C&D: Auto loans

[kevm14]

I made a spreadsheet.

Ended up comparing new @ $37k, driving to 165k and selling. Used $10k as value. Costs $27k to drive 165k and 11 years. Vehicle is between 0 and 11 years old for this cycle, averaging 5.5 years old. Average mileage 82,500. The most reliable years and miles are covered by a warranty, but the least reliable years and miles would not be, just like the next example.

Then I compared a used 2012 with 90k for $19k. Drive for 5 which ends up at 165k. Should be worth the same $10k. So if you repeat that out to 11 (scaled proportionally) I get $19,800 for that same 11 year period. Basically you'd buy a 5 year old one with 90k, drive to 165k, sell for $10k and repeat. Vehicle is between 7 and 12 years old averaging 9.5 years old. Average mileage 127,500. There would be no warranty coverage.

Now that averages out to a difference of $55/mo but if that sounds like a good deal (that premium buys the privilege of you owning it from new and while there is some warranty time, it is during an age and mileage that I would not expect this vehicle to need anything) you need to think about it another way. If you considered two new cars, and you drive them to 165k after 11 years after which they are worthless (or consider them the same value so it washes out), and one cost $19,800 and the other was $27,000 I cannot see how you would dismiss that difference, because that is literally $55/mo for 11 years. Even seemingly small recurring payments over long periods amount to real money and this really is the subject of this thread (well it's in that other thread). You see "peace of mind" I guess and I just see "incredible waste." That is $7,200 that could be better spent elsewhere imo.

This is just what that other thread told us would happen, when you look back on the average age. The older the average age, the less the vehicle will cost, and this is even true on vehicles with excellent resale. It gets even more obvious with normal or below average resale, and I think the curve still holds because the savings on depreciation can be offset by repair costs, but either way, driving an older vehicle is cheaper.

You can screw around with the numbers perhaps finding a newer example that has 90k and end up improving the average age metric with perhaps no real cost penalty. You may also be able to find something under $19k, as that is a fairly typical price rather than bottom of market. $15,500 is more bottom of market pricing and actually doubles your 11 year savings to over $15k if you are a good shopper.

I guess I'd also ask about trims....brand new base model vs used upper trim. Not sure if that would go anywhere useful. Apples to apples it may not be as useful as when I like to compare heavily depreciated luxury cars to new economy cars and stuff like that. You'd have to look at each individual feature. It could be the difference between heated seats, leather seats, a sunroof, a better stereo, auto climate, nav and all those kinds of things. Some of which you don't care about. Just another angle.

Your RAV4 was used right? Wasn't the Corolla also used? I mean if you are nervous about used Toyotas, you might need anxiety meds.

[bill25]

A few more details:
The new priced vehicle is the Premium, not the base, so there are some upgrades there. It is not the Limited, which is the top trim.

Looking at the resales, if I drive for 5 years and sell, unless I sell outright, I am getting a pretty big trade in hit every 5 years instead of 10. My issue isn't that I think the Toyota won't be reliable, but I hate the dealership experience and wanted to limit that. To pay a little extra to minimize getting screwed at the dealer on trade ins would be nice. Selling as a private party is also an option, but I am not excited about that either.

If I trade in twice, I could easily lose 3-4K each time, so 2 trade ins instead of 1 is 7 K vice 3.5, so now if I was saving money your way (7600), I am only saving 4100 over 10 years now. Then you factor in interest rates, which are higher on used cars, so unless I pay cash - 20K, 4100/120 months is $34 a month in savings, which I could easily see as the interest payment difference of purchasing used to new.

I guess where I am coming from is that there are so many variables, if you could get new, and it be close to the same cost as used and having to get rid of an older one more often, why not get new if it is that close?

[kevm14]

So don't trade in and take that hit. I am just looking at Auto Trader prices, and the $10k the vehicle will be worth should be similar for both - they'll both have 165k and be about the same age (2012 in 2025 will be 13 years old and your 2019 in 2030 will be 11 years old). I could apply an inflation curve I guess. Selling private if it saves $3-4k sounds like a smart idea to me. You'll have to make the same decision with the other one anyway. Also, you speed up the clock in my used example - you end up with a 165k vehicle in 2025 at which point you can consider your options - keep driving, take it over and do whatever it is you were going to do with it, etc. If you are going to plow snow I have no clue why you'd wait until 2030 to start that.

Buy used so you can swing cash and avoid any extra interest payments. Plus, buying used also means you can take advantage of lower private sale prices and save even more - I haven't run those numbers. You could conceivably not go to a dealer ever!

That is the whole point here. The other point is extra recurring cost for 11 years is hardly "a little extra." I mean it seems like you are deliberately stacking all your decisions to make the new use case as good of a value as possible (buying in DC for example) and the used case as bad of a value as possible.

On the warranty...you get 3/36 and 5/60. So the last 8 years and 129k of your ownership have no bumper to bumper, and the last 6 years and 105k have no powertrain coverage. My point is, given the years where you are covered, you are unlikely to need it, and then you are in the same boat as the other car. Granted it will have less average mileage and age on it at any given time but the whole point is you are banking on some exceptional reliability, in both cases (just banking a little more in the used car example).

You can do what you want - I am just going to point out that you're likely giving away significant money across multiple decision points in the process. This isn't the world according to Kevin - all the financial advice people say the same thing, and that article in the other thread said the same thing.

[kevm14]

NADA has an interesting Cost to Own feature on their website. I priced out a 2020 Toyota RAV4 XSE Hybrid AWD. Came to about $38k. I then switched over to Cost to Own and pulled it into Excel to do some forecasting/trend line analysis to see if I could reverse engineer the model for each cost area. I still don't understand how Opportunity Cost is calculated. Opportunity Cost vs what? Generically, opportunity cost would be a cost representation of a lost opportunity given an alternative path, vs the one you chose. The rest I think fits well. I haven't finished but wanted to post my progress.