Paying Cash For Cars: $3,500 Debt-Free Car Project

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Car pricing website just finished up a year-long series called the Debt-Free Car project.

Their goal was to explore an alternative to “Buy Here, Pay Here” car lots, which target lower-income folks with poor credit. These lots usually sell a 5-10 year-old car for a high total cost by combining a low down payment and a long stream “affordable” monthly payments. Think of them as the payday loans and rent-to-own TV and furniture stores of the car world.

With an initial budget of $3,500 and the simple criteria of a reliable brand car with an odometer under 165,000 miles, they eventually settled on a 1996 Lexus ES 300 sedan with 135,000 miles that cost roughly $3,300 ($3,800 including tax, title, and fees). They took the average monthly payment of a “deep subprime” borrower of $365 (per Experian) and made that their maintenance budget.

Over the next 13 months, they drove that 16-year-old Lexus another 18,000 miles and spent $3,286 in repairs and maintenance. This included both preventative maintenance things like new tires, new battery, oil changes, etc. as well as two breakdowns and other unexpected repairs. This worked out to $253 per month, under their maintenance budget but high when compared to the purchase price. On the other hand, many of the repairs won’t be repeated for a while and 18,000 miles is higher than average. They ended the experiment by selling the car to an Edmunds employee for $2,700, although they probably would have gotten more on the open market.

Overall, I think this was a neat experiment, and definitely worth a read. The $3,500 + 16-year-old car is lower than my sweet spot of around $8,000-$10,000 + under 7-year-old car, as I’d trade faster deprecation for fewer repairs. Still, the idea of paying cash for a car definitely fits in with my car affordability rule-of-thumb. If you stop thinking of affordability in terms of monthly payments, you can save a lot of money.

You’ll also need to find a good independent mechanic, as the NY Times points out. Recently, I’ve found Yelp to be very helpful in this regard, although some good places have gotten really overbooked. For many years pre-Yelp, I was a loyal customer of Art’s Automotive in the East Bay of the San Francisco Bay Area (Japanese brands only).

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  1. So they spent $253/mo in maintenance plus $46/mo in depreciation (give or take taxes and what they could have gotten on the open market). For that, they got an old car that broke down twice. For that same $299/mo or less, they could buy or lease a MUCH newer car (granted, not a Lexus) that is far more reliable and likely a better overall experience, with virtually no maintenance costs. To me, it doesn’t sound like they actually saved any money.

    *Of course, if they’re driving over 16,000 miles/yr, that does rule out most leases.

    **Also, that ES got 18/26mpg when new. If you’re trying to maximize your auto dollars, a more efficient newer car will serve you better. They likely spent nearly $3,000 in gas alone for that car.

  2. Alexandria says

    Interesting. Having driven a few older cars, I think *that much* repairs and maintenance in one year is crazy or unusual. I have never spent even half of that to repair and maintain a vehicle.

    I did buy a car for $800 once, drove it a few years, and sold for $500. That was my best car purchase, for sure, financially. (Admittedly bought from a relative, so knew it was in good decision and she sold it to us for trade-in value). Having a really good mechanic is key in driving older cars. I’ve personally only ever had one mechanical breakdown, and it was a 20-year-old vehicle (another vehicle, which I had driven for 7 years). I’ve had far more dead batteries and tire blow outs on newer vehicles. I think the fear of old car breakdowns tends to be WAY over-blown. I’ve watched many an acquaintance seem horrified that we would “waste so much money” on an older car, and then have far more car issues on their “new every 5 years” cars than I have ever experienced (because they didn’t have a trusted mechanic; probably the reason more than anything).

  3. Or you could turn your own wrenches, which is something I enjoy doing.

  4. i think the maintenance was on the high side. interesting experiment though.

  5. 1996 is an old car? Sheesh. We drive a 96 and 00 Cherokee and a 97 Saturn. We don’t put that much TOTAL into annual repairs for them.

    But hey, I’m not a car guy, so what do I know?

  6. Completely agree.

    I live in the East Bay too. I also prefer to pay a little more upfront to bypass additional maintenance cost. I’ve been looking for a small SUV in the 3-5 year old range but there are so few cars available and the prices seem to be inflated.

    Also, totally agree on your car affordability criteria.

    Excellent blog, btw. Have been following for a while. First comment.

  7. I agree that the repairs felt really high. I’ve been meaning to add up my own receipts on my cars.

  8. Pretty interesting experiment.

    They did spend a lot on repairs and maintenance and the car broke down and left them stranded twice and they seemed to be in the repair shop every month. Not really ideal. Personally I think paying a bit more for a newer and more reliable car may be a better value. Course if money is tight then a cheaper car will have to do.

    One point, they initially went to a Lexus dealer and were quoted over $3600 in repair costs. A lot of car owners would accept that as needed and fork over $3600. Another time a mechanic quoted $1000 for a part they found online on their own for $220. A big part of saving money here is shopping around for good prices from good mechanics and knowing what is and isn’t “needed”. That is often tough for a lot of people.

  9. Also, the article says:

    “If someone told you that he’d bought a used car for less than $3,500, how would you picture it? You’d probably visualize a beater with mismatched doors and torn seats, riding on wheels that were missing hubcaps. Such is the stigma attached to cars in this price range.”

    When did “sub $3000” become the “beater” threshold?

    Seems to me that it wasn’t all that long ago that $1000 or below was the beater level.

  10. Makes me happy I live in downtown Portland, don’t need a car! If the need arises, just get a ZipCar or Car2Go for the day. Obviously won’t work for everyone, but I purposely designed my life to avoid these ridiculous car expenses. The $3,000 stays in my pocket or goes toward fun stuff.

  11. Bought a 1992 Toyota Paseo four years ago for 1800. Have since put 40k miles on it, and 1700 in repairs (all wear and tear). The problem with this experiment is they go with a luxary car…cost alot more to repair because there is no after market.

  12. Good experiment. I believe they would have ended up with less in the way of repairs if they picked a less-complicated car with fewer miles. It is interesting to see that a Lexus, supposedly one of the more reliable makes, had not one, but two breakdowns…

  13. Nice call on the Paseo, Tom.

  14. I have decided to avoid all repairs and live life. I plan to never buy a used car again, and plan to lease going forward. I own my car, which is almost 5 years old and I just leased my wife’s car last year. I was able to roll everything into the monthly payment including taxes and fees and got it for under the advertised leased price +$3000 down before taxes and fees, which shows that dealers have a lot of room for negotiation. I plan to trade/sell my own car soon and lease a new one. This way I never get tired of my car, and I never have to worry about maintenance. Full insurance with much higher limits than what the lease company wants is under $1000 / yr.

    I would appreciate any comments.

  15. I bought a used car a few weeks ago, and I’m happy with it so far. My sweet spot is the 5K range, and my way of finding these is using Yahoo Autos, leave it blank and click search twice to bring up the menu (ignore the error), then I put in 10K to 100K miles and 1K to 6K price and within 30 miles of my zip. Most weeks only a couple dozen show up that I have no interest in, but right after Christmas this search caught four pretty good candidates. First place the sales staff totally ignored me so I walked out. Second one they didn’t have on the lot because it was “in transit” so they wanted my contact info (thanks but no thanks). Third one was the charm, got the car right at my target. I didn’t do the mechanic thing, instead I only consider a few make/models that have top notch reliability ratings on Edmunds. BTW for this method to work you have to be flexible and very patient.

  16. Demku – in the long run, leases usually cost more than owning a car but you have the luxury of a new vehicle every few years and you probably don’t have any repair bills. That can remove stress from your life. The important part of car ownership/leases are to find the areas that are important to you and go a route that takes care of that.

    there are those that will never buy a car unless its a 10 years old because they care about the depreciation so they address that. But they know that spending time with a mechanic will come with that decision. Or time with with a wrench in their hand.

    Personally I drive vehicles for a very long time until they barely depreciate but instead of a car payment I annually pay about the equivalent of 3-4 months of payments to my mechanic.

  17. I agree with the other Tom. The only time I would consider leasing is for a new electric car….the deals are great and the tech is changing every few years.

  18. The problem I see with buying a car that old is that you are not going to get many miles out of it. I always buy cars around 2 – 4 years old. If I can afford I go for a good brand. If not, I would go for a fairly good car but at reasonable price. For example, on the first group, I would look for Mercedes or BMW. If I cannot afford I would look at cars like Volkswagen (I have a preference for German cars). I must drive the car I buy for another 5 – 6 years with little problem. It is important to shop around when you are buying a new car.

    Also, you have to shop around when you are buying insurance for this automobile. You can save a lot of money without giving up essential coverage if you shop around. I don’t mean you have to buy cheap insurance from unknown companies. I mean to find good package policies from one of the well known insurers. There are many studies, tests and real experiences to show that between two top 10 companies the price difference can be as much as $1,000 for the same coverage. By the way, If you want me to write a good article on this subject for your website, please drop me an e-mail. It would be my pleasure.

  19. I bought 95 lexus ls400 at auction in nov 2010 for $3900 total w/tax and fees included in price. new fr front rotors and brakes $300.4new michelins$700. new timing belt, spark plug wires, plugs, water pump installed by my mechanic $500,including parts. $600 for bushings.$100 for msc light now runs fine. oil changed on reg basis $30.133000 miles at purchase 175000 now.absolutely no problems w car.recommend old lexus over old bmw,audi, or benz. maintenance is cheaper by toyota parts for maintenace needs, way cheaper!!…point being is that a used 10-15 year old lexus is full sized luxury,very high quality car at a cheap price to own and also runs fine on up to 10% alcohol in gas, performance varies with octane in fuel.a lot of lexus owners used to drive european cars but found lexus to be cheaper to own and operate.

  20. The best car I’ve owned and still own is a 1987 Volvo 240. My guess is it has over a half million miles (odometer broke). I got the car for free. I’ve just done routine maintenance on the car. It has the original engine and doesn’t leak a drop of oil. I’ve got a great, honest mechanic. He says the Volvos in the mid eighties to mid nineties (before they got sold to Ford) are the best cars ever built. After owning mine for 7 years now, I’d have to agree. Best car I’ve ever owned for sure.

  21. Blaine Smitley says

    Like some of the other readers I think the repairs and maintenance figures are a bit high. But then I was a mechanic for some years so know a little more about it than most.

    Rule of thumb for me is once a car goes over 120,000 miles the owner should budget about 75.00 per month for maintenance and repairs. If real maintenance is performed (like in the owners manual) these figures are about right.

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