The auto industry is thriving as Canadians bought 1.95 million new vehicles in 2016, the fourth consecutive record-setting year for automakers. Yet despite the robust sales figures some dealers already seem desperate to keep this new car buying binge going.

For years we’ve been bombarded with 0% financing offers, cash back incentives, used car buy-backs, and financing for up to 84 months (that’s seven years, people). But lately some of the ads in my local market have been bordering on the ridiculous and offensive.

Related: Why does my car dealer want to buy back my car?

One local dealership is promoting a “pay off your holiday debt” event, which ultimately requires the purchase of a new vehicle. Another dealer’s radio ad absurdly claims that buying a new car will somehow improve your finances.

“Use your cash back rebate to pay off debt, go on a tropical vacation, or do whatever you want. It’s your money, you deserve it!”

No shame.

New vehicles are killing our finances

It seems that as we get married, have kids, and move out to the suburbs, our vehicles get bigger, more expensive, and somehow need replacing more often.

New Vehicles Are Killing Our Finances

How many families have two brand new vehicles worth $40,000 each or more sitting in the driveway that are leased or financed over 5 plus years? And with long commutes to work during the week, plus all of the kids activities on the weekend, these vehicles are considered a must have necessity, not a luxury.

I’ve been there. We leased our first “new” vehicle in 2007 right after a horrendous summer road-trip with no air conditioning in our beater. I didn’t think we could afford a new vehicle, but wow, do the dealers make it easy.

Side note: Do you notice how they’ve started to advertise bi-weekly payments instead of monthly payments? There must be a law against advertising a daily price, otherwise we’d start to see ads like, “for just a couple of lattes a day, you could drive away in this brand new SUV”.

The lease came up and we bought out the vehicle. By then we had two kids and decided we needed another vehicle. Again we went with a new model, this time financing it over four years. We made the final payment last October and it feels great to be car-payment free today.

I’m not going to let the auto industry suck me back in with their slick talk and bad math. No, I’m going to let you in on our secret money saving strategy:

We’re not buying another vehicle for a looooooong time.

You see that 2007 vehicle runs just like new (minus a few hail dents) and despite turning 10-years-old later this year it has fewer than 100,000 kilometres on it. Meanwhile the odometer on our 4.5 year-old SUV reads just 58,899 kilometres.

I live minutes away from work and small city life makes it easy to get around. We can get a lot of life out of these vehicles.

At the very least if we assume that we can remain car-payment free for another five years, that’s a chance for us to save roughly $50,000 – money that we can use to fill-up our tax-free savings accounts instead of wasting it on a new car with the latest technology.

Final thoughts

I can be reasonable when it comes to buying a new car. A used beater isn’t for everyone. But for crying out loud don’t finance it over 84 months. And don’t decide halfway through that you need something newer, shinier, or more powerful. Drive the damn thing for a decade or more and enjoy some payment-free years.

It’s time we break the new car payment trap and quit upgrading our vehicles every chance we get. Our wealth depends on it.

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35 Comments

  1. Jon on January 30, 2017 at 5:09 am

    Oh the irony… An ad for $1000 worth of extras on select new vehicles from my local dealership got dropped into this article.

    • Jim on January 30, 2017 at 4:11 pm

      Ha ha … me too!

  2. My Own Advisor on January 30, 2017 at 5:25 am

    Smart:

    “At the very least if we assume that we can remain car-payment free for another five years, that’s a chance for us to save roughly $50,000 – money that we can use to fill-up our tax-free savings accounts instead of wasting it on a new car with the latest technology.”

    FWIW, 17-year-old Mazda + 5-year-old KIA in garage as I type this. Just started my newer car fund this year for the Mazda. Will try and pay cash for next car (<$10k).

    Mark

  3. Marc on January 30, 2017 at 7:47 am

    Hey Mark. Yes, I noticed when they started quoting bi-weekly lease prices, quickly did the math, and thought to myself “isn’t that clever”! For them, of course.

  4. Geoff on January 30, 2017 at 8:17 am

    I drove a Passat for 13 years (330,000 km) of which last 10 years were payment free. Now I have a Jetta which I plan to drive for 10+ years. BUT I did finance at 0% for 84 months, contrary to the advice above. My logic is its “free” money to me (I’d be cashing in investments otherwise) and the NPV of the future payments is also favourable.

    Thoughts are welcome on my approach.

    • Mark A on January 31, 2017 at 2:05 pm

      If it really is “free” then the approach is fine.

      But the problem is that most car dealers play a shell game with 0% financing. They will give you the financing based on a price, and even figure it out with you by negotiating the payments and not the full price.

      But usually they will give a lower purchase price or rebates or incentives to cash buyers. So if you 0% finance a higher price, its not really free nor 0%.

      • geoff on February 1, 2017 at 6:09 am

        Mark, good point, I think you’re right that I could have paid less with cash. Then my calculation would have been the opportunity cost of cashing in investments to make the cash purchase.

      • David on February 1, 2017 at 11:31 am

        I think the issue is, can I get a better after-tax rate of return with the money I am not paying to the finance company each month, considering the higher cost of the vehicle (in return for 0% financing) than I can by sinking as much as possible into the car right away. That said, the benefit of a car payment, like a mortgage payment, is that these funds cannot be diverted into vacations and other discretionary purchases. So, as a former CFP, I would want those calculations and “human factors” considered. But yes!! We are ‘car-struck’ in this country. I drive an Elantra (bought used). ….I find it hard to believe how many people seeming can afford a BMW/AUDI/Merc etc….Thanks for the column ……

  5. Jim on January 30, 2017 at 8:37 am

    Many people simply double the bi-weekly payments in their heads and try and equate that to a monthly payment for their budget calculations. Wrong! A bi-weekly payment works out to the equivalent of 13 monthly payments a year. (There goes the budget)

  6. Eileen Williamson on January 30, 2017 at 8:42 am

    My car is16 years old. I originally leased at the recommendation of the dealer then brought it out. Took me 8 years to get out of debt. Never again. I plan on driving this car for another 2 to 3 years meanwhile saving to buy a used but perfectly fine traded in vehicle.

  7. Mike on January 30, 2017 at 9:14 am

    I’d be interested to compare cost of new versus used by $/km which I believe is fairest method? I bought new Honda Civic in 2006 including sunroof radio on steering wheel, audio jack and 7-year (160,000km) additional warranty for an additional $1,000. It is now at 210,000km and total cost of 30c per km excluding yearly plates and insurance. How does this compare to someone who has owned a few used cars? What would your $/km figure be at over last 10 years. I plan to run my vehicle into ground. Hopefully another 5-10 years? I therefore believe the 30c/km will drop quite a bit before it starts to increase due to constant repairs.
    Additional points: Honda do all my services on schedule. The $1000 extra warranty has saved me money.

    • Jerry on January 30, 2017 at 11:31 am

      What are you including in the .30/km cost; capital cost, interest/financing charges, warranty and what additional operating costs are included, if any (gas, oil changes, tires, repairs, etc.)? Thx.

      • Mike on January 30, 2017 at 12:11 pm

        Cost to buy and all other car costs, gas, maintenance, tires, repair, tow and rental if replacement vehicle needed due to repair. I would not include any cost associated with a collision. If I include insurance and yearly plate renewal it’s around 37c/km.
        I realize there is no perfect set of rules for this but from my experience I think buying new gets a rough deal. I don’t envy people going from one beater to the next, guzzling gas and never certain it will start…I’ve known people spend as much monthly to keep a beater running as others spend on lease payments.
        Perhaps the best plan is to buy 2-4 years old rather than new and run until you notice cost per km is now climbing instead of dropping as you add more km’s?

        • Jordan on February 4, 2017 at 10:46 pm

          22 year old mazda bought 6 years ago (have my original which is now a hobby car) for $2,100. Sold $2,500 worth of aftermarket parts off of it (stereo, rims, suspension etc.).

          Gets about 7-8l/100km (and 0-60 in less than 7 sec) has only broken down once over 105,000km (timing belt). just got back from 10 day vacation. started in -10C weather no problem.

          Over the 6 years have done 1 battery ($30 used), Brakes including rear calipers ($400), $100 for the timing belt (previous owner likely never changed) and a new set of tires ($400 used). Do all the work myself.

          Including gas – and other misc. expenses such as oil changes and wiper blades call it $10,000 or less than 10c/km.

          Also only pay $46/month insurance (no collision) which move things into the 12-13c/km range. Figure i’ll get another 2 years of reliability out of the motor (400k km’s) if the body continues to hold up well which could drop things even more. Also look pretty nice too – mind you – she is getting some age spots now as you could expect

  8. Johnny G on January 30, 2017 at 10:52 am

    The problem many young ones are faced with now is that there are some auto incentives that not only give you a 60 month or 100,000 km warranty, but also your first five years of tune ups and oil changes….. All the shiny things! Makes it very enticing for the young-ins….

  9. Don Mack on January 30, 2017 at 11:19 am

    Least expensive vehicles on every car lot, lease returns and prior year models of rental vehicle returns. Expect to save 20-30% off the original purchase and have the balance of the warranty. Always do your own independent records search for title and collision damage. As some Canadian dealers give you a car fax document that does not disclose, it was a rental vehicle, was owned in the USA and had been in a collision. I never buy a USA owned vehicle or one that was registered anyplace floods occurred.

  10. Jennifer Connolly on January 30, 2017 at 12:11 pm

    In April we will be buying a second used vehicle with cash and hopefully we will have our truck payed off this year. After this truck loan is gone we hope to never have a vehicle loan again. Neither my husband or I have ever owned a brand new vehicle , we just can’t see the benefit of purchasing new versus used.

  11. Carol Coote on January 30, 2017 at 4:06 pm

    I was driving a 15 year old Corolla with only 136,000 km. Never had a problem, just did the regular maintenance and would have kept it until it died. Well, in a way it did. Last May, a truck hit me on the Gardiner Expressway and old Betsy was a goner (I was fine). I purchased a 2013 vehicle in May with 50,000 km which included a set of winter tires. Car was in pristine shape and cost all in was $16,800. Paid off by December. I miss my old car and wish I still had the $$$, but at least I don’t car payments.

  12. James F Roche on January 30, 2017 at 4:17 pm

    My philosophy has always been to buy used and keep for at least 10 years. So far it has worked out well for me and this is the same advice I’m passing on to my kids.

  13. fbgcai on January 30, 2017 at 6:00 pm

    “There must be a law against advertising a daily price, otherwise we’d start to see ads like, “for just a couple of lattes a day, you could drive away in this brand new SUV”.”

    Stop giving them (the marketers) ideas 🙂

    Personally I like to buy new in cash (however will look at 0% financing next time around ) and then drive it until it dies (or close to it – last one was a Subaru (15 yrs) went to my nephew (car tech) who keep running another 2 years).
    I like the “new” because I get what I want exactly (colour and options) and I can drive and maintain it my way from get go – worth it to for me.
    PS – I’ve used (as have several friends) – dealfinder.org – well worth the fee – for the Subaru charge was $165 – savings were > $3000 – no hassle and the whole deal was done over the phone – had done my research prior.

  14. Big Cajun Man (AW) on January 31, 2017 at 11:30 am

    From what I can observe from co-workers, many young men want pick-up trucks, and many seem to enjoy leasing, and carrying their negative equity with them? When did Negative Equity become normal?

    I buy used Corolla’s every 5 years or so, try to pay cash, and the base model, no fancy power windows for me! Next one might have a radio with blue tooth, but then again, by then I might not need another car.

  15. Cool Koshur on January 31, 2017 at 8:33 pm

    Driving Honda Accord 2001 from last 16 years and have 195K clicks on it. It was hard to manage with one car and with both of us working. Lasy year I finally bought leased returned 2012 Honda CRV EX-L for $20K with 70K clicks on it. I paid in cash. It is not worth spending 38K for newer model.

  16. Paul on February 1, 2017 at 9:51 am

    One thing that no one has commented on is reliability. When you live in a big city like Vancouver where the commuter system is less than adequate or non existent, a car is vital. Add to the fact that most people commute 30-60 mins a day.

    We always buy new because it gives us 5-7 years of not having to worry or deal with a car breaking down or having to figure out how to get to work while your car is getting fixed. That alone is worth a price.

    We always do 5 year payment plans so that afterwords you have 2-3 years to save up money to put down on your next car.

  17. Carey Vandenberg on February 1, 2017 at 10:34 am

    Ironically enough you have ads on your site that promote how to buy a car if you have bad credit and several things about buying a new car, the best new cars etc. Giving advice on why not to buy a new car and getting paid by people that sell new cars through ad revenue. Hhhmmm…..

    • Echo on February 1, 2017 at 9:27 pm

      Ha! Well, it’s Google AdSense which just automatically displays an ad related to the content of the article. Nothing nefarious about it…

  18. Carey Vandenberg on February 1, 2017 at 10:35 am

    … not that I didn’t really like your article.

  19. Pluto on February 1, 2017 at 3:27 pm

    If you live minutes away from work, why do you need a second car at all? Ride a bike or walk, your wallet – and your waist line – will thank you.

    • Echo on February 1, 2017 at 9:31 pm

      Hi Pluto, I do walk sometimes but I need a vehicle occasionally to get around the city and meet with clients. I’d love to ditch the second vehicle some day.

      • Judith Cane on March 4, 2017 at 1:43 pm

        Wouldn’t it still be cheaper to rent a car when you need it or use Uber than paying the costs on a second car? We are going down to one car in May. I work out of the house (but do have appointments outside) and my husband bikes to work in the summer. We’ve worked out the numbers and even renting a car when needed or using Uber it will save us money.

        • Echo on March 4, 2017 at 6:04 pm

          Sadly, Uber has not made it to the thriving metropolis of Lethbridge, Alberta.

  20. Mel on February 2, 2017 at 3:39 pm

    Another thing to consider is that buying used gets you a higher financing cost of 5-6%. At least thats what I was quoted. Brand new cars are closer to 0-2% depending on the year and model. I ended up going for a new car coz the monthly payments for the same car costed the same if I bought used. The only difference is I am locked into 84 months. But my goal is to finish the payments in 60 months

  21. Samantha on February 3, 2017 at 9:22 am

    I exited the lease cycle 2 years ago, when I bought my car off lease. Now I drive a 6-year old car, which is fully paid and it costs me a fraction to maintain compared to what it did during the 4-year lease. Eventually I’ll have to buy another car, but in the next few years, I’ll be driving the car I own free and clear.

  22. Bryan on February 5, 2017 at 8:06 am

    A great eye opener! Glad it has been getting some buzz from other bloggers and writers. Well done! It is an important purchase, often essential, but only getting from A to B to C is essential. Not the make or model or all of the upgrades!
    Not sure if you have seen this, but this is a nice supplement to your article, courtesy of Preet Banerjee. The true cost of 0% financing. https://youtu.be/KGPu0jPryfU

  23. Bodrey on February 7, 2017 at 12:52 pm

    A lot of comments for and against buying new. I bought a 2001 Protege new in May of that year. Put $10K down on it and had it totally paid off in a little over 36 months thereafter. Owned it for almost 15 years before it started needing major repairs. I got my money’s worth out of it. That said, I’m not sure I’d buy new again. I hate having payments hanging over my head when there are so many other things to owing (rent, food, etc). I paid cash for the car I have now (’08 Civic). I bought it because of its reputation for reliability (I hope it’s well deserved). If it serves me well I’ll likely buy another used one a few years from now. I’d love to have the money to pay cash for a new car but there’s no way. I’d have to be making really good money (which I don’t; I wish). It’s not worth buying new unless you plan on driving it into the ground. Otherwise, you lose too much in depreciation and/or trade-in value.

  24. Diane on June 11, 2017 at 6:02 am

    Since there are many people who trade in their vehicles every 2 or 3 years, purchasing a “newer” used vehicle can be a real savings. We purchased a 2006 Odyssey in 2010, paying $17,000. We are still driving it and plan to have it for at least 2 more years. Why not let someone else own it during the years when it depreciates the most. During the 7 years we have owned it we have spent $3,000 on repairs other than the consumables (oil changes, brakes) which are a cost for all vehicles. So if we gave it away today our year cost (not including consumables) would be less than $3,000 per year. Not bad.

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