Have you taken notice of the car market lately? It is insane! Gone are the days of negotiating MSRP down. Now it’s a blessing to pay MSRP as most dealerships are tacking on thousands of dollars to that price. Even while this is the case, the dealerships are having a hard time keeping any cars on the lot. Cars are bought sight unseen prior to even hitting the pavement. Regardless, guess what I did? I bought a new car. Sounds counterintuitive, especially when the financial independence community encourages purchasing a reliable used car. But I’ll tell you why I did it and why you might consider it if you’re in the market for a car right now. 

Why are cars so expensive right now?

You might have heard about the chip shortage? And if you add the supply chain issues, the cost of goods has skyrocketed over the last year. Chips are needed to put in new cars so the shortage meant new car manufacturing slowed down or even stopped. This caused the values of used cars to increase dramatically as well. 

New vs. Used Car Buying

In the financial independence community, buying new cars is discouraged. Why? Because the second you drive off the lot, you typically lose hundreds or thousands of dollars in value. But if you buy a car that is 2-3 years old, the value will hold steadier.

However…..like Fat Joe said, yesterday’s price is NOT today’s price! Because cars are in such demand, driving your car off the lot doesn’t have the same disastrous effect on your car’s value as it did in the past and may in the future. 

Another thing that might affect your purchasing decision is financing. Ideally, you’d want to save up the money for a car rather than financing so you can avoid paying interest. So if you can wait to save up, that honestly is the best financial move. However, if you’re going to finance, you’ll likely see better financing deals for new cars than for old cars. This can be even more competitive in the dealership itself when purchasing new versus certified pre-owned.

Why I Bought a New Car

The choice to buy a car did not come easy. If you’ve checked out my money journey, you know my household of two went from three cars to one. And we paid off the car we did have in 2020, so I wasn’t very excited to obtain new debt. However, a few things tipped the scale in favor of buying a new car.

1. Time is Money

Initially, when we downsized to one car, my husband and I had pretty simple schedules. I worked one job in NJ and my husband worked one job in NY. So I took the car to work and my husband took the bus into the city. Easy-peasy. However, my husband is now venturing into entrepreneurship. So sometimes he needs the car when I’m at work or I tag along with him on the weekends while he’s working on matters for his business. The busier he gets, the less feasible it became to have just one car. 

2. A Girl Wants What a Girl Wants

I am short, 5’3 ½” to be exact. I’m also someone who likes to think ahead and anticipate what other drivers are doing. So I knew whenever we got our next car, it would be a compact SUV. One week I needed a car and my sister let me borrow her, a Toyota RAV4 and I loved it. It just felt so natural to me. Also, I was having trouble with our Honda Civic and couldn’t wait to get out of it. 

3. If I Was Going to Spend Money…

The RAV4 had a recent style stage that I personally appreciated. So I would not have wanted anything earlier than a 2019 vehicle. Also, there are features of our Honda that I liked and wanted in my new car. This includes heated seats, a proximity key, and multiple USB ports. I also would’ve preferred to start my car from my phone, which would have been an upgrade from the Civic. However, that would’ve required a subscription which to me is defined as payments for life. 

For the features I did want, I would have to get a higher trim, the XLE. Finally, I figured since I was getting a car payment, will be paying more for insurance with a second car, and would have a bigger gas tank, I could offset the total cost a smidge more by getting a hybrid. That was my gas could last longer. 

Steps to Buying the Car

I hate the car buying process for the most part. The hours they waste selling you things you don’t want drives me insane. So initially, I checked sites like Carvana to see how much a used Toyota Rav4 XLE would cost. The prices ranged from $36-38k. You know how much a new one costs, at least the one I wanted. About $32k. So the choice there was easy. However, there were other barriers. 

Walking Away When It’s Not Right

I used Toyota’s car builder to determine which features I wanted. MSRP for that car was $32,335. This doesn’t include taxes and fees. When I first went to the dealership I eventually bought the car from, they showed me a car that had a lot of additional features on it. Its MSRP was about $33,397 AND the dealership was charging a $2,500 market adjustment fee on each car. A lot of dealerships are tacking on this fee on top of the MSRP which is making car shopping a delight for this frugal gal! So I ditched that car because I’m not spending an extra $3k on top of that $2.5k fee. They offered me $500 off to stay and I left.

Costco Auto Buying Program

In case you didn’t know, your girl loves her some Costco! Whenever I tell my coworkers another reason I love Costco, they say “Is there anything Costco doesn’t do?” I give them an honest answer, “no”. Costco partners with dealerships around the country to get haggle-free pricing for their members, as well as a discount. However, the shortages have affected the availability of these deals. Despite my and Costco’s greatest efforts, it didn’t work out to use their Auto Buying Program.

Nailing the Deal

I kept searching to find a car that was as close as possible to the one I designed. That’s a lot of sifting through roof racks, sunroofs, etc. Finally, I came across one that was a little closer to what I was looking for ($32,733 or so). It was inbound to the dealership. The only “problem” was that it was in blue, which is not one of the colors I was considering but I liked it. 

Also, I knew Toyota offered a $500 rebate for college graduates. However, I didn’t mention that I would be eligible before trying to get a discount. At the last visit, they offered me $500 off if I bought the car. So I asked if they would apply a similar discount this time. They took off $250. I was pleased to get anything that would chip away at that market adjustment fee. I then told them about the rebate, which then meant I got $750 off. I put a deposit down and waited for the call to come in regarding the car’s arrival. 

Is Buying a New Car Worth it?

It was for me. While I was super anxious to be adding an expense that we eliminated from our household, the day I picked up the car reminded me why I wanted it. My husband had to go run an errand 2 hours away for God knows how long and then he went to go help my cousin who’s working on setting up a rental. And where was I during that time? Doing me! I mainly visited my family and helped my mom clean her room. I’ve been promising to do that for months. Also, I got to leave when I wanted instead of waiting until he was done.

Also, my husband doesn’t have to wait for me to come home to run the errands he wants to. Sometimes, he would Uber somewhere and I would pick him up after work. Now, I can go home and he has more flexibility. Finally, I’m looking forward to having a car accessible when one car is in the shop for repairs or maintenance. My job is not a very Uber-friendly location so getting one after work was always a chore.

Should You Buy a New Car?

That is up to you obviously. This market is quite unique considering the factors we discussed. In fact, the finance man at Toyota was talking to me about gap insurance. Gap insurance covers the gap between how much you owe on the car versus how much the car could be sold for at the time. I laughed because, in this market, a used car is worth more than an old car. In fact, I checked KBB (site to check car values). Mind you MSRP on my car was $32,733. When I checked KBB on 1/26/22, my car was valued at $37-39k. 

So you have to take a look at your and your family’s goals and determine whether or not it is worth it for you. My husband and I had to consider the increase in the cost of living that we have become used to. We had to determine where the money to pay the car note, the increase in insurance, and the gas was going to come from. Fortunately, another perk of purchasing new from Toyota is that it comes with Toyota care which covers maintenance for the first 2 years or 10,000 miles. So we didn’t have to factor that in just yet. 

READ MORE: How to Save Money on Car Insurance

If you decide that a new car is in your future, then count the cost and do your research. I wound up financing with Toyota because their interest rate (1.9% for me) was lower than what my credit union offered (2.14%). But the only reason I knew that was because I did the research beforehand. Most banks, and even some credit unions, can let you know your rate without a hard inquiry on your credit. So it doesn’t affect your credit score at all!

So whatever decision you come to, make sure it works for you.