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http://www.marketwatch.com/story/story?guid=ee3ab406-9bf9-11...



The average American pays $280,000 in interest
Marketwatch, Jan 14, 2015
By Quentin Fottrell

The average American consumer will pay nearly $280,000 in interest over their lifetime, a figure that varies dramatically from state to state based on credit scores and mortgage size....

Your credit score plays a significant part in how much and at what rate a bank will lend you money, but of course people will pay more interest over their lifetime if they have a large mortgage. That’s why in states with cheaper housing, residents pay much less in interest over their lifetimes....

http://www.marketwatch.com/story/american-credit-card-debt-h...

American credit-card debt hits a post-recession high

Marketwatch, By Quentin Fottrell, Sept 13, 2014

U.S. consumers may be relying too heavily on their plastic.

Americans added $28.2 billion to their credit cards in the second quarter of 2014, the largest amount in the last six years and nearly 200% more than in the second quarter of 2009, when the economy emerged from the depths of the Great Recession...

But some Americans are living beyond their means: 20% of people say could not make ends meet without the use of credit and 22% say they would have to make “significant lifestyle changes” if they cut up their credit cards, according to a new poll of 1,878 credit-card users by the National Foundation for Credit Counseling. “Breaking one of the basic rules of personal finance — spending more than you make — is not likely to have a positive outcome,” says Gail Cunningham, spokeswoman for the NFCC....
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About 30 years ago, I read an article that said the average American spent $350,000 over a lifetime on cars, most of which was a combination of buying cars frequently and buying cars on credit. I was floored by how huge the number was. Talk about one step forward and 2 steps back! How could anyone save money and get ahead while spending so much on cars?

Later, when I bought my first house, I added up all the interest and was equally shocked. Mortgage rates were higher then, but even today the mortgage interest can add up to almost as much as the actual price of the house.

Not to mention credit cards. Even today, when interest rates are very low, credit card interest rates are high.

The lifetime cost of debt and interest payments can be huge. HUGE!!!

Since the financial crisis, Household Financial Obligations as a percent of Disposable Personal Income and Household Debt Service Payments as a Percent of Disposable Personal Income has dropped to the lowest level since records began in 1980. Consumers have realized that getting into debt is setting them back.

http://research.stlouisfed.org/fred2/series/FODSP
http://research.stlouisfed.org/fred2/series/TDSP

The way to get ahead financially is:
1. Live Below Your Means

2. Keep your fixed costs low. Buy less house than you can afford. Buy cars infrequently. Maintain them carefully. Pay cash when possible.

3. Pay off credit cards in full every month. If you can't, shift the balances to low-cost credit and pay off the higher-interest cards first.

Wendy
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Wendy, thank you for posting that!! It is a good way to think about it. I am going to show it to my son when he comes home this evening.

Fifi
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average American spent $350,000 over a lifetime on cars

I can't imagine what this number is now. We were talking about new cars at lunch today and the prices are insane.

*Which is why I am still driving my paid off 2003 hyundai, although I'm mentally car shopping every time I drive home these days...
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<We were talking about new cars at lunch today and the prices are insane.

*Which is why I am still driving my paid off 2003 hyundai>

Which is why I am still driving my paid off 1998 Honda Civic, which still works fine. I still invest in good maintenance.

Wendy
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I still invest in good maintenance.

I do too, I just want a bigger car. But 98 definately has me beat :)
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We just had to pay close to a grand for both of our cars (2000 and 2001 Civics) - starter on one and wheel bearing and brakes on the other. But still cheaper than a couple of months of 2 car payments. I do want a different vehicle eventually but certainly will NEVER buy new.
JK
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I do want a different vehicle eventually but certainly will NEVER buy new.

You seem to be making an implied assumption that buying new equals debt, and that is not always true. Some folks (like me) generally buy new and generally pay cash, so there is no debt involved. And some folks (like me) sometimes buy new and take out a loan because that is the better financial decision.

DH just bought a new truck in October, and although we had the cash for it since it was a planned purchase that was 2 years overdue, we opted to take out a loan because the rate was 1.49% which is very cheap money. Add in the fact that I can deduct the interest because this is his work truck, and it is practically free money, and certainly cheaper than just using my own cash.

The point is that it makes sense to look at all the options and choose the best financial option for your particular case. And sometimes, that can be taking out a loan.

BTW, we are also in the market for land so that we can build a new house to downsize, and so may actually have to pay off the truck loan early so that we can do a construction loan for the new house. Again, that is a financial decision because we want to move into the new house first, and then sell this one, so the construction loan is temporary until we sell this house, but it is a tool that allows us flexibility and makes all of this doable.
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I do want a different vehicle eventually but certainly will NEVER buy new.

Never say never. You don't know what the market will do in the future.

I'm currently driving a 2007 Hyundai Accent with a manual transmission that I bought new in November 2007. I went shopping for used, and found in late 2007 the discount on small, fuel efficient used cars wasn't enough to justify getting used instead of new. For a used Civic with 50,000 miles I would have had to pay as much as I paid for a new Accent. And it was hard to find small used cars with a manual transmission. At that time, the manual transmission was a must-have feature.

My thinking when I bought the car was that I should be able to make it last 10 years, then I could buy another car. It's still doing great 7 years later. Now I'm thinking I might just keep funding the car replacement budget category and driving my existing car until the maintenance starts to be annoying enough that it's worth writing a check* for a new-to-me car. Whenever that happens, I'll look at what's available and decide whether used or new is a better value for my needs then.

Patzer
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The point is that it makes sense to look at all the options and choose the best financial option for your particular case. And sometimes, that can be taking out a loan.

Maybe time to start a thread with the subject -
Sound Bites Can Be Costly

;)
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Later, when I bought my first house, I added up all the interest and was equally shocked. Mortgage rates were higher then, but even today the mortgage interest can add up to almost as much as the actual price of the house.

Mortgage interest makes up a good portion of the lifetime cost of debt. It was noted in the article the states with the highest lifetime debt tended to be the ones with the largest mortgages.

IMO, you shouldn't add up the total interest paid on a mortgage and be shocked. The total interest paid is not that important. What is important is maximizing your net worth. It could be that the total interest paid on the mortgage is smaller that the total earned on investments from not paying down your mortgage.

It is my intention to pay the maximum amount of interest on my mortgage by not paying one extra penny towards it for the life of the loan.

PSU
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PSUEngineer,

You wrote, IMO, you shouldn't add up the total interest paid on a mortgage and be shocked. The total interest paid is not that important. What is important is maximizing your net worth. It could be that the total interest paid on the mortgage is smaller that the total earned on investments from not paying down your mortgage.

It is my intention to pay the maximum amount of interest on my mortgage by not paying one extra penny towards it for the life of the loan.


Wendy's original epiphany was 30 years ago. To put things in context, according to Freddy Mac December 2014's average rate for a 30 year FRM was 3.86% while January 1985's 30 year FRM rate was at 13.08%. At 1985's rate, I'd be paying my mortgage off quickly too. My current mortgage is at 3.5%. At that rate I'm really in no hurry as most investments will outperform it. But that hasn't always been the case.

Just saying...

- Joel
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Wendy's original epiphany was 30 years ago

I bought my first house in 1978 ish. I'm still looking at net worth, not lifetime cost of debt for my bottom line.

The financial world has changed - interest rates are low, there are no odd lot fees, commissions are low. Not paying attention can also be a considerable cost. (Shrug)
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Wendy's original epiphany was 30 years ago. To put things in context, according to Freddy Mac December 2014's average rate for a 30 year FRM was 3.86% while January 1985's 30 year FRM rate was at 13.08%. At 1985's rate, I'd be paying my mortgage off quickly too. My current mortgage is at 3.5%. At that rate I'm really in no hurry as most investments will outperform it. But that hasn't always been the case.

That may be the case for Wendy but you don't have to look very far to find people still looking at the total interest paid from the amortization table for their mortgage and using that number as a reason to pay off their mortgage as quickly as possible.

PSU
mortgage is 2.625%
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<The point is that it makes sense to look at all the options and choose the best financial option for your particular case. And sometimes, that can be taking out a loan.>

2gifts, you are one of the smartest people and one of the best planners on TMF. This board is visited by some who are far less prudent and have gotten into serious trouble with debt.

Anyone who takes the advice of 2gifts that taking out a loan can sometimes be the best financial option should honestly calculate whether this is the best option or whether they are fooling themselves to take on more debt to indulge in a luxury they want but can't really afford.

Wendy
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I agree, never say never. The price of late model used cars is at an all time high. The price difference between a 1 year old used and new is small. The warranties and sometimes free maintenance offered on a new car could make it a better deal.
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but even today the mortgage interest can add up to almost as much as the actual price of the house.

It used to be fairly standard that over a 30 year period one would pay more in total interest buying their house than the original home sale price (I remember talking about this around 2001 with a friend while living in North Carolina).

When I bought my home, in my closing documents they showed the lifetime interest - and since I was putting 16% down and interest rates had fallen by 2012 and mine was 3.875, the total interest for a change was less than the sale price and I blurted out "Is that All?" - and my loan officer was actually surprised - since most people don't expect how much they'll pay in interest over the life of a loan.
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MetroChick,

You wrote, When I bought my home, in my closing documents they showed the lifetime interest - and since I was putting 16% down and interest rates had fallen by 2012 and mine was 3.875, the total interest for a change was less than the sale price and I blurted out "Is that All?" - and my loan officer was actually surprised - since most people don't expect how much they'll pay in interest over the life of a loan.

These days money is cheap. Plenty of people were burned borrowing money when they couldn't afford it. Others were burned loaning money to people that couldn't afford it. The backlash means less lending and less spending, which holds down economic growth. Whether that's a bad thing is another debate I won't weigh in on...

But the Federal Reserve seems to think it is, so they've tried to push down rates and keep them low to stimulate spending. Of course the problem is that people that were burned and people that know people that were burned tend to have problems borrowing (and lending) money again. That avoidance can be voluntary or involuntary; but the result is the same - slow growth in spending ... slow economic growth.

You are just lucky enough and smart enough to take advantage of the situation. Others are not ... one way or the other.

Just say'n...

- Joel
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The price difference between a 1 year old used and new is small.

That seems to be the case the last few years, at least when I've looked. If you want to get an older used car you can get a better discount, of course, but you are getting an old car that will need repairs/not last as long probably/etc... I think your best discounts are on luxury cars, where you are probably paying more than I play to pay.
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If you want to get an older used car you can get a better discount, of course, but you are getting an old car that will need repairs/not last as long probably/etc... I think your best discounts are on luxury cars, where you are probably paying more than I play to pay.

Repair costs and not lasting as long don't scare me so much. My average costs of buying and maintaining cars has been under $500/yr from the time I was 18 until now, at age 65 - I know how to repair cars, and/or very competent auto repair mechanics who will repair them for a very reasonable price. My current daily driver is a 1992 Ford Escort. I paid $2250 for it in 1996. I've put around $1200 into repairs since. Granted, it doesn't look like much, but it runs like new and gets me where I'm going very reliably and gets around 33 MPG highway and around 18 MPG in City.

Luxury car prices are low for a reason - They don't get good gas mileage, and they are expensive to maintain.

I probably/wish I would have kept the first car that I bought, a 1956 Chevrolet BelAir convertible - I probably could get 4 times what I had invested in it.

The other car I wish I would have kept is a 1964 MG Midget that I bought for $75, and cost me around $1500 to restore - It ran like a sewing machine, after rebuilding the engine and transmission, and having the engine balance by shop that specialized in that, and an auto body repair shop that I sent insurance repairs to redid the body to better than new, with an acrylic paint job with a hardener that you could drop a raw egg on w/o damaging the finish.
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Having driven a 2014 Nissan Sentra that I rented from Enterprise to drive to Northern Ga to visit my my Brother and SIL a couple of weeks ago, I wouldn't mind owning one - It got a little over 35 MPG and was reliable and comfortable to drive.
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Strongly agree - Neither me nor my wife have paid one penny of credit card interest in our entire lives. We have put that "saving/cost avoidance" into investments and other positive opportunities over that time.
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"we opted to take out a loan because the rate was 1.49% which is very cheap money."

Same here - we are halfway through a 1.9%/5 year new car loan. We had the cash to buy the car outright, but invested it in a S&P 500 index fund and the return has far outweighed the 1.9% cost - hence a positive net gain during the life of the loan to date.
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"It could be that the total interest paid on the mortgage is smaller that the total earned on investments from not paying down your mortgage."

Yup - good point - what is the net annualized gain after factoring in all investments and debts.
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<<I do want a different vehicle eventually but certainly will NEVER buy new.
>>


There are some people for whom buying new is a wise decision, I would suppose. Some people need a car with prestige value --- real estate agents might be an example.

People who do a LOT of driving might be another, and people who need a particularly reliable vehicle another group.


The there are people who are financially independent and just WEANT a new car since they have surplus funds and can afford to indulge themselves if they wish to do so.

Personally, at age 65 I have never bought a new car, and don;t intend to do so. Maybe I'll have a use for a car for another ten years, but I'll be glad to disp[ense with that when it's practical to do so.

Can I streeetch my 1992 Chevy Astro another ten years? I suppose that's wishful thinking, but we'll see.



Seattle Pioneer
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<<I do want a different vehicle eventually but certainly will NEVER buy new.
>>


There are some people for whom buying new is a wise decision, I would suppose. Some people need a car with prestige value --- real estate agents might be an example.

People who do a LOT of driving might be another, and people who need a particularly reliable vehicle another group.


The there are people who are financially independent and just WEANT a new car since they have surplus funds and can afford to indulge themselves if they wish to do so.

Personally, at age 65 I have never bought a new car, and don;t intend to do so. Maybe I'll have a use for a car for another ten years, but I'll be glad to disp[ense with that when it's practical to do so.

Can I streeetch my 1992 Chevy Astro another ten years? I suppose that's wishful thinking, but we'll see.



Seattle Pioneer
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<<I do want a different vehicle eventually but certainly will NEVER buy new.
>>


There are some people for whom buying new is a wise decision, I would suppose. Some people need a car with prestige value --- real estate agents might be an example.

People who do a LOT of driving might be another, and people who need a particularly reliable vehicle another group.


The there are people who are financially independent and just WEANT a new car since they have surplus funds and can afford to indulge themselves if they wish to do so.

Personally, at age 65 I have never bought a new car, and don;t intend to do so. Maybe I'll have a use for a car for another ten years, but I'll be glad to disp[ense with that when it's practical to do so.

Can I streeetch my 1992 Chevy Astro another ten years? I suppose that's wishful thinking, but we'll see.



Seattle Pioneer
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Must have used a government computer. It was posted in triplicate.
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Financing on a new car is currently 0% to under 2%, if you qualify, for up to 5 years, and you get a new car warranty, lifetime warranty with some dealerships.

Used economy car prices are up, considerably, and financing is much higher than for new cars...

I will probably keep my 1992 Ford Escort with 215,000 miles, as it still runs like new, though it doesn't look like much. *sigh*
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I will probably keep my 1992 Ford Escort with 215,000 miles, as it still runs like new, though it doesn't look like much. *sigh*

You could always spend a little to make it look fresher. How it looks only has to please you.

I still love my '99 Mustang. I don't care what others think of it, I still think it's beautiful. The other day I was realizing I've put an emotional attachment to it - I've been driving it so long, I couldn't imagine giving it up and someone else driving/owning it. I would feel like just 1 step down from giving up a pet (which I've never done) to give up this car.

And it often comes in handy to have an older car if you have to drive into a congested downtown with aggressive drivers - because when merging in bumper-to-bumper traffic, usually the person with the older car who doesn't care about a dig or scratch wins.
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Repair costs and not lasting as long don't scare me so much.

I don't mind paying to repair a car, I'm just saying that you aren't getting the same product when you buy a ten year old car, vs a new one. You can expect the new one to last long, the repair costs to be higher on an older car, and all of that has to be factored into the price you are willing to pay.

So 13k for a new car vs. a ten year old car? Totally different products.
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Repair costs and not lasting as long don't scare me so much.

My car is eleven years old, I don't mind paying repair costs either.
What I am saying is that a new car is different from an older car, and you have to factor in the costs. I know people who paid the same amount I paid for my car when it was new for a 10 year old car. (Hell, I know someone who paid more for his new four wheeler than I did for my car when it was new!)
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Sorry, error posted twice.
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And it often comes in handy to have an older car if you have to drive into a congested downtown with aggressive drivers

I see you've been to Boston.

Nancy
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"I see you've been to Boston."

Or on the Rt. 3 helix heading into the Lincoln Tunnel.
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I don't mind paying to repair a car, I'm just saying that you aren't getting the same product when you buy a ten year old car, vs a new one. You can expect the new one to last long, the repair costs to be higher on an older car, and all of that has to be factored into the price you are willing to pay.

A new car *usually* lasts longer - but not always if there's a car accident in your future where your car will be totaled.

New cars are more expensive to insure than older ones, and if you live in a state with a vehicle property tax, they're more expensive to own.

When my mustang was new I paid at least $800 more in insurance - and I was over 25 years of age and that's not adjusted to today's dollars from 16 years ago. If I bought a new base model 2015 Mustang that starts at $24,000, the property tax bill for my county would be at least another $800 more. So that means I have to have $1,600 in repair costs on an older car just to even out the higher expense of insuring/owning a newer car - and most years I don't spend that much in repairs. But part of that depends on the make/model you buy. One reason I bought a Mustang is because one always sees older models on the road - which told me they must last.

I realized a couple weeks ago, other than Jeeps, one tends not to see many older model SUVs on the road. Aztecs, PT Cruisers, even Hummers, they older ones seem to have disappeared off the roads now that we're @10 years out from when they were popular.
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A new car *usually* lasts longer - but not always if there's a car accident in your future where your car will be totaled.

What's the point of mentioning this? New and used cars are both at risk of being totaled in an accident. The fact that accidents can happen is not an argument for or against buying a new car.

You might even argue that a new car is more likely to have improved active safety features like more effective ABS, stability control, or even newer collision avoidance systems. Perhaps buying new lowers your risk of totaling the car in an accident.
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What's the point of mentioning this? New and used cars are both at risk of being totaled in an accident. The fact that accidents can happen is not an argument for or against buying a new car.

It's still a consideration if someone is assuming they're going to have a new car for a long time. Length of ownership is unknown - so for the other poster who was assuming New means "I'll own it for a long time" versus an older car (or buying used), they should also consider an accident can happen soon after buying a new car.
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New and used cars are both at risk of being totaled in an accident.

Indeed, and the insurance costs are factoring in the fact that a totaled new car will cost the insurance company a lot of money, while if I total my old clunker it will cost them far less...
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It's still a consideration if someone is assuming they're going to have a new car for a long time.

It's only a consideration if the decision to buy new or used somehow affects the risk of totaling the car. I think you're trying too hard to come up with reasons to justify your opinion here.
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"I think you're trying too hard to come up with reasons to justify your opinion here."

And since when has it been a requirement to justify one's opinion?
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And since when has it been a requirement to justify one's opinion?

Never. Nobody is obligated to reply to this thread. But if they do they should anticipate that people might reply to them.
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You can expect the new one to last long, the repair costs to be higher on an older car, and all of that has to be factored into the price you are willing to pay.

Not always, I have any older car and because of the age it is a lot simpler to work on myself and parts are readily available that is not always the case for newer cars.

For me its not the original price as the determining factor but rather owning an asset that is depreciating and how much that asset is compared to my overall financial well being.
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Not always, I have any older car and because of the age it is a lot simpler to work on myself and parts are readily available that is not always the case for newer cars.

A brand new car will probably be covered by warranty for the first 3-5 years, though, right? Excepting things like oil changes and tires. You shouldn't have replace a transmission, for instance, on a new car.
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The most costly portion of a new car purchase is depreciation. For

example, the best lease residuals after 3 years are in the 60% range,

which means you pay 40% for the peace of mind of a warranty. The average

new car is in the $32,000 range, so the depreciation over 3 years is

$12,800. That much money will pay for lots of repairs. The best strategy

is to find 5 to 8 year old gently used cars which will be about 40% of

new, then drive it 5 yrs, rinse and repeat. in my experience, this tends

to work out the best.

Jim K

PS 30 years selling cars
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A brand new car will probably be covered by warranty for the first 3-5 years, though, right? Excepting things like oil changes and tires. You shouldn't have replace a transmission, for instance, on a new car.

Sure, but to say that is not factored into the price of the vehicle is a bad assumption. Like it was said a above you may get a extended warranty but you will take a butt kicking in depreciation.

However I was more referring to a gently used car as in my mind a 2-3 year old car is still new. Maybe its just my mentality.
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to say that is not factored into the price of the vehicle is a bad assumption

I never said that, I said you have to factor in repair costs and shorter lifetime into the costs of a used car. IE, do a yearly cost of a vehicle aggregated over its lifetime or the amount of time you plan to have it.

There is no pat answer, imo, to which is 'cheaper', because cars vary so much in costs and in quality. A 13k new car may last you twenty years, while a 13k used car may last you ten. Or vice versa.

It depends.
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I never said that, I said you have to factor in repair costs and shorter lifetime into the costs of a used car. IE, do a yearly cost of a vehicle aggregated over its lifetime or the amount of time you plan to have it.

There is no pat answer, imo, to which is 'cheaper', because cars vary so much in costs and in quality. A 13k new car may last you twenty years, while a 13k used car may last you ten. Or vice versa.

It depends.


I think we are arguing over circumstances now, but yes I will agree with you that its a personal decision and can differ from situation to situation.

However speaking just in terms of financially the majority of the time when comparing quality vs quality a used car will beat out a new car.
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I realized a couple weeks ago, other than Jeeps, one tends not to see many older model SUVs on the road.

I notice a lot of old Toyota 4Runners (I owned a 98, which now belongs to my son) and Honda CR-Vs (older than my 08).

I think one is more likely to notice cars that one is more familiar with. Not to mention that I suppose more Jeeps have been sold (and there are so many models) compared to other SUVs. Back when I used to read COnsumer Reports, I seem to recall Jeeps being among the less reliable cars.
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