Buying a New Car Math
April 10th, 2008 by KenricToday I went to the Toyota dealer to test drive an FJ Cruiser. The FJ Cruiser was a very popular car the past two years. It’s still pretty popular now, but two years ago the dealers were selling them between $3,000 to $5,000 above MSRP.
Because of this, if you look in the papers and at other used car dealers, people are trying to sell their used FJ’s for about the same price as new ones! So there’s not much of a savings by going the used route.
Although the FJ is still popular, I’ve found out that a new FJ can be bought for $200 under invoice. Thanks to the FJ Cruiser forums for providing some great information on dealer costs and markups.
Anyway, here’s where the math comes in. I walked into the dealer thinking that I could walk out with a new FJ for about $25,500 + taxes and all that crap. I also have a trade in that is probably worth $8,000. So I figure the difference would be about $19,000 out the door. I was planning on tapping a line of credit that is at 6.25%.
But the problem was that I wasn’t sold on the FJ once I got there. The biggest problem is that the only 2 windows that roll down are the front and passenger door. My concern was that since I bring my dog many places, he can’t stick his head out the window while I’m driving and more importantly, if I leave him in the car, I can only leave my front windows down.
So the next step was to relucantly upgrade and look at a used Toyota 4Runner. A used 4Runner is about the same price as a new FJ Cruiser. But its a nicer SUV and has more amenities.
But wait, a brand new 2008 4Runner is only about $5,000 more. See the upsell going on here? Normally I wouldn’t even think about it, but what’s making the math harder is that new 4Runners have 0% financing with no money down for 36 months.
So here is the math part. Here are my options:
I can spend $19,000 for a used 4Runner and use my line of credit at 6.25%
or
I can spend $24,000 for a new 4Runner and get 0% financing for 36 months
The first question is, how much do I pay in interest over 3 years if I use my line of credit. Using a mortgage calculator I come up with a payment for $580/mo and total interest paid of $1,900.
If I spend $24,000, my payments would be $666/mo and there would be no interest paid at all.
So basically I’m looking at an additional $3,000 total for a new car vs a 3 year old car with 20,000-30,000 miles on it.
If you toss in resale value plus the new car smell plus warranties it makes going NEW pretty appealing. I’m on the fence right now, but I wonder if I can negotiate the financing. Give me 0% and 48 or 60 months and its a no brainer. I’m going to think about it but I’m sure the salesperson will be giving me a follow up call tomorrow.
Posted in General | 9 Comments »
Stumble it!
Kenric,
What about going the used route on 4runner? I think the warranty transfers and you can probably negotiate a better deal with a private party (easier to find a motivated person).
On the flip side, dont you have a 4runner now? What if you wiated another year, saved the ~$670/month, and applied it all to a higher end car in 4/2009?
I am hearing the car sales are in bad shape and probably getting worse with recession issues (and gas prices). Probably be in a better position next year – you will have more money and more leverage to negotiate.
RealOG
By RealOG on Apr 10, 2008
My used 4Runner will probably cost me some more maintenance money. I don’t want to put in $500 here and there to upkeep it. That’s why I think its time to get a new car.
If I wait one year, I could wait 5 more years. It’s just a matter of maintaining the 4runner vs. putting that money into a newer vehicle.
By Kenric on Apr 10, 2008
This is funny because I’m in the same bind as you. I’m looking to get a Honda Pilot and I don’t know if I should get a used for about 18k or go with the new for about 25k-ish.
Hopefully when you find an answer you’ll let me know ;)
By Tom on Apr 10, 2008
Why put a car on a HELOC? Save that source of funds for the next property deal. Put your car and a bit of cash down, negotiate on the price AND the financing, and walk away with an easily affordable payment that protects your flexibility.
BTW, have you been out looking at foreclosures? With some patience, you ought to find something that will cash flow.
By Another Investor on Apr 10, 2008
I could go either way with the financing. If I go the new car route, I’ll take the 0%. If I purchase a car without the 0%, a new car loan is averaging around 6.5%-6.75% which is more than the HELOC.
I haven’t looked at SFR too much lately. I have kept an eye on some good areas and am waiting and waiting.
By Kenric on Apr 11, 2008
Usually when manufacturers offer below market financing, they subsidize or require the dealer to subsidize the cost of the below market financing. That cost is then built into the price the dealer offers you. The cash or standard financing price of the car may be lower, although price discovery can be difficult in the car buying process.
It pays to negotiate all three deal points – price, financing and trade-in. It can also pay to talk to more than one dealer. High volume, low margin dealers will often (but not always) give you a better price. On the other hand, a smaller dealer may cut the price or negotiate the terms to avoid losing the deal.
By Another Investor on Apr 11, 2008
Why buy a gas-guzzling SUV?! Do you have a large family? Do you operate a construction company or are a farmer? Do you really need that much room for your STUFF? I’m a hiker/camper/mtn biker/kayaker and get by just fine with my Honda civic. Don’t be another silly American and waste your money on such crap. Gas will be $4.00 per gallon soon. SUV drivers need to wise up.
By georgie on Apr 11, 2008
Yes I do need all that room and the civic doesn’t come in 4WD. I would get hybrid if they made economic sense but they don’t… yet.
By Kenric on Apr 11, 2008
Never in my life have I made a decision based on gas prices. I always take a look at a person to see if they are serious when they say, “I’m going to fill up when we get to X because it’s cheaper.”
By knuckleheaded on Apr 12, 2008