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Reader comments, warranties and when to buy

By Claes Bell, CFA · Bankrate.com
Tuesday, July 6, 2010
Posted: 4 pm ET

There were lots of great comments from readers on my last post on whether to buy a new car or a used car. Commenter Debra James weighed in against thinking of cars as a monthly expense:

"I still stand by my belief that if you can't afford to pay cash, or in the event of an urgent circumstance, pay it off within one year, then you probably shouldn't buy that car. You need to stop thinking of the purchase of a car as a monthly payment, and look at the total price as a one-time purchase."

I think Debra makes a solid point here. There is no one a car salesman loves more than a "payment buyer," because that person will be so busy thinking about getting their payment under a certain amount, he'll stop thinking about how much he'll actually end up paying over the life of his car loan. One thing she said, though, I have to disagree with:

"Also, he does not mention that in order to stay in warranty that you must get your car serviced at a dealership (whose rates are usually higher than a certified independent mechanic), and at a schedule that is determined by the manufacturer."

The idea that you need the dealer to do all maintenance in order to have them honor a warranty is a common misconception. A 1975 law called the Magnuson-Moss Act largely prohibits manufacturers from forcing consumers to buy their branded product or services as part of a warranty's terms and conditions.

I'd also dispute that a mechanic, however skilled, can predict a used car's longevity with absolute certainty with one inspection. Catastrophic failures of expensive components such as engine computers aren't always easy to predict, even for an expert mechanic.

Meanwhile, commenter "jimboh" gives us a blueprint for managing car costs:

"Over the combined 22 years of ownership, we have had to make actual repairs totaling $4,100 on the 2000 LS (converts to about $35/month over its 10 year life). The '98 Mountaineer has had only $1,500 in repairs but will need another $2,000 this year for AC and oil leak. So the total $3,500 converts to $24/month over the 12 years. I also belong to AAA for roadside towing assistance $8 per month. So unless something VERY major happens, the wise financial choice at least for us is to stay with our existing cars."

 

1998 Mercury Mountaineer

A 1998 Mercury Mountaineer.

I think doing the kind of financial calculus "jimboh" gives us is a good template for the cost-benefit analysis we should undertake before replacing an old, paid-off car: Would the car maintenance + repairs for an old, paid-off car over a period of say, 5 years, be greater than the cost of paying for and maintaining a new or used car over the same period? If the answer is no, then buying a replacement is more of a want than a need.

One note: Buying a car, used or new, is an individual decision that should be based on your particular circumstances. My goal here is to explore different ways of car buying and examine the merits of each, not make blanket recommendations.

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3 Comments
ngan
July 08, 2010 at 2:07 pm

"worth" is relative to the owner.

I have bought two new cars in my lifetime. My first car was a civic that would have lasted til the frame falls apart. I sold it to buy a used 1998 nissan maxima that had only 50k. I'll be driving that til it dies too.

The other new car I got was a 2005 Odyssey, again, because of the kids. we plan on driving that til it dies.

In both cases, we got great deals on the price and financing. we have since paid off the car loans.

A used car is better if you are lucky enough to find one for a great price with low mileage...but that's a crap shot since most used cars tend to have high mileage.

So a new car is worth it if you will drive it til it dies. Then you do not have to worry about depreciation since it's not a factor anymore.

Claes Bell
July 07, 2010 at 2:26 pm

You're welcome and thanks for reading and offering such a great comment on the last post. It's readers like you that challenge me to do better and help make this job so much fun.

Debra James
July 07, 2010 at 1:56 pm

Thanks for the tip about the Magnuson-Moss Act. It has been a long time since I bought a new car, and I surely was under the impression that a car owner had to take it to the dealer to be serviced in order to stay in warranty. This type of info helps to keep the consumer informed about their rights, and offers them the opportunity to explore their choices.