So I'm looking at buying a car. At the moment I am using my parents' old car, however when I move out of home I will not be able to take it with me, and it also lacks some of the features I would like (cruise control in particular).

I'm looking at buying a small car, probably a hatchback. At the moment I have saved around AU$12,000. My parents are willing to lend me some amount, probably up to $5000, and I work for a bank which can give me a loan at a very favourable staff rate. I earn a bit over $325 per week at the moment and I have few living expenses beyond luxuries, that income is bolstered semifrequently when I can work extra shifts. At the beginning of 2013 I will be seeking a full time job as a high school teacher.

Looking at a few car websites (in particular carsales.com.au) it appears I can buy a fairly good second hand car for around $15,000, or a brand new car that seems quite good for around $24,000. This is a very rough guide to local prices.

I am aware that my decision process in this judgement is very fallible because I don't know much about buying cars, e.g. the potential pitfalls of a second hand one, and any other things I need to take into account.

Being as this is by far the most money I will ever have spent on a single thing and it is likely to last me for most of a decade at least, I am strongly motivated to make this decision rationally.

Does anybody have any advice they can give on how I can decide how much money to spend, or things I should consider when comparing potential cars?

New Comment
22 comments, sorted by Click to highlight new comments since: Today at 7:05 PM

Most important piece of advice I can think of: purchase cost is only a small fraction of what you'll spend on the thing. Base your decision on total cost, which will include parking, insurance, gas, tires, repairs and depreciation (decline of resale value).

Be sure to question the root assumption "I need to buy a car". Depending on where you live there may be alternative modes of transportation (e.g. public transport, self-powered) or alternative modes of use (long-term rental, car sharing, or complementing non-car transport with occasional rental).

That's a good point. Is there any way to get an idea of how much a car will cost in maintenance etc? Fuel economy is easy but I'm not sure how to work out how much a car will cost for replacement parts, maintenance, etc.

I'll see if I can check how similar cars have fared in depreciation using second hand car listings, although if anybody knows a more efficient way to do this it would be very handy.

Unfortunately in my circumstances (area, job, lifestyle), some form of motor vehicle is pretty much vital.

Google will give you pointers to various TCO calculators, I'd try Googling "car TCO" with your city name to narrow it down. These omit some actual costs (parking, etc.) but will give you a rough idea. Also keep in mind that fuel costs are likely to keep rising.

That's probably a good place to start. I'm in somewhat similar circumstances, and I've been paying a lot more attention to TCO calculations than purchase price except insofar as I can afford the latter without going into debt -- not that it's rational to have an absolute aversion to debt, instrumentally speaking.

Unfortunately, the data behind all the online TCO calculations I've been able to find is usually rather opaque. I'd feel better about it if I knew where all the numbers were coming from.

some form of motor vehicle is pretty much vital

Is it vital that you own it?

Buying and selling used cars correctly on the depreciation curve makes owning a car almost as cheap as public transportation for me. YMMV.

For me the issue isn't the cheapness of public transport, but the availability. Where I live (outer eastern suburbs of Melbourne) the public transport system is a hopeless mess. Buses are the only way to travel unless you're going radially to or from the city centre (I do use trains to go to uni when I have to travel during rush hour times), and they are unreliable, infrequent, and take long winding routes through backstreets that add huge amounts to travel time.

When I was living in London I was amazed at what a joy it was to live in a place with such a well-run, useful public transport network. It made me sad when I came back home.

http://www.edmunds.com/tco.html

Lowest TCO over 5 years, 2008 data:

$0.427/mi. - Chevrolet Aveo "Special Value" 4-door hatchback, 1.6, 5-speed manual

$0.429/mi. - Hyundai Accent GS, 2-door hatchback, 1.6, 5 speed manual

$0.442/mi. - Honda Fit, 4-door hatchback, 1.5, 5 speed manual

$0.445/mi. - Toyota Yaris 2-door hatchback, 1.5, 5-speed manual

$0.455/mi. - Honda Civic DX, 1.8, 5-speed manual

$0.463/mi. - Mazda3 iSport, 2.0, 5-speed manual

$0.464/mi. - Kia Rio sedan, 1.6, 5-speed manual

$0.467/mi. - Scion XB wagon, 2.4, 5-speed manual

$0.468/mi. - Toyota Corolla CE sedan, 1.8, 5-speed manual

lowest TCO when buying used is usually something like buying a two year old car and then selling it after a few years based on further depreciation curve. You can drive for stupid cheap if you time your buy and sell correctly.

Could you explain and/or write up this method? Please?

In general the biggest issue is avoiding the biggest depreciation hit which is the first 2 years. Cars generally have another drop off in value a few years later when they aren't perceived as "new" anymore. This varies from model to model as the introduction of a new revision affects it, along with popularity and other factors. So you look at the depreciation rate of the cars you're interested in and choose the spots that minimize your expected cost. When I purchase I look at the kelly blue book values over time to see how they drop.

Interesting. Thank you!

I agree with Morendil's points. A few bits and pieces I've picked up about the purchase price:

Some dealership tactics: find out who advertises the cheapest price on your wanted model, then call up everyone else who has it. Chances are somebody will try and compete on the price, the dealers will shift a fair bit. usually upgrades are a poor investment, and might sometimes be used by dealers to try and cloud comparisons between other dealers. don't fall for it.

In Australia, I've found the "dealership test cars" are usually good value. You get pretty much all the guarantees of a new car but with some of the "shiny and not broken" new car premium taken off. I've seen at least one instance of an 11% discount on an otherwise perfect condition car.

As a new car buyer who doesn't know much about second hand cars, you would do really well to find something with some manufactures warranty left, ensuring most severe problems will not be a hindrance.

REALLY consider depreciation. Whatever your buying, see what an older model costs relative to the one your buying. This is usually a good gauge of future depreciation values (in my opinion, commodores and falcons have pretty good residual value simply because there's so much information available about past prices ad reliability in oz, being an oldish car)

if going second hand, see the car first inspect everything like hawk ensure you have comparable prices to know your not being shafted.

WARNING ANECDOTAL : I've seen a few guys in your situation go for oldish Mercedes and BMW models, it usually ends badly because of the maintenance costs despite whatever joy you get from the badge. You will be several times better off with a spanking near new corrolla.

From the Car Talk guys: The cheapest car to own, in the long run, is a junk heap. But expenses with such cars are "bursty" and unpredictable; you never know when you night have to drop a grand on a head gasket or something. They're also less safe than newer cars of similar mass, and more likely to break down at inconvenient times.

Looking at a few car websites (in particular carsales.com.au) it appears I can buy a fairly good second hand car for around $15,000, or a brand new car that seems quite good for around $24,000.

The first thing to know is: Buy a used car, not new. A new car becomes instantly "used," and loses a third of its value, the minute you drive it off the lot.

I've found consumerreports.org to be well worth the $26/year, especially in the automotive reviews.

I would suggest edmunds.com; they will tell you an average of what other people are paying for a car of your choice (a good guide to knowing if prices are in line with reality). I don't know if they cover Australia, but even if they don't, some good information is likely there for the taking.

Are you a small person? You should make sure that you can actually configure your car to be ergonomically ideal.

It also makes a difference if you're unusually tall and/or fat (or as I prefer to be called, a "person of size".)

Is this a Randy Newman joke?

No, I'm serious, but my non-sense of humor indeed appreciates that my meme maps back to a Randy Newman song I forgot about. I meant that if MixedNuts is a small person, most any car will fit him, but if he's larger, a poorly designed hatchback might be uncomfortable for long periods of time.

I'm 5'11'' and don't fit properly in my small mid-size car. With the seat all the way back and the steering wheel lowered a lot, the speedometer is obstructed. I spent about 4 hours fiddling with the tilt and height controls on a late night drive back to San Francisco once and really just couldn't get something that was ergonomically perfect.

Basically ergonomics is sublimely important but most people don't attention to it. I'm currently planning a post on ergonomics.

MixedNuts? You mean me? :P

It's a good point though, I definitely intend to make a list of things that I need to check in any car inspection because if I miss them they will drive me crazy.

Yes, sorry. :)