When we found out our 2005 Toyota Corolla was totaled, we immediately started looking at our options. We wanted something a little bit bigger, so investigated some used Hyundai Sonatas and Toyota Camrys.
We wanted something with around 30,000 miles on it, and the prices seemed to be in the $13,000-$16,000 range, depending on the year and model (most were 2012 and 2013 models). We got nearly $10,000 from GEICO as compensation for our totaled car, so while that sounded ok, the value wasn’t necessarily there. That’s a lot of money to shell out for a used car, especially when we got such an excellent deal the last time around.
Is A New Car Cheaper Than A Used One?
My father suggested we look at new cars, that the difference in price isn’t that big, and there were some great financing deals out there. I reluctantly looked at some of the prices of the 2014 Hyundai Sonata and 2014 Toyota Camry. The best price I found for the Sonata was over $20,000 with no special financing offers. Only Toyota was promoting 0% APR for 5 years, so we decided to focus on the 2014 Camry.
I used a couple comparison tools to find the best price, but it wasn’t until I used TrueCar that I found the significantly low offer I was hoping for, the Toyota Camry SE for $20,391, at a dealer about 45 minutes away.
0% Financing Is Worth A Lot Of Money
While that may seem high, let’s do a little math:
After all taxes and other fees, the total price would come out to about $22,600. That’s a lot of money to take out of my bank account and pay all at once, but luckily, the 0% financing meant we didn’t have to do that. Still, how much is 0% financing for 5 years worth? I found an investment and regular withdrawal calculator to help us answer this question. The monthly payments on the $22,600 spread out over 5 years came out to $376 ($22,600/60 months). If I invest the $22,600 in an index fund, subtracting $376 each month to make the monthly payment, I just plug 7% as the annual rate of return, which a closing balance of $4,777. That’s how much 0% interest for 5 years is worth to me.
So if I take $22,600 – $4,777, the total effective cost of the car comes down to $17,823, a much more reasonable number. And compare that to a $15,000 2013 Camry with over 30,000 miles on it? Seems like a great deal to me.
The $17,823 number still is a high number, but I wanted to look at the total value, not just the price. Nearly $18,000 is a lot of money to spend on anything, but if the value is there and the cost to have the car per year is low, it’s hard to complain.
I figure we’ll have the car for 7 years, putting about 75,000 miles on it. So I looked for some 2007 models with 75,000 miles on it, finding that the prices for those were around $10,000, if not a bit more (and remember, GEICO valued a Corolla with 90,000 miles on it (a smaller car), a valuation of $9,000, so $10,000 seems like a conservative number to use. The cost per year to own the car (excluding gas) would be around $7,823/7 years = less than $1,125 per year. That seemed like a great number to us, so we pulled the trigger.
Of course, we’d also be responsible for maintenance, but the car comes with Toyota’s standard warranties, which also includes oil changes for 2 years, something with legitimate value of a couple hundred dollars.
Get Dealers To Compete For Your Business
Finally, I wanted to make sure I was getting the best deal possible by having dealers compete against each other.
I asked several Toyota dealers closer to me if they could match the offer, hoping to start a bidding war, but only one was able to match, the others told me that they could not get close to the number the other dealer offered. That made me confident that I wasn’t completely getting ripped off. I also spoke to my father in law’s “car guy,” who told me I should jump at the price as he couldn’t even get close to finding a better deal for me. I emailed the two dealers and got another $100 off, and ultimately went with the dealer closer to me, simply out of convenience. I made an appointment to go into the dealer and sign all the paperwork. There were no surprises, so we were able to drive off the lot with a really great car at a really great price.
Thanks to TrueCar, I got a fairly no-hassle experience and am confident that I wouldn’t be able to find a better deal on the car I wanted. I highly recommend going to them first to find out what dealers are able to offer. One of the things I hate about car buying is the negotiation and sales tactics, but TrueCar helped avoid all of that.
Do you think I got a good deal on my car? Does the financing make the price I paid reasonable?
You actually get an even better deal once you take inflation into consideration. I’m not quite sure how to calculate how much you saved but I’m sure it’s a decent chunk of change. I’m suprised that 0% rates exist for a 5 year loan. Usually I’ve only ever seen them for loans under 3 years because they don’t take as much of a loss. Do you plan to stick the 10k in an investment vehicle and slowly pull out payments or are you planning to reduce the loan in half right off the bat?
Yup, can add an another 1-2% just to be safe, so maybe another $1,000 in savings?
I’m pretty pumped about finding a 5 year deal with 0% interest!
I plan to stick it in an investment vehicle, and under-contribute as time goes on. So if I was planning on investing $20,000 this year, I’ll count that at $10,000. I figure I will be paying about $475 a month that would have gone to investments, but now it will go to Toyota.