The New Car Dilemma

To buy or not to buy, that is the question.


I want to walk through a new car scenario planning session, as I think everyone faces the decision at some point in their lives.


Let's imagine you have a car now.  Let's assume it's working and paid for.


But, it's a little bit old.


And, it runs - does a fine job of getting your from A to B.


It might need the odd repair now and again, but it's fine.


But that is the problem - it's….just…..OK.


You think it would be really nice to have a new car - not new, as in new-off-the-lot, but new to you and newer than what you currently have.


To make this really relevant, I'm going to pick the car I currently have and one I could buy - for the sake of this example.  This isn't the car I actually have and isn't necessarily the car I would buy.


Here are some current car expenses:


Existing Car: 2009, Honda Civic Coupe, Current Value $11,000


Car Payment = $0

Insurance Monthly = $94

Maintenance = $100 per month

Fuel = $100


Total Monthly Cost = $294


Assuming all costs remain stable:

Total Cost over 5 Years = $17,640


Now, let's work through two choices you could make. 


Scenario One:  Trading in your existing car, then financing a new car over 5 years.


Scenario Two:  Driving existing car for another 5 years, while setting aside savings for future new car.




Scenario One - Buy New Car & Trade In Old Car


Sticker Price of New Car (2014, Honda Civic Coupe) = $20,000

Trade in Credit (for 2009 Honda Civic Coupe) = $7,000

New-to-You Car Cost = $13,000

Provincial Sales Tax Payable = $1,560

Total Finance Amount = $14,560

Finance Rate = 2.99%


Finance Bi-Weekly Payment = $120.64 X 2 = $241.28

Insurance Monthly = $110

Maintenance Monthly = $50

Fuel Monthly = $100


Total Monthly Cost = $501.28


Total Cost Over 5 Years = $30,876.80


Value of Car After 5 Years = $11,000.00


To sum this up, you spent $30,876.80, and are left with an 'asset' worth $11,000.


Herein lies the dilemma, after 5 years, you likely want another new car, so guess what, you'll have to finance one because the extra cash you had was being paid to the dealership for financing, now you have no extra cash on hand.


Scenario Two - Driving Existing Car While Saving for New Car


Car Payment to Your Own Personal Savings Account = $200

Insurance Monthly = $94

Maintenance = $100 per month

Fuel = $100


Total Monthly Cost = $494


Total Cost over 5 Years = $17,640 PLUS $12,000 is sitting in savings.


Value of existing car after 5 years = $6,500


To sum this up, you spent $17,640.  You now have $12,000 in savings and an 'asset' worth $6,500.



Comparing Scenarios Side by Side


Scenario One: $30,876.80 spent, and are left with an 'asset' worth $11,000.


Scenario Two:  To sum this up, you spent $17,640.00.  You now have $12,000 in savings and an 'asset' worth $6,500.


Aside from less money wasted and more savings, scenario two has another BIG advantage - it removes you from the cycle of finance, pay off debt, finance again.  You're able to flip the cycle around.  Save, buy, save, buy - and NO interest.  This gives you the freedom to save loads of money by not using financing.  And, you can save as you see fit - you're not TIED to payments.  And, as you save, you earn interest on your savings.  Payments are tough if a job is lost or when something unexpected interrupts your cash flow. 


Of course, this exercise entirely depends on your circumstances, and on your priorities, however, in general, my opinion is to work with Scenario Two - driving what you already have - while tucking away a 'payment' in the form of savings - until you have the CASH on hand to make your next purchase. 


If you want to draft your own vehicle purchase scenario, you might the following websites helpful:


To Determine Value of the New Car you want to Buy and your Existing Car:


To Determine Potential Finance Costs:,,10536,00.html#monthly-payment