Buying a Car on a Budget

For many of us in the United States, relying solely on public transportation is not always an option. Given the vast distances in our country and the inconsistent quality of public transportation, many people need to have a car to get to work, perform a job, etc…

But buying a car when you don’t have a lot of money can seem like a risky proposition. After all, buying the cheapest car possible is probably not a wise decision since the repairs could cost you more then payments on a new car. But don’t despair! This guide will help you find a decent car on a budget.

First, if you have limited resources, forget about a new car. I know the 0% financing and promises of warranties make a new car sound like a good idea, but even (especially!) the cheapest $9,999 car will cost you more in depreciation then you would pay on almost any used car.

The first thing I look for in a used car is resale. For example, it used to be that Hyundai’s would take a huge depreciation hit, but once they hit a sweet spot of around $3-4k, they would stay there for a very long time (this is changing with Hyundai’s improving status). Honda’s on the other hand would very slowly depreciate, a very smooth downward line. Chevy’s would sharply depreciate after the first year in a very sharp downward line until they bottomed out in the $2k range. So what does this mean?

First, the number one thing that affects depreciation is build quality. That is why Land Rover Discoveries and Jaguars cost less then Honda Accords and Jeep Wranglers after a few years. Only extremely rare cars with poor quality will hold any kind of value.

So in theory you want the absolute cheapest car that holds it’s value (and is thus reliable as well). I’ve actually made money on cars in this category (buying for $1200, putting 70,000 miles on it then selling for $1700)… at this price range inflation may exceed depeciation!

  1. First, make sure you always pay under blue book. Use KBB and Edmunds to get a car that is around the Trade-in value or lower.
  2. Don’t let a dirty car steer you away, dirt is easy to fix.
  3. Stay away from rust, this is a very expensive fix!
  4. If you don’t know anything about cars don’t be afraid to ask if you can take the car to a mechanic.
  5. If they won’t let you take it to a mechanic, look for obvious big problems, like smoke from the tailpipe, a bad transmission, etc…
  6. Always insist on a test drive. Get the car up to highway speeds as part of this test.
  7. Always offer below asking price (it can’t hurt!)

Most cars that fall in this range are just over 100,000 miles. There is something about this psychological barrier that makes the price drop, yet you can still get a car that will last another 100,000 when maintained properly. Read the reviews on Edmunds carefully before buying so you know what to expect. If many people complain about the transmission dying it’s probably a bad year, model etc…