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I will be graduating college soon and I will need a reliable car to get me back and forth from a firm I will be working at. Reliability is really important to me.

I was looking at several CPO and new cars, and was thinking about purchasing a new honda fit through their graduate program. I'm pretty sure I have no credit, as I've never had a loan besides my student loans which I haven't started paying. However, while reading the details it seems like the graduate program allows me to take advantage of the honda offers which would grant me a 0.9% APR.

Is this a terrible idea? That .9% APR seems much more attractive than anything I would get with a loan on a used car and the used Fits seem to only depreciate by a few hundred /thousand over the first year.

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    New car is a waste of money. Buy one that is 1-2 years old. It will feel just as new to you and you won't blow all the extra money just to drive it off the lot. – JohnFx Apr 9 '13 at 21:09
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I respectfully disagree with @JohnFX's comment regarding new vs used.

(John knows what is talking about though; he gave an awesome answer on buying a car: What are some tips for getting the upper hand in car price negotiations?)

The answer to your question is based on whether or you not you can stand to have a small, loud, cheap but reliable car for the next 10 or 15 years.

New vs Used

If you plan to keep your new car until it dies 20 years from now, then a new car can be a fine choice. I just bought a car and the difference between my 2013 Hyundai and a comparable 2012 Hyundai wasn't much. Furthermore, it was hard to even find a 2012 (which justifies the higher price from dealerships and the private market). Doing math in my head told me the reduced usage I will get out of the car wasn't offset by the slightly lower price.

  1. I got special financing from the manufacturer that was slightly better than my credit union, and it came with a rebate lowering amount I financed. (I had my own financing ready to go before I went shopping. Never take the dealership's deals without having your own plan to compare it to.)
  2. Since I couldn't pay cash, I needed a loan and the rates I found shopping were lower for newer cars.
  3. My car is going to last at least 200K miles, probably a lot more according to my research. As I will be driving this car well after I pay off the loan, the total cost of ownership will be low, and depreciation isn't a factor after such a long time.

Other Costs

Depending on the specific age, insurance on newer cars can be cheaper than insurance on older cars. (But you have to have carry more insurance, so consider that as well.) There might not be a different between a 2010 and a 2012, but there will likely be for a 2005 and the 2013.

New cars can be cheaper to operate. Lower fuel costs, better safety and possibly pollution costs. They are tuned up and you know everything about their history.

Repairs and factory warranties might not be available on a used car, so if you car turns out to be a problem, your out of pocket is limited.

Certified Pre-Owned

These programs don't mean anything. Get an independent certified mechanic to check out any used car you buy. If the dealer won't let you get the car checked out, then they aren't worth your business. Certified cars don't justify their cost according to consumer reports, they are more for marketing than reliability.

Warranty

Don't waste money on a third party warranty. Either the car is good and doesn't need it, or it needs a warranty and you shouldn't buy it. If you new car comes with a factory warranty, that is fine. Radio host Clark Howard is indifferent if you want to purchase a factory warranty separately, but never a third party.

Bottom Line

Just out of college, you probably will be better off spending the least amount of money you can for a good used car. If for no other reason, this likely isn't going to be your car in the near future. (Only you can answer that)

If you have a feeling you won't keep your tiny car well into your 30s, then definitely don't buy a new car.

Also, my experience only applies to my make and model. Certain models of cars keep their value and the difference between new and used isn't much for the most recent model years. But there are many more makes and models that don't pan out that way.

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The .9% looks great, but it's not as relevant as the cost of the car itself. There are those who believe that one should never own a new car, that the first X years/miles of a car's life are the most expensive.

The real question is how your budget is allocated. Is the car payment a small sliver or a large slice? How big is the housing wedge?

  • Assuming the estimation calculator is correct, I will be paying ~220 dollars a month after my down payment of 4000. With my other expenses taken into account, this leaves me about ~1000 dollars a month I can drop into savings. As you said, I'm worried I might be making a mistake buying new, but that loss of value on the car may be a lesser loss than a giant APR. – Joseph Adamski Apr 9 '13 at 20:09
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    I see you compared new car loss in value to the APR, but the third choice - buying a say, 30-50K used car that has life, but no expensive first cost - is what I am asking you to consider. Obviously, the choice is yours and it's a personal decision. – JoeTaxpayer Apr 9 '13 at 21:42

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