A man standing in front of a blue car parked in a parking lot

The Cheapest Way to Own a Car

There is nothing quite so expensive as a brand-new car. There are times, rare though they be, when financing a new car might be advisable. But generally speaking, the cheapest way to own a car is to buy a late model, used, domestic car with cash.

A man standing in front of a blue car parked in a parking lot

photo credit: ericpetersautos.com

How can you possibly do that when you don’t have a lot of cash to get started?  Great question. The answer is found in these two simple rules:

Rule #1: Pay Cash

Rule #2: Always Make Payments

I’ll bet you’re confused. On the one hand in Rule #1 I’m telling you to always pay cash for your cars. And in Rule #2 I am telling you to always make payments. Both principles are true.

Here’s the deal: You must adopt the attitude that as long as you intend to own a car you must anticipate the cost by making monthly payments to yourself. Unlike a home that appreciates, cars depreciate, so you must always anticipate a car’s replacement. Anticipate your automobile needs by making car payments to yourself. Treat it as a regular monthly expense that will never go away—like food or utilities. This way instead of paying interest to finance cars,  you will always be earning interest.

You make payments to yourself even when your car is fully paid for and even when you are fully satisfied with the car you are driving at the time. Why? Cars depreciate and wear out. Never forget that. You must always be anticipating your next car.

Anyone can adopt my plan to become a cash buyer, but you have to work up to it. And you must be willing to endure a certain amount of sacrifice, in the beginning, to achieve a greater reward later. This is where I tell you that you must let go of your pride. You stop worrying about what anyone will think about what you drive.

Start with a clunker—the very best clunker you can buy with the cash you have. Let’s say that all the cash you have is $1,200. This will not get you a pretty set of wheels, but if it runs, hey, that’s transportation.

Now, let’s say that before reading this, you believe you could cover $200 monthly payments on a new car. Great. Start making those payment to yourself now. This month. Yep, $200 every month into your car account. And for as long as you intend to own a car.

At the end of one year, sell that clunker for let’s say $900. Add that to the $2,400 you’ve saved (can you believe it? You have $2,400 in your car account after only one year) and go out and find the best $3,300 clunker you can find ($900 + $2,400 = $3,300). For cash!

Keep making those $200 payments to yourself. At the end of that year, sell the better clunker for say $3,000 and add that to the $2,400 in the bank. Now go buy the best $5,400 car (you’ve just graduated from clunker status to fairly decent automobile) you can find.

Keep doing this every year until you have enough cash to buy a brand-new car with all cash. It will happen if you are diligently following Rules #1 and #2.

But wait, you say. Isn’t that a poor use of money, to buy a brand new car that will so quickly depreciate? It sure is . . . and you would’ve never asked that question until you had $25,000 cash in your hand.

I’m going to predict that when that day comes, you won’t want to spend that much of your own cash on a new car that will be worth about $20,000 the minute you drive it home.

So I suggest that you take your cash and buy the best late model, domestic (cheaper to repair and maintain than any foreign beauty) used car you can find. Keep making those payments to yourself, and you will be an all-cash car buyer for the rest of your life.


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13 replies
  1. Car man says:

    The clunker method is great for people who know something about maintenance as well. If you can fix little things, then you can save yourself a lot of money. But if you were born with “two left hands” and you need reliable transportation for (and during) your work/pick up kids etc, and you need a car as the main household vehicle, then the clunker method is terrible advice. Then you are much better off buying a 3 year old CPO vehicle, Corolla/Civic style. These cars come with full one year warranty, clear car history, have less than 50K miles on it and these cars can least you easily for another decade. Car payments (credit union) are modest and within 4 years, you have paid it off. Maintenance on these cars is not going to go through the roof, at least not up till 100K miles. Then you keep saving every month towards a future car purchase.

  2. Lexi says:

    This article is good way to not pay interest to a bank or finance company. The only problem is you will be paying sales tax every time you buy a different vehicle each year, which adds up to quite a bit year after year. ( 6% sales tax on a $7000 vehicle in my state is $420) I’ve always saved up money to pay at least half the price of the next vehicle I want. That gives me a price range I can look at. I then finance the rest of the vehicle through a credit union at the highest payment I could afford to get the loan paid off quickly. Then I sell my old vehicle myself to get a higher price for it while driving the new one so there is no pressure to sell old vehicle at a low price. I put all the money I get for the old vehicle once it’s sold towards the newer vehicle loan. I end up paying sales tax once and drive the vehicle for 10 years, while saving up for the next one. Last time I did this was 2 years ago and my loan was paid off in 6 mos and I shouldn’t need another vehicle for 8 years.

  3. Jerry Jamis says:

    Yup! Buying a gently used car was the best way to save money when purchasing a vehicle. A big reason behind this logic is that new cars depreciate considerably the moment they are taken home from the dealership.

  4. Sarah says:

    So, when you are ready to upgrade, you sell the old car, and then you are without a car for a while. How do you go about shopping for a car, then? I really like this idea, but making it actually happen sounds difficult. Any ideas?

  5. Vanessa Khoo says:

    used cars are the best. very few new cars i’d want to buy anyway regardless of my financial situation. bought my first car for $2700 and my second for $7000, all paid for in cash. yeah it hurts a bit taking such a huge chunk out of my bank account but it would hurt less than getting a car loan. i also do all the oil changes on both cars, every 6 months on the dot. best preventative maintenance you can do to keep a car running.

    • guest123 says:

      and maybe using that high mileage oil….i know it cost 2 dollars or so more a bottle but i dont think 10 extra dollars on an oil change is gonna hurt that bad….especially if it prolongs the engines life…have you priced an engine replacement lately….

  6. Exyoopergal says:

    My husband and I started doing this years ago, we’ve been married for 32 years, and haven’t had a car payment for many years. We did finance a car about 10 years ago because it was 0% interest and we decided we were better off to keep the money in the bank where it earned interest and finance the new car. We have both told others to “keep making payments, only to themselves” after paying off their vehicles. Amazingly most people have not taken advantage of this advice!

  7. Renita says:

    Have to disagree that domestic vehicles are somehow better. Hondas, Toyotas and even Hyundais are generally very reliable and not expensive to maintain. Every domestic car I’ve driven has broken down in some dramatic fashion, whereas my family has bought used Hondas and Toyotas for years and only had the usual upkeep to pay for.

    We just bought a new Prius, did a lot of homework, got a good price for it and zero percent financing. Zero. And I fully expect the car, with regular maintenance, to last us 10-12 years and still be in good trade-in shape at the end of that time.

    • skye says:

      Yep, the new big 3 is toyota, honda and nissan. That said, i found a 69 ford f150 truck in decent shape, did an engine rebuild, put in a rebuilt tranny. It will run for years yet. And no dadblame computer chips togo bad!

  8. hbartlett says:

    I’ve heard this plan before, and it sounds good in theory, but there’s a couple of other factors to take into account, mostly repairs and maintenance. Older vehicles will cost you in repairs, especially if you drive any significant amount. These repairs can take a big bite out of those savings from your monthly payments to yourself, and in many cases could wipe it out. I’ve had vehicles that cost me as much as owning a new car or more in repairs.

    Some of this can be mitigated by smart buying – pick basic domestic vehicles with lower parts costs. Minivans are a great option for cheap vehicles as they have terrible resale value and are generally cheap to fix, especially Dodge or Chevy. Low mileage vehicles are not necessarily more reliable either – once you get to 70k miles they’re at the stage where everything is wearing out, and have often been neglected, while some higher mileage vehicles have already had much more maintenance done. Then you have to consider what might end the life of that vehicle – if you paid $2000 for an older van, but when safety inspection time comes (if applicable where you live), and there’s too much rust that the structural integrity is failing (most common cause of junking old vehicles in snow belt areas), then you’re going to get $100 for scrap and have to start over. Most of the time, buying older vehicles is really a crap shoot, you don’t often know what you’re getting. If you can keep it on the road, you won’t lose too much on depreciation though.

    The “middle” category isn’t any better, in fact can be much worse. These are cars that are maybe 5 to 7 years old, sell for $5000 to $8000 range. The repairs on these vehicles are often just as much as the 10 to 15 year old cars, and they are usually vehicles that haven’t had much fixed yet – but were at the stage where everything is wearing out at once (usually the reason they were traded in). So you have repairs and depreciation.

    My philosophy has been this: Driving cars will cost money, no way around it. So either pay cash for your vehicle (up to $2500) and plan on fixing it monthly, or buy new and trade it in when the warranty runs out. If buying new, buy the “value” package vehicle – these are often the models used to advertise low monthly payments, but they really want to sell you the upper scale models. Stick to buying the car and only the car, don’t build in extras like $400 floor mats or $2500 warranties.

    The most expensive way to drive a car is to buy and finance a used car, 3 years old or older at a dealer, especially the secondary market dealers (not branded). Finance rates on used cars are always higher, payments aren’t any less monthly, and you also get to repair that vehicle on top of monthly payments and depreciation as the warranty has usually run out or is about to (or you can buy the expensive additional warranty, adding even more cost).

    Source: Been driving for over 30 years, have personally owned over 50 vehicles.

    • Dorothea says:

      I agree it’s a huge crapshoot. Our son lives on a mountain in Colorado–had to have 4 wheel drive. He’s a poor musician but very frugal. Bought a used Subaru with cash. Had it 6 months when the engine quit. A new engine, or used one, would have cost too much, so he sold the car at a huge loss. He moved to town so he could live without a car for awhile. No good solution for the used car dilemma.

    • Bobmarley says:

      Buying the base model does help but you still get hit with the new car depreciation and higher insurance rates. The cheapest way isn’t always exact but it depends on the type of car you want to own and then there is the risk/reward factor that each individual has to put on owning new vs older for reliability vs cost to own.

      Most new cars depreciate by about 50% in the first 3 to 4 years. If you buy a new Toyota Camry for $24,000 and own it for 4 years and sell it for $12,000 it will cost you $12,000 or $250 per month. If you buy a 4 year old camry for $12,000 and own it for 4 years and sell it for $8,000 it will cost you $4,000 or $83.33 per month but then you might have to replace the timing belt and water pump and get new tires which will add about $1,400 and make the monthly cost $112.50 which is still less than half the new car cost (which doesn’t include the cost of insurance).

      Other cars depreciate faster or a little slower so you need to shop around for better deals. The best deals are usually found when you have a little more time to shop for a used car.


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