How to Buy a Car the Klipnik Way and Save Thousands
Contents
Introduction
Cars are expensive. In fact, the cost of the average new car topped $40,000 for the first time last year, according to CNET. Meanwhile, the average used car price — which recently spiked to $21,500, according to The Car Connection — still isn’t exactly cheap. And that’s just the price of admission. On top of that, you’ve also got fuel costs, insurance and repair bills, maintenance, and more. Add it all up, and it can knock a huge hole in your budget.
But it doesn’t have to be that way. At Klipnik, we’ve identified an approach you can use to reduce your car expenses by half or more. These aren’t strict austerity measures, like choosing to walk instead of drive. And we’re not talking about buying a clapped-out old Corolla. Indeed, you can apply our approach just as easily to buying high-end luxury cars as you can to cheap econoboxes.
So how exactly do you buy a car the Klipnik Way? The basic idea is to minimize two major areas of expense: depreciation and repairs. Not only are these the two largest automotive wallet busters, but they are also highly variable from one car to the next. With the right approach, you can trim them almost to zero. Just follow these five simple steps.
The Steps
Buy a Car That’s at Least 5 Years Old
In car sales, there’s a famous saying that a new car loses 20% of its value the moment you drive it off the lot. And that’s pretty much true. But depreciation doesn’t stop there. In fact, most cars continue to lose value at the rate of 10-15% per year for at least a decade after they leave the showroom floor.
Take a new BMW 3 Series for instance. According to Edmunds’ True Cost to Own (TCO) data, the base price of a 2020 330i is $44,900, and after five years it’s projected to lose about $27,000 of that value. In other words, if you bought the car new, drove it carefully and took good care of it over the course of five years, and then sold it, you could expect to get just 40% of your money back. Ouch. And that hit from depreciation makes up almost half of the car’s five year ownership costs — a setback of over $5000 per year on average. By comparison, its other costs are relatively small: about $1700 per year for fuel, $1600 for financing, $1380 for maintenance, $950 for insurance, $620 for taxes, and $460 for repairs.
On the other hand, a five-year-old 3 Series (in this case, a base 2015 328i) would be expected to lose just $10,500 to depreciation over five years, or an average of about $2100 per year. Fuel is still the #2 expense for the car over five years, at $1800 per year (thanks to slightly worse fuel economy in the 2015 model). However, repair costs jump up to the #3 expense, at a projected $1550 per year. That’s to be expected since a five-year-old car is no longer under warranty. (The fact that BMWs are also some of the most expensive cars to maintain is another factor, so consider this a worst case scenario.) Financing is also much less expensive for the older car, of course, since the amount being financed is far less, as are taxes, since the car is less valuable. Meanwhile, the other expected ownership costs, maintenance and insurance, are about the same as the new one.
Add it all up, and buying the five-year-old 3 Series saves you almost $17,000 over five years versus buying a new one. And that *includes* the additional repair bills you’d face as a used BMW owner. This is noteworthy because a common misconception among new car buyers is that it’s “worth it” to buy a car under warranty since you save on repairs for a few years. However, this argument doesn’t bear out in the data, even for a car that’s known for costly repairs.
Over five years, the cost of new car depreciation outweighs the cost of used car repairs by a factor of more than 3 to 1. And as you can see from the chart above, it takes almost a decade before the cost of a car’s annual repairs matches the cost of its annual depreciation.
You can save even more by waiting out the depreciation curve even longer. At 12-15 years, most cars stop depreciating, as long as they’re kept in good shape. The trade off is that it becomes harder and harder to find well-kept examples without tons of miles on them. They are out there, though, if you don’t mind hunting a bit. Another factor to consider is that 10+ year-old cars also tend to have fewer advanced features and conveniences, like Apple Car Play or the latest safety tech, so if those are important to you, we suggest sticking with 5-7 year-old models.
Pick a Model with a Good Reputation
Not all used cars are created equal. Some are known for racking up hundreds of thousands of trouble-free miles. Others can be ticking time bombs, waiting to blow up your wallet with repeat visits to the repair shop. The good news is that it’s not too difficult to learn the difference between the two. In fact, this is another advantage of buying an older car. Unlike a brand new car, a model that thousands of people have been driving for years has an established reliability history. And it’s fairly east to look up.
A good place to start is J.D. Power’s Dependability Ratings, which identify three-year-old models with the fewest reported issues over the most recent 12 months of use. If you already have a model or two in mind, this is a quick way to ensure it doesn’t have any significant problems. Or if you’re still putting together your shopping list, you can use these ratings as a starting point. For used car shoppers, we like these ratings over J.D Power’s Quality Ratings, which only consider the first 90 days of ownership and therefore are geared more towards new car buyers. Consumer Reports also offers used car reliability info, which is likewise based on owner surveys. It’s worth exploring; however, note that much of it requires a subscription for access.
In addition, we recommend reading consumer reviews of models that you’re interested in. Edmunds is a great source for these, with many popular older models having dozens if not hundreds of owner write-ups. It’s important to be strategic when reading them. Some owners are going to say kind things about their cars no matter what, especially if they just purchased the car. Others may condemn the vehicle for issues unrelated to its reliability — for example, buying a large SUV and then complaining about its poor fuel economy. (Sorry, but that comes with the territory when you buy a large SUV.) The reviews you really want to find are those from people who have owned their cars for a year or more and can offer a more complete picture of its pros and cons. Crucially, if you see a series of reviews mentioning the same significant issue, that is a major red flag.
Keep in mind that a model’s reliability can change, sometimes dramatically, from one year to the next. Take for example the 2015 Honda CR-V. That was the first year Honda placed a new continuously variable transmission (CVT) in the CR-V, and many owners reported a pronounced shudder from the unit. This is clearly depicted in the Edmunds consumer reviews for that year of the CR-V. Its overall rating drops to a mediocre 3.4 (out of 5.0) for 2015, down from a relatively high 4.1 rating the year before. To Honda’s credit, they quickly addressed the issue, so by the following year, the 2016 CR-V’s consumer rating jumps back up to a solid 4.2 overall.
Klipnik also identifies models that we believe make exceptional values as used car buys. For more details, check our our Best Used Cars pages.
Buy the Best One You Can Find, Not the Cheapest
Once you’ve picked a model with a good reliability record, the next thing to do is find the cheapest one out there — right? Not so. Though many people do make used car shopping into a kind of bargain hunter’s game, we think that’s the wrong approach. If anything, we’d suggest doing the opposite. Instead of looking for the cheapest cars out there, look for examples that are exceptionally nice, even if they’re priced a bit higher than average.
That’s because, in the vast majority of cases, used cars with below-average pricing are going to be below average in other ways, too. That includes having more accumulated miles, more wear and tear, and likely more problems, which may or may not be disclosed in the listing. And if your goal is to minimize your ownership costs, buying a ratty example isn’t going to help the cause. It costs far more to bring a needy car back into good shape than it does to simply buy a nice example to begin with. In short, with used car buying, you tend to get what you pay for.
This is of course quite different from buying new, where every dealership is selling basically the same thing, a factory-fresh car, and the only differences from one to the next are colors and options. Once a car’s been driven off the lot, though, each one suddenly becomes unique. Some live pampered lives, with doting owners who take them in for every scheduled service, keep them clean and garaged, and always repair any little thing that goes wrong. Others are neglected or even abused. And it doesn’t matter if it’s the most reliable car ever made — if the owner doesn’t take care of it properly, it’s not going to last.
That’s why in your used car search we encourage you to be extremely picky. You’re looking for a car that’s clearly been loved — with lots of evidence to prove it. Some traits to look for: relatively low miles (e.g. under 50k for a five-year-old car), a spotless appearance inside and out (it’s a bad sign if the owner can’t be bothered to wash the car before putting it up for sale), a documented service history showing on-time and up-to-date maintenance, not too many prior owners (just one or two is ideal), plus an accident-free history. If the listing itself doesn’t have these details, you can usually confirm them by reaching out to the seller — or by plugging the Vehicle Identification Number (VIN) into one of the available vehicle history reporting services.
Another reason to avoid cheap car listings: they’re occasionally scams. Nefarious folks like to take advantage of our impulse for a good buy by advertising nice looking cars for below market prices. This drives a ton of people to inquire about them, and the scammer then uses the opportunity to collect your personal information — or worse, to enlist you in a fraudulent purchase. So if a listing seems “too good to be true,” it probably is.
On the other hand, an unusually used nice car — such as those we feature on Find of the Day — will typically be listed at a price that scares away the bargain hunters. That’s good news for you because it means you have fewer other buyers to compete with. As a result, you can take as much time as you need to evaluate the car. After all, you don’t just want to take the seller’s word for it that a car is in outstanding condition. When things get serious, you’ll want to verify that with a thorough pre-purchase inspection (PPI). More on that to follow.
Buy a Car from a Private Party, Not a Dealership
If you’re new to used car buying, you may be surprised to learn that one of the chief advantages is you don’t actually need to set foot in a dealership. It’s quite easy to buy a used car directly from its current owner instead. We cover this in detail in our article, Skip the Dealership — Buy Your Next Car from a Private Seller. But here are the basics.
Let’s start with the advantages of a dealership. Some of the biggest are selection and convenience. If you aren’t quite sure what used car you want to buy, you can visit your local Carmax and see dozens of different makes and models up close, all in a single visit. And you don’t need an appointment. Just show up whenever it’s convenient for you — during business hours, of course.
Buying from a private seller, on the other hand, means shopping a single car at a time. It also means arranging things like test drives and even phone conversations with people who aren’t full-time sales people and therefore have lots of competing priorities, like their regular jobs, their families, and so on, to schedule around. As a result, buying from a private seller can take more time and effort. And some sellers are better communicators than others, which you’ll find out pretty quickly when head down this path.
But there’s a price to the convenience of the dealership. Literally. On average, a used car for sale at a dealership will cost you 10-20% more than one in the same condition from a private seller. This isn’t greed on the dealership’s part. It’s just the cost of doing business. They have to pay for their showroom and their staff, whereas most private sellers simply want to sell their cars for a little more cash than they might get from trading them in. You can see this difference quite easily if you compare the “dealer retail” and “private party” values for used cars on a vehicle pricing site like KBB. The same car is almost always at least $1500 less from a private seller.
It’s also important to consider where dealerships get their used car inventories: from lease returns and trade ins. Most lease returns don’t meet our five year threshold. And when it comes to older used cars, by and large, those which are traded in simply aren’t the very best examples out there. Rather, they’re made up mostly of cars that people wanted to get rid of, and trading it in was the easiest way to do it. Think about it. If you had an older car that you’d really taken good care of, and you decided to sell it, you probably wouldn’t trade it in. You’d try selling it yourself. Not only would this net you more money, it could also help you ensure the car went to a good home that would continue to look after it.
So we suggest sticking to private party listings, such as those offered on Craigslist, Autotrader, and eBay, to find not only the choicest used car specimens but also at cheaper prices than you’d pay at a dealership. That said, if you’ve found a really nice older car for sale at a dealership, you should certainly consider it. Just be aware that it’s likely going to cost you at least $1500 more than a similar car from a private seller. Depending on how much time you have to finish your search, it may be worth the extra cash to buy it off the dealership lot.
Find a Mechanic That You Can Trust
The final step of the Klipnik Way is finding a good mechanic. That’s because, as noted above, once you’ve eliminated the majority of depreciation by buying an older car, the cost of repairs tends to be your next highest expense. And the best way to minimize that is to have someone you trust looking after your car.
We have a full article about how to go about this, which you can check out here: How to Find a Good Auto Mechanic That You Can Trust. But we’ll summarize the key details for you below.
Most important is finding someone who is both convenient to you — i.e. located near your home or workplace — and also who specializes in the brand of car you drive (e.g. Ford or Honda). A specialist usually has more advanced knowledge as well as equipment that they can use with your vehicle, making for more accurate diagnoses of issues and fixes that last.
We recommend using review sites like Yelp to locate specialists in your area with the best reputation. We also suggest favoring independent repair shops over dealership service centers, mainly because an indy shop almost always charges less for the same job. Many indy technicians start out in a dealership anyway, so they’ll have the same level of know-how to get keep your car in top form.
There’s no need to wait until you’ve purchased your next car to start looking for the right mechanic. In fact, we suggest incorporating this step into your used car search. That’s because you’ll want to take any used car you’re seriously considering to a specialist for a pre-purchase inspection (PPI) before you finalize the deal. This typically costs about $250, but it’s worth it to learn whether the car may have hidden issues, which a specialist can spot easily, such as worn brakes or suspension components, or worse a botched accident repair. A good inspection will also provide you with a list of the car’s upcoming needs, which you can use to negotiate down the price with the seller.
Any older car will need the occasional visit to the repair shop. To prepare for that, we advise budgeting $100 per month into a dedicated maintenance fund for the vehicle. That’s $1200 per year. According to a Consumer Reports study of 10-year-old vehicles, that’s the most you should expect to pay, on average. Unlike a car or lease payment, this is a payment to yourself, so you can use the funds as you see fit. Most likely, when it comes time to sell your car, you’ll have quite a bit of cash left over to apply to your next purchase.
The Bottom Line
If you want to slash your car expenses, start with the biggest one: depreciation. It’s easy. Just buy a car that’s at least five years old. Even if that’s all you do, you’ve already saved thousands. Buy it from a private party rather than a dealership, and you’ll save another thousand or two, at a minimum.
Older cars don’t have warranties, but don’t let that scare you. You can keep your repair costs in check by picking a model with a good reputation and buying the very best example you can find, even if that means paying a little more than average. And identifying a great local mechanic will ensure that, when you do need something fixed, it’s done properly and for a fair price.
That’s buying a car the Klipnik Way. It’s not only a great way to save a lot of money, it also helps you to find a nice car that you can enjoy for many years to come.
Photos courtesy of Wikimedia Commons