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I am planning to buy a used car, as everyone seems to suggest that is more financially good decision.

I am more interested in being frugal than getting flashy stuff. Going by that, this car is a necessity for me now. Initially I planned to buy a used car that has about 60k/70k on it for about 10K dollars. But later decided to buy a car more recent, (2012/2013 models), Toyota or Honda. I plan to drive it as long as it runs without issues.

I need an advice on:

Is it financially better to buy more recent car vs buying even older car? Again, I want to save as much as I can, knowing cars are depreciating assets. I don't care about color, seats, power, etc. Just need a sedan to accommodate my family, and last longer (No public commute in my area)

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The sweet spot is often a late model year used car, maybe ~3 years old. These cars are often coming off of a lease, are still under warranty for another year, and are 30% (or more) cheaper than a comparable new car. It's like getting that new car feeling with the latest gadgets and features but at a screaming deal.

If you really plan to keep the car for 10 years and drive it into the ground, starting off with a 3 year old car could make a lot of sense because you're starting out knowing the car is in good condition and has a bit of warranty left.

Yes, you could get a 5+ year old car for less, but that is a compromise on miles, condition, and future repair bills.

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To me a frugal vehicle is more than 10 years old, has many miles and costs less than $3000. You should also check for hidden costs like registering plate tags at DMV and used vehicle sales tax, which will depend on your location. Some state DMV's might waive the used car sales tax on vehicles below a certain threshold. Other states charge higher tag prices on cars until they are fully depreciated. Can't answer for sure because you could be anywhere.

Either way, you now have an extra $7000 to invest in dividend paying stocks, $7000 in REIT's or BDC's would pay $50-$70 per month dividend on average. Sounds like free gas or insurance money to me.

http://www.financialsamurai.com/the-110th-rule-for-car-buying-everyone-must-follow/

Other websites claim you should spend 10% of your income on a frugal car. For a $10,000 car to be frugal, you'd have to be earning $100,000 per year. In which case you'll probably think my answer above is only for 'poor people'.

http://www.moneyunder30.com/how-much-car-can-you-afford

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  • Also add insurance to hidden costs. If you buy on a loan, you will almost certainly have to carry collision & comprehensive insurance. This may be quite expensive, depending on the car and where you live. – jamesqf Mar 28 '15 at 4:55
  • @jamesqf Right, I hear in Detroit that insurance fees per annum, can cost more than a used car. – Knuckle-Dragger Mar 29 '15 at 17:54
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    The problem with buying a >10-year-old car is that you don't know why it's being sold. While I may be happy with the 10-year-old car I've owned for 7 years, I'm not enough of an expert to evaluate someone else's 10-year-old car and avoid a lemon. – Jeremy Stein Mar 30 '15 at 19:20

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