Updated on 09.09.14

Trimming the Average Budget: Buying a Car

Trent Hamm

Transportation – vehicle purchases – $3,244/year

The average American family spends almost $300 per month simply on car payments. What’s stunning is that this is the average, since $300 per month would be roughly the payments on a brand new car without a down payment.

This is a number that can easily be cut with some careful planning and foresight when it comes to buying vehicles.

Cutting Down Your Car Budget

Focus on the cost per mile

If you’re looking to minimize the impact of a car purchase on your family’s budget, the real factor you need to focus on when making a purchase is minimizing the cost per mile of driving that you get out of the car. This means that a $2,000 car that you think you can get 30,000 miles out of is a far better value than a $20,000 car that you think you can get 200,000 miles out of.

Buy used – or at least include them in the search

If you’re focused on minimizing cost per mile, quite often, this means purchasing a used car, and that’s where most car purchases should begin. You might not necessarily wind up with a late model used car, but such cars should absolutely be an essential part of your search.

Drive the car you have for longer

Instead of trading in regularly for something better, drive your car for longer. Ideally, keep driving it until it reaches a point that the consistent problems are causing excessive financial strain and personal stress. That’s the sweet point for getting rid of a car, not the moment where you’re in thrall with the new features of the latest models.

Make your car payments to your bank account – in advance

While you’re driving that car for longer, start making the payments on yoru next car now while you don’t have a real car payment. Set up an automatic savings plan with an online bank account to keep withdrawing the amount of your car payment when your car is paid off. Keep driving for a few years while you have no car payments. Then, when you go to buy, you’ll have a fat wad of cash with which to buy plus the interest accrued in savings. Alternatively, you could buy a car on payments and then pay finance charges straight to the dealer. One of these options puts you in a better financial place – can you guess which one?

Start shopping long before you buy

Never rush into a car purchase. Start considering what your actual needs are, researching those needs, and looking for automobiles that match those needs lnog before you buy. The person who pays the worst price for a car is the person who is up against a deadline to make a purchase.

Never buy a car during your first visit to a dealership

Sure, you can negotiate, but the number they give you is never the bottom line. Walk away. Leave your number with the salesperson. Unless the car is sold quickly, don’t be surprised to get a phone call from that salesman in a few days “reconsidering” the situation and giving you a better price.

Never be afraid to walk away from a deal

If you’re simply not getting the price you think you should pay on a particular car, don’t be afraid to walk away. If you’ve given yourself plenty of time for a purchase, you’re fine. There are plenty more fish in the sea.

Hit your social network

If you’re shopping for an automobile, mention it to your friends and family and see what they’re aware of. They might just know of someone who has a car for sale by the owner or some other arrangement that takes place far from a car dealership. These types of arrangements usually provide the best deal for both the seller and the buyer.

Avoid leases, even if the sticker price seems good

Leases do allow you to drive a shiny new car for a lower price than a full car payment, but at the end of the lease, you’re left with nothing (except for perhaps an opportunity to buy that leased car – that is, after you pay plenty of fees). Avoid that rat race and focus on actually buying a car for yourself and keeping it until well after the payments run out. It’s those payment-less months that really make buying a car into a much better deal.

Know your needs (distinct from your wants) and be open-minded

You might know the exact model you’re looking for, but be open-minded about it. Keep your eyes and ears open for strong deals on other models. Be aware of a long list of models that you would find acceptable and don’t be afraid to jump on bargains that appear from that list.

I want your help! In the comments, please let me know which of the tips you find most useful for trimming these costs. I’ll include the top choices in a comprehensive budget trimming guide at the conclusion of the series.

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  1. KC says:

    I’m not sure I’m still in the buy used camp (although I have never had a brand new car), but I am definitely in the pay cash and drive it til the wheels fall off camp. Unfortunately that isn’t always possible. My husband had a great 10 yr old Civic that got totaled in a minor accident. I drove a 16 year old Nissan until it just became too uncomfortable and too unsafe for my needs. Both cars were working fine when we were “done” with them.

    In both cases we paid cash for another car – I bought a used Acura and my husband a new Camry. He firmly believe buying new is better and I firmly believe buying used is better – then again I buy luxury cars and he buys more mid-range cars – so we’re probably both right for our needs. I can honestly say when we were looking at Camrys (and Accords and Altimas) that the difference between a new one and a slightly used one was negligible when looking at price. It almost made sense to buy new – which goes against everything I’ve ever known. But when buying a luxury car – no doubt used is the way to go.

    But when buying a car you need to look at needs. Are you just puttering around town? Will you be hauling kids or driving at higher highway speeds (better look at safety)? Are you making long commutes (fuel mileage)? Are you hauling stuff (minivan, truck, etc)? You need to buy according to your needs. Personally I feel safety is important at all levels, and I’ll only buy a 5 star rated car regardless of my needs.

    But pay cash, drive the car til the wheels fall off (10+years), and take car of your car (oil changes, wash it, clean it) – it’ll last you longer.

  2. bethany says:

    This post is about purchasing cars, but there are also ways to lower your need for a car, especially in some locations.
    For example, choose a home on a bus line or walking distance from work or school, possibly allowing you to share a car with your spouse.
    Carpooling with others also lowers gas expenses and wear and tear on vehicles.

  3. friend says:

    KC says “I can honestly say when we were looking at Camrys (and Accords and Altimas) that the difference between a new one and a slightly used one was negligible when looking at price.”

    We also found this to be true last summer when replacing our ’90 Civic. We got a good deal on a new one after several weeks of looking at used… and paid just a couple thousand more. For a car that we’re hoping to drive 20 years, it made sense for us to start out fresh, make sure the maintenance is done on schedule and not get any surprises. (We did have the money saved up, but like Trent, a very low-interest loan for part of it was reasonable for us. Spouse’s credit union pays 4 percent interest, and loan was 2.9.)

    We’ll most likely go the same route when our ’89 dies, but it’s still perking along, knock wood. (It’s amusing to have an ’89 and an ’09 of the same model car–we skipped a whole automotive generation.)

  4. Sara A. says:

    How can you tell how many miles you’d expect to get out of a used car? Is there some kind of resource where you can look it up?

  5. Paula says:

    We have also never had a brand new car. I drive a 93 Ford Escort wagon that I bought used nine years ago. I mainly use it to go back and forth to work, which is less than 12 miles one way, five days a week. I love having a wagon when it comes to going camping, to the beach, hauling groceries, transporting goods to be donated, etc, and we are a small family (one child) so it works for us. It also gets great gas mileage as it is a 4 cyl. I know the time is coming to replace it though, and we can’t afford to buy new. I would love to have another wagon, but I’m not sure yet what would be in our price range (we have a small savings account with $2k in it for emergencies).

    My husband had an old Buick that was given to us by my mother several years ago. We had to replace it due to increasing costs to repair it last year, so we bought a 3 year old Kia from a dealer, but financed through a credit union, so our car payment was low because of our good credit.

    So, I am reluctant to take on more debt. My husband was unemployed for two months and could not collect unemployment because he was fired (he worked there for 8 years, but his boss of 2 years and him couldn’t get along). In that two months, we found out he had type II diabetes which had to be treated with meds. He is now on my health insurance through work, along with my son, which decreased our income further by about $200/month. Now, he is working again, but at minimum wage and sporadically, but was promised part time. He is also returning to school this month to complete his bachelors degree.

    Anyway, having said all the above and sorry if its TMI, I’m not sure what to do about a replacement vehicle for my car. Its been reliable transportation but I don’t want to push it too much longer as I don’t think it could take another Maine winter. I have been thinking of getting another reliable used car from a private seller and taking out a small loan of less than $5,000 to do it.

  6. michelle says:

    There is a problem assuming that the cost-per-mile will be lower for the $2000 car that you can get 30,000 miles out of. For a car that old (with many years of wear and tear on it) there will usually be constant repairs to deal with that will pull unexpected wads of cash out of your pocket. $400 here, $300 there, and soon you’ve spent more like $5000 to keep driving that car. Reminds me of when I was 16 and my mom gave me her car to use. She dumped a huge expense on me and I was constantly paying just to keep the car running. You must consider the average extra expense of these highly used vehicles before assuming they’re at a lower cost-per-mile than new cars (which require very little maintenance for a long while after you purchase them).

  7. Maureen says:

    I think that Bethany makes an excellent point. My husband and I survived quite nicely for the first 10 years of marriage without ANY car. We walked, rode bikes and used public transportation. It saved us a small fortune, which were able to put towards the downpayment of our first house. It was much better for our health too! When we shopped for a house, proximity to schools, shopping, etc. was a major consideration. We finally broke down and got a car after the birth of our second child. At that point my husband took a job in another city and the car became necessary. We still only have 1 car for the family.

  8. MoneyReasons says:

    I’m happy that there are people that buy a car new, then trade up for a newer car in a year or 2. That means I’ll be able to buy a used car that’s relatively new!

    When I replace the car I drive back and forth to work everyday, I’ll probably buy a foreign made US car. Like the Pontiac Vibe (which is really a Toyota Matrix). That way it will hopefully depreciate more than the “Toyata Matrix”, but still be as reliable as the typical Toyota…

  9. Tamara says:

    I am not sure that buying used is the way to go for everyone anymore. I bought new about 3 years ago because my Chevy Cobalt was a “last year” model that was on sale to clear it off the lot, and we were able to get a 0% interest payment plan from the dealership. I like the idea that *I* know that the oil has been changed appropriately, and that the car has been well maintained for the entire life of the car. We are planning to continue to put car payments in the bank after the car is paid off and since we will bee keeping this car for at least 10 years (barring any major accidents or other problems) we should be able to pay cash for our next car.

    I lived for about 6 months without a car, and it was absolutely do-able, but with my family spread out all across the province, and with my husband and my desire to travel on camping trips and driving trips it was no longer feasible to rent cars for these trips, particularly since many car rental places do not allow for their cars to leave the country of the rental.

  10. chacha1 says:

    I think the best tip here is “be willing to walk away.” (my paraphrase). Car dealers (new and used) are notorious for pressure tactics. We had a salesman hold my driver’s license hostage for hours! Don’t give them ANYTHING, they don’t need to check your credit or your DMV record. Only when/if you get to the finance dept stage should you be giving them your financial or ID information.

    Another note: if you’re buying used, it’s not a bad idea to pull the Carfax. A reputable dealer will do it for you on-site.

    I agree that under current conditions, a new car can frequently be had for very little more than a lightly-used one. But if you want to pay less than $8K, cash is the way to go. We bought a 1995 Accord two years ago for $6K. It should last another 5 years and is very economical to operate.

    When budgeting for cars, you have to consider fuel, insurance, and maintenance. It’s a mistake to think you won’t have any maintenance costs the first year. We budget $1000/yr per car, which might cover anything from new tires to new brakes to a new windshield, etc.; we don’t have to spend this much every year but planning ahead for it takes a lot of anxiety out of the equation.

    p.s. I agree, “car free” is the best of all if you can swing it. I walked to work for 4 years and it was GREAT. Talk about deterring casual shopping!

  11. Debbie M says:

    The cost-per-mile technique is the only one you need. Unfortunately, it’s almost impossible to do, although you could guess.

    Interestingly, I just gave someone advice for what to do about transportation when he gets out of prison. He will be living with his parents at first in a suburb with extremely horrible bus service (it takes 2 hours to get into town and 2 more hours to get back out).

    He was deciding between two choices:
    1) Stick with his totally paid for car – I think it will be extremely expensive to get that thing running again after sitting unused for nearly a decade, and it’s a crappy car to begin with, so it will take a lot more money to keep it running.
    2) Buy a new but cheap, reliable car like a Kia – I can’t imagine him being able to afford that any time soon, and Kia’s still aren’t as reliable as Toyotas or Hondas.

    So I gave him a bunch of other ideas:
    3) Buy a ten-year-old reliable car – it will be much cheaper to maintain than the pretty but crappy cars he’s used to.
    4) Buy a 20-year-old reliable car – much more affordable and will probably last several years until he can get his feet on the ground.
    5) Get a job with his dad and ride with him.
    6) Get a crappy job within walking distance of his parents (probably only retail and fast food are available) until he saves enough to buy a car. This is what I did after college.
    7) Get a van – it costs more than a regular car, but then he can live in it for free.
    8) Use a car share program
    9) Borrow a car until he gets a job, then move near the job.
    10) Use a car share program (don’t know if one is available in his area)

    The most expensive thing you can do is buy several expensive brand-new cars that break down all the time and are expensive to repair and drive around most of the day.

    You don’t have my favorite tip: 1) Buy something reliable/long-lasting. A ten-year-old car in a reliable model breaks down less than a two-year-old car in a model with merely average reliability.

    You don’t have my second favorite tip either which is to live near work, other places you go all the time, and/or mass transportation so you drive a lot less or not at all.

    My third favorite tip is to buy used, but that’s probably because the way I do it (buying 10-year-old reliable models for cash from individuals after getting them inspected and not getting collision insurance) is cheap, requires no financing, few repairs, cheap insurance, etc., and I don’t worry about every little ding and have no problems letting my friends bring ice-cream cones in the car.

    My real third-favorite tip is probably your “Know your needs (distinct from your wants) and be open-minded” but the way I’d say it is “Figure out what you actually want and pay extra only for that.” What I want is 1) my own personal vehicle for occasional use which 2) keeps me out of the weather (no motorcycles), 3) gets me from one place to another reliably, 4) has room for me, at least one other person, and several bags of groceries or a bunch of camping gear, 5) pollutes as little as possible (gets good gas mileage), 6) isn’t so ugly that it makes me sick. There are a lot of other things I’d like such as a pretty color, an interesting shape, lots of torque, room for ten people and a double bed, the car magically letting anyone with right fingerprints open and drive my car even without keys, and hovering ability, but I’m not willing to give up the other things or otherwise pay as much extra for those things as it would cost.

    Another great tip a friend gave me is that when something small breaks and becomes an annoyance, don’t refuse to have it fixed just because your car is old. If you keep the car in good working order you won’t be itching to get into your next car so badly.

  12. Karen says:

    After we decided which car we wanted (research, test driving a few) we contacted our Auto club and got a referral to a dealer’s fleet buying service. We went at the end of a day, end of the month, well-rested and well-fed. They showed us their fleet price in a book, and it was within $200 of what we’d decided we would pay so we took it. It was a very stress free transaction compared to the usual walk in and deal routine.

    I highly recommend looking to see if a person could get such a referral. We could have gotten the same referral through Costco. This was 10 years ago, so as with all “hardware” purchases, you have to go through your due diligence, because things change so fast these days.

  13. Matt Jabs says:

    Great advice. My wife and I own both vehicles out-right and currently have a “New Auto Fund” as one of our ING Direct Orange savings goal accounts.

    It is not for a “new” car but for a new USED car – maybe I should rename this the “Used Auto Fund”, I think maybe I will! :-)

    We never plan to buy new again and see it as one of the worst investments out there. Buying used is the best decision for us.

  14. Torrilin says:

    Most families in the US have two cars, so that car payment number is probably distributed over two vehicles, not one.

    For my partner and I, the best plan for a car would be to join our local car-share program. There is a $50 annual fee, and cars rent at $9/hr. You can prepay in $800, $400 or $100 increments. The $800 plan allows for 89 hours or 10 day trips, which is a lot more driving time than we need.

    If we ever buy a house, we’d add the car-share to our budget. Carting around construction materials, mulch, and plants works a lot better with a pickup truck than a bike. $850/year is a much better deal than a typical two car family’s expenses.

    (our bikes are paid for. replacement cost for both would be about $2000. annual maintenance runs us about $100. and bus passes and tickets run us about $500 per year. so our worst case scenario year is still well below the average car budget.)

  15. I’m firmly in the buy used, pay cash, shop near the end of the month, and walk away camp. I’ve been driving a Hyundai bought as a very low-mileage, 3-year-old, used car. I paid $6k for it, and have had almost no maintenance costs. Being prepared to walk away is absolutely critical, in my opinion. I’m not quite in the camp that says walk even if you feel you don’t need to. But certainly walk if you don’t feel you’re getting exactly the deal you want.

    I was able to name the price I wanted to pay simply by repeatedly asking the dealer to give me his best price and telling him I planned to continue shopping around that very same day. I was ready to follow through when he simply asked me to name a price that would make it worthwhile for me to forego comparison shopping. The $6k price I named was 25% off the sticker, and significantly lower than any price he’d proposed. I didn’t expect him to agree to it, and he had to go through the pantomime of asking his manager to approve the price. I probably could have gotten away even cheaper. But I got the price I named. No complaints.

  16. Shevy says:

    While perhaps the majority of families have 2 cars, not all 2 car families have 2 car payments. A lot of people have one car payment and one car that is leased for them by their employer, or one paid for car and one they’re making payments on. Or even 2 paid for vehicles!

    My tips for buying a *new* car are:
    1. Buy at the end of the model year when the dealership is eager to get the remaining cars off the lot to make room for the new ones.
    2. Buy a vehicle that was used by the dealer for demonstration purposes.
    3. Look for 0% or very, very low financing (under 2%).
    4. Put in as much cash as you can in addition to your trade-in.
    5. Now combine all of the above.

  17. kristine says:


    I can’t beleive you have a 93 escort wagon! We have a 95 escort wagon. Neon green, and super ugly. But still rides great. Got it for 1200, and have put about 2K into total for repairs. Has lasted us 4 years, and I expect about 2-3 more, as the parts that wear out have been replaced! My husband keeps wishing it would die, so he can get something better looking. It gets great milage, and is perfect for trips as you say, especially with the standard shirt.

    We paid cash for it, and will pay cash for any car. It is funy how the used car dealers do NOT want you to pay cash! I never tell them till the end. So they can offer a good price, expecting to get rich on the interest, then be stuck with the reasonable quote.

    Here’s a tip: Befriend a mechanic. My brother’s best friend is a mechanic, and I pay him 50 to check out any car I want to buy. In addition to a check-out, he is completely in the know as to what model cars wear out, when, what parts, and how expensive typical repairs are.

  18. SLCCOM says:

    If the rest of the car is good and the engine needs to be replaced, it can be well worth just replacing the engine for about $2,000. Then you have a reliable car, newer or new engine, and still have the low insurance, registration and tax costs.

    That can make a big difference between a used and a new car costs.

  19. SLCCOM says:

    Before you buy a new used car, search the internet for the make, model and year and “technical bulletin” and “recall.” That will tell you what kind of problems to anticipate and you can decide if you can live with them.

    And NEVER buy a used car without getting the Carfax!

  20. Nicole says:

    6 days and still awaiting moderation… who knew suggesting people look at the motley fool website on how to buy a new car with a fax was so controversial? Maybe it’s the link to the experiment that showed its best to bring a white man with you when you negotiate in order to get the lowest price… or the description of adverse selection?

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