to, you know, a$70,000 price tag. I'm not exactly sure where that is and the data's kind of hard to understand on that, but um, I don't have more to add to that

Nina:

<laugh>. No, that's really, that's really important is to think about maybe when you're going to buy your car looking at the Kelly Blue Book value of that same car, but maybe two or three years behind you so you can kind of have just a, a path, some history to look at because you know, if you, if you buy a Honda Civic, that's the price for reseller trade-in is probably not gonna change very much from year to year to year. So you can kind of see which cars hold their value longer and stronger than other cars. Yeah. The other thing to think about too, especially we've seen in the last year is the cost of gas. So if you're driving a truck that might get maybe 12 to 15 miles a gallon and gas goes to five, six,$7 a gallon, your round trip to work can be really expensive. Yeah. So not just thinking about the actual cost of vehicle, but the everyday cost gas is super important.

Nikita:

Yeah, it's good to think of all of it and kind of build that into that budget. It's also important, um, to, especially in terms of if we're financing a car we want to avoid because they're a depreciating asset, we want to avoid the car losing its value faster than the loan is being paid off. Um, this is referred to as being upside down in a car loan and you usually have to carry something called gap insurance, which adds a cost to your normal auto insurance and basically, you know, pays off the loan if something were to happen and it was totaled. So you're less likely to end up upside down in a loan if you buy used after most of the depreciation has already happened. And if you aim for fewer years of financing, like we had said earlier, maybe somewhere in that three to five year range,

Nina:

That's really important. And you know, it's funny when that you mentioned that because when I first got a car I had no idea what gap insurance meant.

Nikita:

I didn't learn about it until just a few years ago. Yeah. It's not something I, uh, because I've always bought really old, really used cars, so I, I didn't understand that that was a requirement until I had a friend share their experience with it.

Nina:

Yeah, you have to have gap insurance and definitely check around with insurance companies too when you're thinking about purchasing a car. You know, just reach out to your insurance agent and just kind of get a ballpark quote on what your, your car might be. Because if you do go from used to new, it's something that you don't automatically think about. You think about, okay, well my maintenance is going to go up, my monthly payment is going to increase, but unless you actually know how much your sure insurance is before you buy it can be a really staggering, staggering number.

Nikita:

Yeah. You can run those numbers ahead of time, you can like get a quote for a new vehicle like I'm insured through Geico for instance. Mm-hmm. I can go onto the website, put in the, the make and model of a new car, the VIN number if I have it available and actually get it to tell me exactly what I'd pay for it so I could, you know, determine the difference. Also something to know another little pro tip, uh, two door vehicles are typically more expensive to ensure because they're considered like sports cars.

Nina:

Are they, so could you get your civic like up to 60?

Nikita:

Yes, it went above 60 miles per hour<laugh>. Um, but my, my civic was more expensive to ensure than the next car that I purchased, which we'll talk about later.

Nina:

Yeah. So definitely get those insurance numbers before you make a purchase as well because he might be really surprised at the price jump, not just between new and used but also if you're going from different makes and models, you wanna kind of have all those numbers in place so that way when your first bills start coming in you're not really surprised. I think a lot of us just think about the actual monthly payment and then we're always surprised by all the fees that kind of go around it. Yeah. And one of those is that European cars tend to be notoriously more expensive to repair when things go wrong. So your BMWs, your Mercedes, Audis, Volkswagens and a lot of times now you can't really do a lot of work yourself. I know my husband had a Volkswagen and the thing that was really strange about it, which is why he traded his in is the air conditioning unit on the Volkswagen is underneath something else. Mm-hmm It's really different than what you would expect it to be and it had just gone out of warranty and the cost of repairing the air conditioning the part was almost nothing. But the labor was astronomical because of the amount of time it took for them to physically remove the pieces of it and fix the air conditioning. Did

Nikita:

They have to get under the engine? Would they have to Yes. Engine

Nina:

Up under the, is that where it's like underneath something and it's like I feel that they're building cars like puzzles so that the poor local mechanics will no longer have the tools necessary to fix cars and you're only gonna have to go to dealers or authorized service providers.

Nikita:

Yeah, I think that's exactly what's happening.

Nina:

I think, I think it's a ploy, um, which is scary because I know um, I had a friend years ago and his family owned a little mechanic shop and they ended up closing it and just selling the land because he said as things became more and more progressive you had to buy, I think it was called a key from the car maker in order to be able to diagnose the problem. And if you didn't purchase that diagnostic tool you couldn't do a lot of work on the car. And so I think as cars are becoming more and more advanced, it's really important to think about those maintenance factors going forward because you might not be able to do your own oil change or even change out your own timing belt. You're going to have to go to a dealer

Nikita:

Man. Yeah, that's really tough.

Nina:

Yeah, it's really, it's really, um, it's really challenging thinking about those things and it's sort of that economy of how things change. One thing that's important is if you are choosing to buy a used car, try to get a car report for accidents or other incidences. So a lot of times you might look at a car and it looks fine, but you might not really know what that car has been through. So taking the time to get that accident history is important. And you can even ask a dealer about warranty with a used car. You can check out lemon laws in your state to see if you can find some protection in the event that you buy a defective car. And if buying from a private party, take the time, take the money to have a mechanic check it out first because with a used car you might hop into it and it smells great and it looks great and it might run great for a few minutes, but having that professional take that peak might be able to see some things that you, you couldn't, the benefit of a new car is that more than likely you are getting a warranty, but a caution on the new car with a warranty, there are caveats to that. So in, in the car that my husband has now, his came with a great warranty and lifetime oil changes. So he thought it was a great deal to trade in his car because he came with a great warranty and lifetime oil changes. But this proves that maybe Nikita is not a hundred percent wrong in order to how generous get those oil changes. Yeah. I mean you could always be right Sometimes in order to get those oil changes and maintain the warranty, you not only had to do everything at the dealership in the timeframes that they gave you, but you also had to do all the optional maintenance that they told you as well. So when he went for his second oil change, they told him he needed a cabin air filter, which was I think like$150 and it was like, no, I'm, I'm good, I'm good on the air filter now. We'll just do that next time. And it invalidated his lifetime oil changes. So the moral of the story is there's no such thing as a free lunch or free oil change.

Nikita:

It's gonna be the quote of the episode

Nina:

If you're buying new thinking, oh I have this great warranty or I have these great services, really ask those questions and see it in writing because if you, if you're late on an oil change, if something happens or you opt out of one of the maintenance packages or features, you can actually lose all of that.

Nikita:

Wow, I had no idea you taught me something new today.

Nina:

That is the goal of this podcast so we can educate each other. There

Nikita:

We go. I was gonna say real quick to tack on to, you know, if you're buying private party, having your mechanic check it out, that is something that saved me about$1,700 on that truck that we bought. Um, the owner, you know, said they had done all the normal maintenance and they kind of hadn't, uh, they did the bare minimum and so there was, you know, a handful of items that had stacked up that really needed to be addressed and we were able to negotiate the price down to accommodate for those and you know, he was able to be there while the mechanic was addressing it so that he felt like there was, you know, justified reason for lessening the price as well. So you can save money that way and at the very least you have a, a good heads up when you buy a used vehicle if a mechanic has already inspected it.

Nina:

You know, it's interesting because he almost wanna take the same principles of home buying into car buying and I don't think a lot of people would buy a house without a homeowner's inspection, but a lot of people will just buy, use car without a car inspection. So taking taking that time to really do your research first and get some support is really nice. But what I struggle with is that cars are not always an analytical decision. Yeah. So I feel like if they were analytical decisions we would all be driving, I don't even know what we'd all be driving, but it would be

Nikita:

A 2000 Honda Civic

Nina:

<laugh>, it would be a 2000 Honda Civic, it would always be a 2000 Honda Civic. I think we would be driving like horses, I don't know<laugh>, we would have something small yet spacious with great tires and long engines. Yeah we have rocket ships, it would just be like in rocket ships. Right. Um, but it is difficult because we do have tastes and preferences. So sometimes you really want a new car smell, you want the peace in mind of knowing that you're the first owner of something and then sometimes you just want something that you can pay cash for and you don't care if it gets a little bit a little bit dirty. Sometimes it's okay to to skip on some things and not skip on others. And I saw something really funny the other day. It was a person and they were buying a car and it was a 2008 Lexus and so in the video she hops in the car and she's like, I'm 2008 Rich.

Nikita:

I love it.

Nina:

So she has like the heated seat in the moonroof and oh gosh she's, you know what, I can't afford new right now but if this is 2000 thousand eight I am very wealthy.

Nikita:

I love that. So I'm, I, I mean I think it's important to identify here as we're talking about, you know, sometimes having tastes and preferences and maybe we are fine with the new car price tag cuz we get the new car smell and the peace of mind if you're in the financial position where you can afford to pay that, you know, we'll think of it as a premium for those luxuries and you're okay with that trade off then. So absolutely within your right to choose to spend your money that way you just aren't going to hear us tell you the analytically and mathematically, you know, it's advantageous to buy a new car but you still might choose to do it anyways. So yeah, I guess we just caution you that you aren't getting a car at the expense of your future self in retirement.

Nina:

Absolutely. And we're going to talk about now as we wrap up some tips if you're looking to arm yourself with a good plan to approach a dealership with. So just some tactics to think about. So as you're getting ready to go out and get that car, what are some things that you can have in your little tool belt to get you ready? So what do you think the first one is?

Nikita:

Ooh, mine is always, you know, know what you're willing to pay and be okay with walking away if they aren't willing to meet you there.

Nina:

Absolutely. So come in, have your research in place and know the price point. So if you know that online to 20 to 22 civic should be around X amount and you go into the dealership and it's$30,000 over x, you know that that is way overpriced. So come in knowing what your price point is, what your, the research has told you so you feel a lot more confident in that decision. And with that, if you have the cash, take that as some leverage.

Nikita:

Yeah, we've actually had, uh, one of our participants shared a experience of walking into a dealership haggling with them talking about the finance price, then asking them how much it costs them to finance the car because you know, it's not the dealership themselves financing yet they have a third party bank. They openly shared with them how much that financing costs them and the participant said, uh, great if I paid in cash, would you reduce the price tag by that amount? And they agreed to it reluctantly, but they agreed to it. So cash really is a, a good tool to leverage if you have it available.

Nina:

People like cash. And I think this goes into all financial decision making, is having that self-confidence. It is really, really difficult to be that confident to just boldly go up to a stranger and advocate for yourself. And so if you have to bring a friend with you, psych yourself up, do whatever it is that you need, think about if you can save that$5,000, what crazy thing you can buy for yourself or how much more you can put into your retirement account. But find a way to be able to advocate for yourself in that way. Because I think especially as women, it is really hard to go up to a stranger and be very bold yet kind and advocate to say, well I'd like this reduced by$5,000. It is a skill. And with that, don't be afraid to ask for professional discount. So if you have military affiliation, nursing teaching, a lot of times they have just a little bonus even if it's only$250 or free formats, don't, don't be embarrassed to ask for a discount or from some kind of, um, professional support.

Nikita:

I think something I'm gonna add in here as well, um, I have heard so many stories of people going into a dealership and and feeling like they got a good deal and you know, they had a friend who worked at one, I've heard people who were actually the dealer salespeople talk about how much they'd had to compromise on their values just to make a sale. So I'm not saying to never buy at a dealership, but to walk in with eyes wide open that they are going to make you feel like you're their best friend and they're giving you a great deal cuz it's all kind of part of the sales process and that um, you know, ultimately at the end of the day they have something to gain or lose from making that sale or not. So they will whip out the charisma to the full extent and just approach with caution. I, I don't want to dog too much on car salesmen, but um, it's a profession that not a lot of people feel great working at for super long periods of time.

Nina:

It is difficult. Um, you're basically making your income based on how well you can sell yourself

Nikita:

And ultimately you don't care if the person in front of you can actually afford it or not because you're just trying to put food on the table.

Nina:

Yeah. You're trying to just not lose your job and you're trying to make your your commissions. I remember that episode of King of the Hell years ago where Hank goes to buy his car and he has to get a new one and he feels like he has this special relationship with the salesperson. Somebody has to go and get his new car, he meets his friend there and he is gonna give him the the great deal on the car and it turns out the great deal is sticker price. Yeah,

Nikita:

Exactly.

Nina:

But he feels like he's had this relationship for almost 25 years that you sometimes don't question it. And at the end of the day, like so many things you have to remember that a car dealership is a business. Yeah. And the higher they can sell the car for the more money they're ultimately going to take it, it they're not non-for-profits. They are there for very specific reason and just like we talked about earlier, there's a reason so much money is spent in marketing and research is to one, get you in that door and two, figure out the very best way that they can get, get the very most for the vehicle that they're selling. Yeah. One thing to kind of look at too is take a look at hidden features when you're buying your car. So when you actually look at that sticker in the window and then you're talking to them about the price, sometimes there are all kinds of crazy things that get added to it. So I looked at a car a couple of years ago, I was excited, I think it was$23,000. It was a, a new base model Jeep Cherokee. I was really excited because you know, the Jeep commercials work on me and when I sat down with the, the dealership and started looking at the pricing, it was almost$5,000 higher then the sticker price was. And so it was like, okay, so tell me about this. And they were like, oh yeah, we had the sticker put on before, oh my god. We had the windows tinted and then there were these, these rims that got added to it and it has this aftermarket, um, turtle thing on the, the top for, for cargo storage. And so it kind of felt a little bait and switchy. Yeah.

Nikita:

Wow.

Nina:

So you might see a price and then by the time you get ready to almost sign on that dotted line, really just like you do with anything else, go line for line and make sure that you know what you're paying for.

Nikita:

Yeah, for sure. I didn't even know they could do that.

Nina:

Yeah, they can, they can really bait and switch you all the way up until the end. And so just be really cautious of what's included with that car and, and what's not. A lot of times now, especially during covid, they were charging um, like a dockage fee, a$450. So a friend that bought a new car and it was um, a dock fee of four 50 and they said it was just to kind of offset the cost of gas getting the car off the train and to the dealership and that normally that cost was absorbed by the dealership, but because of so many different factors, you know, I guess that basic supply and demand, they got really bold and people were willing to pay for it. Yeah.

Nikita:

Yep. Wow. I think another thing too is you know, don't be afraid to do some research on a dealership. You know, Google reviews is there for a reason. You can read through the good reviews and the bad reviews, but um, just to be able to choose a dealership if you're gonna go to one new or used based on, you know, being highly rated and having a high level of trust among their people, um, that's pretty easy step to take as well to protect yourself.

Nina:

Absolutely. So what do you think the takeaway benefits are of a used car? If you had to just give me your top two reasons to go used, what would you say they are?

Nikita:

To me, a used vehicle is advantageous because the depreciation has already happened. It's the first one easy. Uh, to me, I'm willing to buy old enough that I can still actually do the work on my cars and I'm not dealing with these barriers that manufacturers have put in place where it requires a dealership to service them. Um, maintenance is not as expensive on older vehicles. Same with registration and licensing. Um, that's also less expensive, less expensive to ensure. And ultimately to me I really view them as like a gets me in from point A to point B. I do not care about having a super nice fancy car. Honestly, it actually stresses me out when I drive really nice cars because then I'm nervous about where I park and I'm nervous about, you know, driving through a driveway with shrubs on both sides, scraping the size of the vehicle I would care about. Whereas in my vehicles I don't care. Um, I guess those are the top things that come to mind for me right off the bat for advocating for a used car.

Nina:

And so I think for me, if I think about a new car, selfishly I think that if I didn't buy a new car, you couldn't have a used car. So I'm willing to take that trade, that argument.

Nikita:

I mean I don't like that argument for you. I like it for me, keep buying new<laugh>.

Nina:

I'm gonna take the hit of 20 to 40% so I can really store up my karma points and you can get a great car at a great deal. I like new because I feel like it's spotless and clean and for me reliability is is really important. I don't wanna think about it. I don't wanna think about do I need to buy new tires right away? Is this engine going to blow? What is that funky smell coming out of the glove box? Like I just don't want any of that. That's just the personality. So maybe I might take the hit on the great things that you have, which are better insurance rates, better depreciation is out the window. You don't care if you get gum on the seat. So it's, it's really just a very personal decision. Do you have gum on your seat?

Nikita:

I don't have gum on my seat. What did you think of me Nina

Nina:

<laugh> like you don't care, you're going down the street like hitting every pothole. Like it's okay.

Nikita:

Yeah, I guess, you know, I just have come to identify that I'm willing to take on the inconvenience of an older car for the money that it potentially saves me in the long run. To me, I'd rather spend, you know, a couple hundred bucks maybe on, you know, if, if we average over an entire year, if I've had a, a lot of, you know, mild and moderate maintenance on my car, let's say 200 bucks a month on maintenance than, and that even feels really high to me. But then, you know, a$550 car payment, I also just like not having to account for owing somebody anything. It's nice to own an asset outright even if it is depreciating. Um, I like having freed up cash flow in my budget that I can allocate towards other things and ultimately, you know, that is most feasible for me buying used.

Nina:

Absolutely.

Nikita:

So do we wanna use this time to, uh, close out and share the cars that you and I each have bought in the last year?

Nina:

Yeah, so I think the, the big takeaway is whether you're going for new or used, do your research, try to drive safely, keep up those maintenance and try to keep it as close to pristine as you can when you're going for resale

Nikita:

And do what's right for you. You know, Nina and I are gonna share, she bought the car that was right for her, I bought the car that was right for me and they look very different and that both of those are acceptable as long as you've, you know, done your due diligence and made sure that you're not gonna be financially suffering because of it.

Nina:

Okay. So tell me about your new car.

Nikita:

Yes.

Nina:

That year that you finally purchased after your 12 year relationship,

Nikita:

10 year<laugh>. The 10 year relationship

Nina:

With 10 year relationship.

Nikita:

Um, okay, so I went from my 2000 Honda Civic that I drove for 10 years to all of my friends are making fun of me. Uh, 2004 Honda CR-V, which I am actually so excited about because it's got the picnic table in the back. It's a five speed, just the way my civic was. It is all wheel drive, which not all CRVs are, and it's in great condition and it's low. I say low miles because to me low miles is like 150,000. Um, when I bought my Civic back in 2013, I bought it with 167,000 miles on it. So buying this crv, it only has 133,000 miles and to me that feels like a great deal. So<laugh>, I, uh, yeah it sounds silly but to me I actually feel really like almost fulfilled is a weird word to say, but it feels really right. Like I have no hesitations with having bought the car that I did even though it is older. Like it's in good condition and I, you know, have I got it at a price that I was willing to pay my mechanic to fix what did need attention And um, yeah, I'm, that's the car that I got. So what about you Nina?

Nina:

So we took different paths when we both needed new cars and I ended up going new. I purchased a German car from the dealership and I got a great deal. He's like my friend<laugh>, so I probably paid more than than asking, but um, they, they, they were really kind as far as my trade-in, I got over over Blue Book for my trade-in, which was really nice. They were really supportive as far as the maintenance package, the towing package. Something to think about as well, if you have AAA insurance, if you purchase a new car, sometimes your new car will come with that roadside assistance. Oh, that's nice. So I kind of factored that in to my decision as well. But she's beautiful. She's kind, she is really great on gas and I, I love her and I made a decision to really cut expenses in, in other areas because I like to travel. We travel a lot, we drive a lot. And I wanted to be in a comfortable space. So for me, cutting back on other parts of my discretionary fund to make room for a new car fit my lifestyle.

Nikita:

Yeah. And your values. And that's, that's the big thing we preach is value-based spending. And,

Nina:

You know, the benefit of cutting back on things is that by cutting back ongoing drive through places to save money, I'm also keeping the car cleaner. Hey, there you go. You see how it all works in full circle. That's

Nikita:

Funny.

Nina:

It's also true. It's, it's true. Well,

Nikita:

I appreciate you taking the time to bring me into your brain and your world and, you know, understanding why a new car is valuable to some people. And just to share a different perspective. I think it's, it's good that, you know, our listeners don't only hear my opinions on things, so I was happy to have both of us on here today to share our opposing views, but you know, mutual respect for one another's views as well.

Nina:

Awesome. Thanks so much for being here.