Comment by sokoloff | Hacker News Reader

Comment by sokoloff | Hacker News Reader

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I think people wildly over-estimate the costs of driving an older (say 5-15 years old) car and so are prone to over-pay for a new or newer car, believing they're making a good choice based on flawed data. (They remember the time they had to dump $1200 into repairs into some old heap that isn't even shiny anymore. They don't remember that for the last 24 months in a row, they saved $450 in payments, $200 in depreciation, $125 in insurance, and $20 in property/sales taxes each month. They could have a $1200 repair twice a year and still come out way ahead.)

We drive older cars. I can think of 3 times in the last 25 years where we've had car trouble that interrupted or hampered motoring (a failed battery, a failed clutch release bearing, and an electrical short). The battery is a 20 minute swap; the electrical short indeed sucked [because it required a tow home and took me most of a day to find where the short was]; the clutch release bearing left the car limpable and she was able to drive it home with quick instructions on how to start the car and drive it with third gear selected for the whole trip.

On one hand, I'm happy that the market (read: people) wildly underprices used cars, because it makes for cheap motoring for us. On the other hand, it frustrates me that people's third largest expense category is higher than it has to be and many of them could improve their situation by better optimizing this category.

tl;dr: If you want cheap[er] motoring, buy a 4-8 year old Toyota or Honda and drive it until it's 15-20 years old. Drop collision insurance as soon as you've saved enough from this strategy to replace the car. Add that savings to your snowball.

Thank you! The days of those stereotypical used cars that fall apart at 100,000 miles are pretty much over. A 10 year old economy car, maintained basically (not obsessively), will probably outlast your need for it.

Yes, a 1980s turbo Porsche or 1990s M3 will eat $10K+ a year due to constantly breaking. Not nearly the same as a 2010 Toyota Matrix, which you can probably get for $5000 and drive forever.

(Consider also: just not owning a car. Bikes and transit for the day to day and occasional outlays for wknds in the mountains is cheaper than owning any car.)

That requires living in an expensive city, at least in North America.

The savings of not having a car might make up for that. I definitely don't miss having one.

Worth considering in many places (especially due to the additional hassle of having a car in some cities) but not viable in others, at least without considerable hardship.

There are no universal solutions... Car ownership shouldn't be considered as the default option, either. I tend to think people overestimate the 'hardship' by not fully considering options to use money to overcome them. Also, daily cycling - even if not strenuous - has excellent health benefits.

For example, you can get a really nice cargo bike for a fraction of the yearly savings of not owning a car, which will last for decades and solves the 'hardship' of handling groceries. This won't work in every case (recall, no universal solutions), but it significantly shifts the decision boundaries.

My fleet consists of a 'fast' sporty bike, a folding bike (for day to day, connecting with transit, taking on train trips, etc), and an old xtra-cycle cargo bike. The bikes were built/bought 15, 5 and 12 years ago, respectively; basically free once amortized. And since I'm saving ~$5000/year by avoiding car ownership, I just try not to feel shy about using 'expensive' one off transit solutions when it's substantially more convenient.

Your math is off - for TCO you should be counting financing costs, not the payment itself. You don't really get away from financing costs by buying cash, incidentally: then they become the opportunity cost of not having the cash invested.

I think people wildly overestimate how much you can save by driving a used car. Used cars are frequently overpriced due to demand for lower up-front costs and lower payments. Edmunds' five-year TCO for a five-year-old Corolla LE is $27095, for a new one it's $26634.

The cashflow differences between buying an $8K car for cash and a $40K car with 20% down are the entire monthly payment [plus the required collision insurance], not just the interest charge portion.

I'd wager that poor people are generally running their lives on a cashflow basis, not on an accrual basis. When I was a near-broke college student, that's how I thought.

With regard to the savings of paying cash being offset by investment returns foregone, I also agree with that, which is all the more reason to save the $32K as above.

Yes, that difference, as I pointed out, is one reason why sensible used cars are overpriced. (Another is the "market for lemons" effect)

Now you're comparing a $40K new car to a $8K used car, which is not a reasonable comparison. Yes, used cars will save you some money, but they will generally cost you more money than driving a new Corolla or Civic. Poke around on Edmunds' TCO calculator. The problem with your argument is that you can save more and more money by imagining buying an even more expensive car to compare to. I mean, you could have bought an $80K car with 10% down, right? Now you saved $72K!!!

> but they will generally cost you more money than driving a new Corolla or Civic

OK. Sorry. Your comment annoyed me enough to look up my actual expenses which I've been logging since late 2007, as opposed to hypotheticals.

Between then and now, I've spent $6247 on maintenance and repairs of my cars. Note this includes standard stuff like oil changes and tire replacements. That's about $480 a year. If I extrapolate and go back to when I bought the first car, the estimate would be $8649 since 2003.

How much did I pay for those two cars? $11200 total.

They were reliable. I did two cross country trips in them, without worrying a bit. I didn't rent cars for road trips.

So a total cost in the last 18 years of $19849. Had I bought new, and included standard maintenance[1], I surely would have paid a lot more. A new Camry in those days would already be over $20K. A Civic around $14K.

And of course, insurance on old cars is cheaper. You'd think it's the other way round, but it isn't.

Obligatory disclaimer: Research your used car models before you buy. If you don't, it will cost a lot more.

[1] As a reference, my wife's almost new car has cost $3500 in repairs/maintenance in only 4 years. Yes - even new cars can end up being costly to maintain in just a few years.

Please don't apologize and please don't be annoyed. Like I told "sokoloff", I was you. I get it. "In this house we buy used cars for cash and drive them until the wheels come off." So of course I enjoy this topic.

Let's look at your numbers. Say you bought two new Civics around 2003 for $28K total. Your maintenance & repairs should not be any higher for a new Civic than for any used car I can imagine. Let's assume gas is the same, and neglect transaction costs, finance costs, etc for now. So you have a difference over eighteen years for two cars of $16800 or $933/year. Per car, you saved $467/year or $39/month. Note we are also not considering that you could have kept the new cars on the road a few years longer. Also the insurance savings is minimal - figure you save $500/year for the first five years and then it's about the same when you go to liability only. That's another $139/year over 18 years or $12/month. Yeah, that's not nothing, but it's not the TONS OF MONEY that always gets mentioned in these discussions.

Your wife's repair and maintenance costs look more in line with average than yours. Does she put a lot more miles on her car than you put on yours? I do agree that if you put a lot fewer miles per year on a car than average, a used car starts looking like a much better deal (see below).

> Per car, you saved $467/year or $39/month.

> That's another $139/year over 18 years or $12/month

> Yeah, that's not nothing, but it's not the TONS OF MONEY that always gets mentioned in these discussions.

It's not tons of money, but as you said, it's not nothing. Saving over $50/mo is definitely very significant for me (I must have grown up poor). As I do keep track of all my finances, I know that most of my savings come from saving $50/mo here and $50/mo there.

And I was poor for many of those years - I was a grad student.

A few other points:

You quoted 28K for 2 baseline Corollas/Civic. It's a bit more than that since the $14K is 2003 prices. I bought my second car in 2011. The lowest Civic was $16.6K then. And if you get the LX (which I did get, albeit an older model), it would be $18.5K

> Note we are also not considering that you could have kept the new cars on the road a few years longer.

The counterpoint is that with used cars, you can change them every 7 or so years and still be cheaper. This way you have more variety.

Finally, there is a bit of cherry picking: You used new Corollas and Civics as your benchmark. As someone who has owned both a 2003 Civic and a 2003 Accord, there's a world of a difference when it comes to comfort - I always needed extra back support in the Civic and it still caused back pain. I never needed it in an Accord.

With older cars, the price difference between a Civic and an Accord is $1.5K max (similar for Corolla vs Camry). So if you add $3K to my total, your equivalent would be about $10K new, as 2003 Camrys/Accords sold for $20K vs $15K. That's another $32/mo.

> Your wife's repair and maintenance costs look more in line with average than yours. Does she put a lot more miles on her car than you put on yours? I do agree that if you put a lot fewer miles per year on a car than average, a used car starts looking like a much better deal (see below).

I think it's just that newer cars are costlier to repair/maintain.

Well, you brought up the Civic cost in 2003. A new Corolla is a benchmark for frugality: few cars, new or used, beat it for total cost of ownership. (with some assumptions: 15,000 miles/year etc). Note I don't own one and probably never will. The Civic is a little less frugal but similar.

It's fine that you like spending money on cars and prefer to spend more for a larger, more comfortable car. You're not minimizing your costs by buying used - you're just avoiding spending even more money. Also remember, up front cost is not TCO. Let's look at Edmunds' numbers instead of ancecdotes: a five year old base Accord has a five year TCO of $29,110. A new base Corolla has a five year TCO of $25,679. There's your "over $50/month". Fifty bucks is fifty bucks right?

Yes, it does seem we're responding to different points.

As for Edmund's TCO vs anecdotal data from my side: I can understand your viewing it that way, but of course, I'm not going to discard almost 15 years of personal data I've collected :-) I think one of the problems I've always had with the TCO is it simply has no numbers for my use case (buying older cars but with low miles).

The other problem is that whenever I look at the TCO numbers, they seem absurd. I just looked up the numbers for my wife's newer car, which was almost new when bought, and the Edmund's numbers are bordering on absurd. We had $3500 in maintenance + repairs over 4 years (and really it's $3000, as $500 was for an extra set of tires just for snow - not really a repair or maintenance). Edmunds estimate, for that vehicle, for the same span of years is $6200 - over double the reality. I've not had $6200 of repairs in a 4 year period even for my very old, used cars. We're not stingy on repairs and maintenance - we follow the recommended schedule. In fact, her car had two expensive repairs that are probably not common for her model, and I would think the amount we spent on it is above the norm.

And she drives her car more than 15K/year.

This is why for me, having actual, real data vs some weird aggregate from a web site is more meaningful. Edmunds may be good at the depreciation amount, but I question where they get the maintenance/repairs estimate.

I agree you should take Edmunds' numbers with a grain of salt - they tend to be extremely pessimistic about European cars, for example. They probably also figure on your replacing tires, batteries, etc with OEM. They don't say but they might be taking repair costs somewhere else off the distribution than the mean or median to produce a budgetary number.

Also, are you going by age or by model year? Understand that the TCO they give is for the next five years, as if you bought that model year used now.

You could just have a car whose repair costs vary a lot.

The problem with your data, given your use case, is that you can't really compare it to anything but more of your data. I'm sure if we could see how the sausage gets made there'd be plenty to criticize on Edmunds' TCO calculator but it at least provides a way to compare different new and used cars, and it breaks down the numbers in ways that allow you to work with them a little - or compare them to experience - if you are skeptical. It's also not too hard to do a similar model for comparision for different use cases (driving only 5k miles per year brings your TCO on a reliable older car way down, for example) - you'll have your own estimates for each line item instead of their data - if you want to compare against their numbers as a benchmark.

I took the average cost of a new car in 2020 or 2021. Make it a $28K new car instead of an $8K used car and you're still saving a ton of money even with a few repairs along the way.

I know plenty of people who owe money other than a mortgage who are driving $50K+ cars/trucks and sometimes have more cars than drivers in the household (and both of those blow my mind for people with non-mortgage debt).

Why not compare it to a car you scrounged for free? I mean, I'm not just arguing with you to win points. I was you.

By the way. there are other problems with your math: you're double-booking the cost of the payment and the depreciation of the car. Really, play around with a total cost of ownership calculator like Edmunds'. It will be enlightening.

Let's look at the F-150, the most popular vehicle in America. For the regular cab XL 4WD trim level, a 2020 model is $38K (close to your $40k) with a five-year TCO of about $44K. A 2015 model is $24K... with a five-year TCO of $41K. That's a difference in TCO of $50/month. Hey, if you can save $50/month, do it, but don't tell me you're saving thousands every year.

One problem with that calculator is that it "rings up" the depreciation after 5 years, in effect assuming you'd sell the car at that point. Much of the savings here are driven by keeping the functional car for 10+ years, not having to carry collision insurance on a car that's too expensive to write off, paying less in transaction costs and taxes, etc.

It's not the calculator is "wrong" in answering the question it asks, but that it's asking the wrong thing. Very few people want to buy an 11 year old car, so buying a 6 year old car and selling it 5 years later and doing the same thing again is overly penalized vs buying a 6-year old and selling it 10-15 years later (for much less), but only doing that once instead of two or three times.

> Why not compare it to a car you scrounged for free?

Because I can't repeatably find a reliable car for free. I can repeatably find many reliable cars for $8K in any city in the US. We paid $7500 for our 2005 CR-V in 2011. It was in overall great condition with high miles (165K-ish). It now has 220K miles on it and rust will kill it long before miles do (New England road salt).

Edit to add: I agree that my method above was double-counting depreciation. I should have stuck to cash items rather than including a non-cash item.

Yeah, if you want to take it out past 5 years, you can make your own estimates. You just won't have the benefit of Edmunds' data. You are right that you will save on transaction costs if you do not buy a newer car every five years. You're also a bit of a special case in that it seems you only put about 5,000 miles per year on a car. I'd estimate your TCO on that car to be about $2K/year, which is pretty frugal. It wouldn't make sense for you to buy a new car, because you'd be losing depreciation to age faster than you'd be wearing the car out. At 20 years, you'd have only 100,000 miles on a car that would be essentially fully depreciated.

It is pretty tough, though, to get the cost of ownership on a car driven 15,000 miles/year below about $3,500/year. By comparison a new compact will be $5k to $6K per year in total cost of ownership. So if you are wondering why gold doubloons are not accumulating in the chests in your basement that much faster than they are for the guy who drives a new Honda Civic, that's why!

> You don't really get away from financing costs by buying cash, incidentally: then they become the opportunity cost of not having the cash invested.

I will never understand this logic. You do realize that this is investing on margin just with better conditions? At this point we are assuming that you already have an emergency buffer and no financial difficulty whatsoever.

The reason why you should always finance your car even if your income is low is that you can build an emergency buffer that you can use on anything. If you have $30k in your bank account and buy a $27k car then you are only left with 3k. Any potential financial problems will force you to find a loan that very day. If your monthly payment is $500 your emergency buffer will last for years. If you invest that money you will have to compensate for any losses during that time frame by having enough income, it's as if you had $0 savings to begin with.

No, you are taking out a mortgage on a depreciating asset and investing cash at your level of risk tolerance. If your level of risk tolerance is a savings account at 0.5% so you can always have an emergency buffer, that's fine.

The argument is that to make an apples-to-apples comparison of total cost of ownership of one car and another, you should always include financing costs. They are basically your lowest cost of capital. Think of it this way: even if you're going to pay cash, leaving the finance cost in allows you some basis of comparision between the cost to you of putting say, $30K cash into a car versus putting $20K cash in. It's not exact but it's a useful simplification.

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