Hello,

My fifteen-year old vehicle is on its last legs, and it is really starting to be a financial drain. It used to be a four-cylinder. My hope is that it will make it to the end of the year, at which time I will look to replace it with a fairly new vehicle.

The make and model I am looking at as a replacement will [technically speaking] be last year's. The new models will be out by September, and I intend to buy one from the product line from last year.

I know many of the members here frown on buying new cars because of the depreciation, etc. How about buying year-old, pre-owned vehicles? Is buying last year's model too new?

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If you're paying cash then any car is fine, if you'll have to finance it, then it's not old enough.

Doing a quick check on Kelley Blue Book's website, these are the values for various years of the Toyota Camry. This is for the Camry LE 4 cylinder with an automatic transmission. Standard features and 12k miles per year were the baselines.

2008 $23,000 (dealer prices)
2007 $20,575
2006 $18,150
2005 $16,440
2004 $14,605
2003 $12,580
2002 $10,915
2001 $8,750

These are their recommended purchase prices. After the first two years it becomes rather linear, a little under 8% of the new car price per year. The first two years are about 10-11% of the new car price per year. Keep in mind this is a quick, off the cuff run of the numbers from one website for one vehicle. It's not a definitive resource, but it's a reasonable guide.

Unless you are talking about a car packed with luxury items, the standard tale of depreciation over the first couple years is overblown. For a standard model without a lot of bells and whistles, the depreciation in those first couple years is more but not significantly more. Start adding in what you'd pay new for things like color highlights, interior walnut trim, and multi-CD changers, and you will see the price of a new car rise quickly compared to what it would be worth in a couple years.

Why would anybody pay cash for a car if the dealer is offering financing at 2% or lower? It makes much more sense to make the minimum possible down payment, finance as much of the amount as possible, and invest your cash instead.

If a dealer is offering free money (0% financing), why on Earth would you not take it?

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Maybe it's more common in Canada than the US, but my wife and I just finished paying off a Mazda 3. We took a 3-year loan at 1.9%. No surprises. It was 1.9% for the whole 3 years.

Now I hear on the radio that Mazda is offering 0% for 60 months.

If I were in the market for a new car, that kind of an offer would be very tempting, and I'd certainly finance the whole thing.

I think you have a point with your first statement, but I think your second statement is ignorant. Sure, there are shady dealers out there, but if you carefully read over the loan terms, you can get a good deal.

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Correction, you get a better rate for brand new last year's model vehicles.

The reason we got such a great rate was because we bought a (brand new) 2004 model in early 2005. Dealers offer preferred financing rates on unsold year-old inventory to get it off the lot to make room for the new models.

The brand-new cars, on the other hand, don't usually have great financing rates. They're hot and new, and in higher demand than last years' models, so they don't need to incentivize them any further by discounting the financing rates.

As we are in the midst of buying a new car right now and have to partially finance it, we do have $5,000.00 to put down, I can tell you that a newer car will give you a better interest rate. We, like you, plan to drive this car until it dies just like we've done with the 11 year old car we have now.

As others have said, if you can buy it outright, anything is fine. If you have to finance, then talke to your bank/banks and see what kind of rates they are offering. They should be able to give you a ball park figure based on make, model, and year.

This can be a problem if you need to sell your car. The payments on a new car at 0% might be about the same as the payments on your used car at 7%. It's harder to sell your car in that case. 0% financing hurts the used car market.

I don't see how that hurts your chances of selling if you are not upside-down in the car unless you are suggesting that the person that would buy your car might go ahead and get a new car with a lower financing charge. If that is what you meant, I must say that the buyer has made an excellent decision if he can get a brand-new car for the same payment (and term) as a used car.

Yes, that is what I'm saying. And I agree that the buyer is making an excellent decision--until he has to sell his own car a few years down the road, and no one will buy it...

Because you can negotiate a lower price. If the dealer is offering financing that low they're just adding the "lost" money into the price of the vehicle, so make them take that money off the top.