The Ultimate Guide to Buying a Used Vehicle: How to Budget for Purchasing a Used Vehicle

You’re ready to start shopping for a new-to-you vehicle. Before you do, you will want to sit down and crunch your numbers. Many people get caught off guard when it comes to budgeting for a new vehicle because they only consider purchase price. When you are buying a used vehicle, you also need to take into account the cost of initial repairs as well as the cost to maintain the vehicle over time. Furthermore, you need to decide if you are paying all up front, or if you are going to finance your vehicle.

This post is the second in a five part series.

Part 1: What should the overall process look like from start to finish?

Part 2: How much should I expect to spend?

Part 3: What makes and models should I be looking at?

Part 4: Where should I buy a used vehicle?

Part 5: Why should I get a pre-purchase inspection?

Most buyers want practical, economical, and reliable transportation. We realize that there are those whose idea of the perfect vehicle goes beyond that mindset, and there’s nothing wrong with that. I think you will still find helpful advice in these articles. However, the bulk of our clientele are looking for affordable, dependable transportation, so I am writing through that lens.

Your budget is more than just the purchase price

A client called our shop a while back to ask for help with assisting her son with buying his first vehicle. She told us his budget was $10,000. She also mentioned that he found a car he liked for that price and asked our opinion about the vehicle. Focusing solely on purchase price is a common mistake a lot of people make when they buy a used car. Then, shortly after the purchase, when it starts needing work done, they are taken aback by repair costs. They begin to wonder if they were given a bad deal.

A used car, no matter how well it was maintained, is still a used vehicle. And used vehicles need maintenance and repairs. When you buy a used vehicle, you need to consider spending at least $2,000-$3,000 on maintenance and repairs in the first year or so. (You should be able to narrow this number down more precisely with a pre-purchase inspection, which I will discuss in part five of this series.) That $3,000 or so should be part of your spending budget. That said, we generally tell people that you should be able to get a quality vehicle for a purchase price of $8,000-$12,000 on the low end. This means that for a reliable, safe, and comfortable vehicle, your total budget should be, at a minimum, $10,000-$15,000.

The less the purchase price, the more you are likely to spend in maintenance and repairs in the first year. For example, you may be able to get a good vehicle for $5,000 that is behind on maintenance and repairs, spend $5,000 to fix it up, and end up with a great vehicle that will take you to 300,000 miles or more. You’ve spent $10,000 and ended up in the same place as if you were to buy a $8,000 vehicle that was kept up better and only put $2,000 into maintenance and repairs to get it up to snuff.

Our client’s son had a healthy budget. He just needed to look for a vehicle that cost $7-$8k and plan to spend the rest of his budget on maintenance and repairs. He ended up finding a great car that served him well. He saved money from his original plan, and his mom had the peace of mind that he was driving an economical and reliable vehicle.

Reliable, Safe and Comfortable

In addition to your initial minimum budget of $10,000-$15,000, you also need to consider your ongoing cost to maintain the vehicle at a reliable, safe, and comfortable standard. Staying on top of the maintenance and repairs for your vehicle will reduce your average monthly expenditure. For a well maintained vehicle, you should plan on a monthly average of $150-$200. This average will not only keep the vehicle starting and running reliably and safely, but will also help maintain the comfort of the vehicle, such as air conditioning. Depending on the condition of the vehicle when you buy it, you may need to plan on a little more in the first two to three years. This is why it’s so important to get your vehicle inspected prior to purchase (See part five of this blog series for more on pre-purchase inspections).

What do we mean by maintaining your vehicle?

Yes, you need to consider what is on your manufacturer’s maintenance schedule. But what you really need to remember is whether the vehicle is reliable, safe, and (for many people) comfortable. You also need to look at parts that wear down over time. For example, front brake pads typically need replacing around 70k and rear pads around 90k. Additionally, vehicles eventually break, but if you get them inspected regularly, you can plan ahead for inevitable repairs. Taking this proactive approach to maintaining a reliable, safe, and comfortable vehicle greatly reduces the chance of surprise breakdowns.

A reliable vehicle is one that you can depend on without many surprise repairs. This vehicle is one that is up to date on maintenance and you can proactively care for needed repairs.

A safe vehicle is one you would let your mom drive with peace of mind.

A comfortable vehicle is one that has reliable A/C, controls like the steering wheel and shifter assembly are intact, and basic interior features operate as designed.

Generally speaking, the better the vehicle is maintained on an annual basis, the lower your average monthly cost will be. An older vehicle with 150k miles on it with a lower purchase price may have a higher monthly average in the first two to three years, but the goal is always to bring your repair and maintenance budget down to as close to $150 per month as possible.

For example, we had a client who purchased a vehicle that needed some work. After a couple years of putting a significant amount of work into the vehicle, their monthly average plummeted.

2016 monthly average: $193.63
2017 monthly average: $282.88
2018 monthly average: $26.02
2019 monthly average: $106.29
Accumulative monthly average over four years: $125.63

This is why it’s so important to have an auto repair shop you trust! They should be able to work with you on keeping your monthly ownership costs low.

Car payments vs paying up front

If you purchase a vehicle from a used car dealership, whether in person or online, you will likely be offered financing options. There are a few things to consider when you are weighing the option of financing your new-to-you vehicle.

The older the vehicle you buy, the more risk there is of something going wrong with the vehicle in the first few months after you buy it. This isn’t necessarily a bad thing! An older vehicle with higher mileage is going to have a lower purchase price, as we discussed above. If you consider the cost of repairs in your budget, this could work in your favor. Buying an older vehicle outright with some money left over for maintenance and repairs could save you money in that you don’t have a car payment with interest. This is why it’s so important to get a pre-purchase inspection, as detailed in part five of this series.

The newer the vehicle you buy, the more likely you are to spend more than what you need. Financing a three year old vehicle with 50,000 miles on it is much like buying a new car. The average car payment for a used car is around $530 per month. The payment will be more or less depending on how much you put down, how many years the agreement is for, and how much the list price is for the vehicle. Now you have so many dollars per month of car payments, interest, and there will still be maintenance and repairs to be done (remember the $150 per month I talked about earlier?).

Additionally, newer vehicles have more electronic gadgets. These can be really cool, and often helpful, but the more gadgets you have, the more things there are to break and the more repairs you’ll need to pay for. Let’s say the gadget is something you can live without (i.e. a navigation system). Well, now you have this cool gadget that doesn’t work and you are reminded of it every time you drive the vehicle. Other gadgets, like an electric door opener, must be replaced.

While financing can help you purchase a nicer car sooner, it is likely going to cost you more in the long run. Finding a slightly older, higher mileage, well maintained vehicle is more economical. Getting a vehicle that is 10 years old could be a really wise purchase. Once the vehicle gets to be around 20 years old, though, parts sourcing can start to be a problem depending on the make and model. Some makes, such as Toyota and Honda, use the same platforms for years on end, so procuring parts for a 20 year old vehicle is not usually as much of a challenge. Whereas, we recently had trouble procuring a part for a sixteen year old Ford Edge.

Getting a new car can be really exciting. It can also be a stressful year or so of finding the right car and dealing with maintenance and repairs if you don’t plan ahead with the right budget from the beginning. I hope you have a shop you trust to help you navigate the process, because that can relieve a lot of the stress. At the very least, I hope this article has helped you think through how to set a realistic budget and reasonable expectations as you begin this process.

Key take-aways:

Leave room in your budget for maintenance and repairs.
A reliable, safe, and comfortable used car will cost a minimum of $7,000-$10,000, including maintenance and repairs.
Maintaining a used vehicle should cost, on average, $150 per month if you are pursuing reliability, safety, and comfort.
Financing a vehicle is likely to cost you more in the long run.

Don’t miss out on the other posts in this five part series!