Driving a Paid-For Car on the Road to Wealth

For the thrifty individual, buying a new vehicle is anathema. But sometimes the buy-quality-and-hold approach pays off in the long run. In 1967, my dad bought two new cars: an AMC Rambler and a Chevrolet Stepside C-10 Pickup. He had the car for more than 20 years and the truck for over 30. As a matter of fact, the truck outlived my father.

With a brutal, roundtrip commute of about 150 miles every day, plus long family road trips on our school vacations, he managed to put nearly a million miles on the Rambler over its lifetime. When my older sister eventually got her driver’s license, being the frugal dad that he was, he sold the car to her.These days, folks have a tendency to trade in their cars every few years, always looking for a newer model with the latest bells and whistles. When I think of drivers who can’t get out of a parking lot without a GPS or who can’t live without seat warmers or decadent stereo systems, I am amazed at how our needs have changed. The old Rambler had an AM radio and what my dad jokingly called “Four-Sixty” air-conditioning—all four windows rolled down while going 60 mph.People are so accustomed to nearly new cars that an odometer tripping over to six zeroes is now a newsworthy event or at least fodder for the marketing department. The Million Mile Pickup made headlines a few years ago, and at one time, automaker Saab offered to give a free car to any original U.S. Saab owner who logged over 1 million miles.

Those who hang on to their paid-off vehicles reap benefits beyond just freedom from monthly car loan payments. Older cars, like Frugal Dad’s 20-year-old van, might not turn heads but make up for their lack of pizzazz in other ways. Insurance premiums are significantly lower on older cars. Some states have reduced registration fees and much lower personal-property taxes for older models as well.

Note from Frugal Dad: I’ve been doing some work on the old van, and when I get it running again and cleaned up, I plan to share some pics. It occurred to me that I’ve talked about her for years, but never shown her off. Stay tuned!

Many consumers try to justify the purchase of a new car by saying that maintenance costs on an older vehicle negate the financial benefits. According to a 2010 Kiplinger article, barring a catastrophic mechanical problem, it is nearly always cheaper to maintain and operate an older, paid-off car rather than carry a car loan.

Bankrate.com, an aggregator of financial rate information, also advises consumers to hang on to their cars until the bitter end. Everyone knows that a new car’s value plunges as soon as it is driven off the lot. Depreciation is rapid for the first few years but levels out after eight or nine years. If you have a well-maintained, paid-off car in this age range, pat yourself on the back: your car is now holding its value well.

Drivers may be starting to wake up to the benefits of buying and holding. According to the automotive market research firm R.L. Polk, Americans are keeping their new cars for an average of 63.9 months, a figure that has been trending upward since 2008. Figures on used cars are also climbing, with 46.1 months as the average period of ownership.

For many people, having a new, luxurious, or otherwise impressive vehicle is very important. They may feel that their car reflects their social status, denotes professional success, or projects style and sophistication. No longer merely a contrivance to ferry passengers from point A to point B, in our culture, the car has morphed into a statement of self. Many people are so caught up in appearances that they neglect to save for their retirement or their children’s education in order to drive expensive cars.

I suppose I fall more into the buy-and-hold category than the shop-to-impress category: I’ve had the same used Honda CR-V for the last 12 years. I’ve logged about 146 months and have racked up nearly 179,000 miles, many of which have been accumulated on the punishing roads of Costa Rica. Although one of my friends recently pronounced my car “old and shabby,” I am unperturbed. I don’t expect to match my father’s record, but somehow, I think he would approve just the same.

This article was written by contributing author Laurel Gray.


  1. I try to hold on to vehicles as long as I can, but must admit, I never get the super high mileage. My two daily drivers are a 1994 Suburban (mine) with 136,000 miles and a 2000 Intrepid with about 140,000 miles. I aim to get 200,000 out of any vehicle. That said, I do let some things slide in the maintainence department. Neither has working air conditioning, various knobs and pieces of trim have fallen off, they don’t ride as nice as they used to, and have their own little noises and leaks from various areas (so will you some day!). I always wait for the catastrophic failure of something or another.

  2. Laurel, I totally agree with your philosophy of buying quality cars and using a “buy and hold” strategy. I never buy a car without a great deal of thinking and analyzing. Other than buying a house, the purchase of a car is one of the most expensive decisions we all face. I am surprised at the number of people that buy a car impulsively without extensive shopping and research.

    I take alot of time on the “buy” part. The first consideration is whether to buy new or used. (I am old enough that I say “used” although the automobile business has cleverly renamed it “pre-owned”). I have done both. I am going to hold any car I buy with the idea that I will hold it for at least 100,000 miles. I research depreciation rates and projected maintenace costs for particular brands and models. While the vehicles you and the Frugal Dad mention are relatively easy to maintain, newer vehicles are not. For some time now, vehicles have been loaded with electronics and computers that require trained diagnosticans to analyze any problems that develop. This makes routine maintenace absolutely mandatory so that a minimum amount of problems develop over the time the vehicle is owned.

    If I am buying “new”, it is important to get the best price. Today, the playing field is much more level. One can research MSRP’s, dealer costs, rebates (available to both customers and dealers), reputation for after purchase maintenance services, and other key decision points on various websites. Pitting one dealer against another is the only way to buy. I always emphasize to any dealer that I know the profit margin is in maintenance so I expect to get the car at or below dealer cost, depending on any dealer’s particular inventory. Unfortunately, many of the “bells and whistles” you mention are packaged together by car manufacturers so if I want a particular option, other features I don’t necessarily care about may be included in a particular package. I am very vocal about that so negotiating each option package to me is as important as the base car price itself. Sometimes, I have purchased an extended warranty and other times I have not. I know that all the “experts” say that an extended warranty is a waste of money. If you do decide to buy an extended warranty, it is important to negotiate the price as hard, if not harder, than the car price itself. There is a lot of profit in these warranties. I start by trying to get the dealer to throw in the warranty as part of the negotiated car price or, at a minimum, the dealer “cost”. As I am now older and tend to buy higher end automobiles that I will keep for around 7 or 8 years and 100,000 miles, I may or may not buy the extended warranty. It is a little bit a throw of the dice. I purchased a Lexus with an extended warranty and got more than my money’s worth due to some transmission issues after the original warranty had expired. I let my daughter take the car to college when it had 90,000 miles on it and at least it gave me peace of mind that if something should develop for at least the next 10,000 miles it would be covered by a warranty and she could take it to a dealer for repairs. While there were many years that I could not dream of paying cash for a car, I can now do so and won’t buy a car unless I can afford to buy it for cash. Even when I had no choice other than to finance a vehicle, I always worked hard to pay it off early and made sure there were no prepayment penalties, etc.

    Since I know that the dealer wants the extra money in financing costs, I never tell him I am buying cash until I sit down with the finance person after the purchase price has been negotiated. Paying cash is actually something that a dealer doesn’t want. Before I knew this, I used to announce early on that I was paying cash when I was negotiating. I was naive enough to think that I would get the best deal that way.

    When I am buying used, I usually buy a car that is a year or two old so that the major depreciation has already hit. I go for low mileage vehicles that may or may not be “certified”. Certified is more expensive, but the other side is that the extended warranty gives you peace of mind should something develop. Again, I have bought used vehicles both ways, but I won’t overpay for a certified vehicle. Still, I do know that any significant issue with a car can be expensive to repair so it is just a question of whether I want to absorb that risk or or buy peace of mind if I can do so at the right price.

    My son still suggests from time to time that “Dad, you need to get a new car”. Over the years, he has tended to “give up on me.” He knows that if it is paid for, has less than a 100,000 miles and is still running well, the odds of me getting a new or newer car are pretty slim. Don’t get me wrong, I like nice looking, high quality cars. But to me, a nice looking, high quality vehicle when purchased becomes a “classic” as it gets older. Nothing wrong with that in my book.

    • Your point regarding financing vs paying cash is a good one. There are certain negotiations where it is good to show your hand early on, and there are times when you shouldn’t. I like to pay cash for things like furniture, “elective” medical items (braces for the kids, glasses, etc.) and in those cases I ask for a cash discount.

      However, as you point out, car buying is different. They anticipate making some money off you over the years as part of the financing arrangement, and are typically unwilling to give you a “discount” for taking that money-making financing option away.

      I’ve even known people to go so far as to take the financing option (assuming their are no loan origination fees, etc.) and just pay it off when the first statement arrives. If you go this route, you better check the fine print for early payoff penalties, loan fees, etc, or it could be more costly in the end.

  3. I agree that “clean, used” and “used for a long, long time” are both good strategies. I use them now.
    One caveat I would point out: Safety features. My wife and I bought new minivans as our family came along, primarily for the additional safety features (airbags, ABS), usefulness, and cheaper insurance than some other vehicles. Keep in mind we kept one minivan for 200,000, and the second is still going strong at 157,000.
    If you plan to keep a new vehicle that long, and it is your primary family hauler, that can be a consideration.
    Of course, you can get close to that by buying “used” only a few years old.
    YMMV. 🙂

  4. Laurel,
    I too have a Honda CRV. Mine is a 2003 model and has served me well thus far. I put new axels on it this year, but other than that it has been pretty smooth sailing. She has 112,000 miles and I have no plans on getting rid of her.
    I have recently been looking at purchasing a truck as well, but can’t bring myself to part with my hard earned money. 🙂

  5. New vs Used is really based on your own needs and “luck”. In our situation we just buy new. This is not because we wouldn’t love to be able to buy used, but my husband has the worst “luck” with everything he buys. We almost always end up with a lemon. It doesn’t matter what it, how much it is, how good a brand it is, out of the 20 or so box available on the shelf, he will always pick the one with the defect.

    For example our last car was a 2002 Honda Civic 5spd. Brand new off the lot. During the first 4 years we had it, they had to replace the master cylinder for the clutch 3 times, the a/c twice and fan belt. That’s just to name a few. Of course we bought the extended warranty to 7 years, because during the rest of that time the a/c went again. The total of the repairs that they did under warranty would have paid for the car 1.5 times over the price of the original car. We’ve had a similar story with our VW Golf. Even the dealership was baffled with all the problems.

    So, in our case we always buy a car that has warranty and only keep the car as long as we have the warranty.

    This used to drive us crazy, but now we know it’s just our life and we adjust our thinking according to it. We always keep all receipts, file all the paperwork, just in case we will need the warranty (which seems to be often). We really do take care of our stuff, doing all the recommended maintenance/proper care as according to manufacturer direction.

    We do buy the car cash outright as to save on the financing cost. Some of those financing deals we’ve seen are up to 84 months (7 years) wow!

  6. You make an excellent point with this article! My wife and I were once sucked into the whole new car thing as well when we first got married. Before we knew it we had burried ourselves into more than $90,000 in debt!

    Fortunately, we were able to turn our lives around and stop the madness. One of the biggest things we did (as you elude to in your article) was get a cheap paid for car instead of our fancy leased toyota 4Runner.

    Instead of driving around a new $35k vehicle, we had a paid for 1992 ford tempo with 150K miles on it (we bought it for $1.00 from my in-laws).

    Anyway, great article and great advice!

  7. My parents had a similar car. My dad quipped that he too had 4-60 air conditioning. We had a vehicle which we bought used. It uses diesel fuel, so my husband is sure we can get many thousands of miles from it. I plan to do just that. With proper care and maintenance I see no reason for us to buy another car anytime soon.

    • Heather, love that your dad had 4-60 AC too. By the way, I tracked down the family friend who bought the Rambler after my sister. He paid $200 for it (then installed a $250 stereo). He drove the frequently mocked car during his college years at NC State, and confirmed that the mileage was about 1.1 million miles by the end. The best part is that after four years of use he sold the car for $200–exactly what he paid for it. Talk about holding value!

  8. We have nothing against buying used, but our last 3 cars were purchased new (for cash). All of them were purchased not only under sticker, but under dealer invoice. We’ve bought 2 Hondas and an Acura this way and we drive them all into the ground. 100k is just getting started.

    I disagree with the oft repeated statement that a new car loses value once it’s driven off the lot. It’s generally taken 2 plus years to see kbb.com state our car’s value as the price we’ve paid – that means supposedly we could’ve turned around and sell our cars for more than we purchased during the 2 year period immediately following our purchase.

    The trick is to buy a vehicle that’s leftover on the dealer’s lot. Hondas/Acuras are nice because their options are bundled so you’re comparing apples to apples across dealerships. Also, there’s great resale value on them if you do end up needing a different vehicle before your car’s usefulness is done. We ended up needing/wanting to trade up to a minivan and were able to get a good bit of the money back that we had used to purchase our Civic – our Civic ultimately cost us about $500 a year.

  9. I think that it is good when people keep things for a long time, and get the most out of them. People who always buy the latest and greatest tend to be the most in debt. However I think people can take things to the other extreme. When a vehicle has the time to go, it is time to go. Costs might also outweigh a piece of mind.

    My biggest car buying regret was was selling my 2001 Pontiac Aztek. It was the virgin model year for the car and there were a few problems. GM put a known defective engine in it (since my dad worked for GM – I know more than most). The car got great gas milage (almost 30 in a midsize SUV, was unheard of). I brought it in because of a radio problem and they flashed the ECM (electronic control module – bran for the car), and I never got above 24 MPG again. They refused to turn it back due to federal regulations – my car got out of the factory with the original program on it – not the one approved by the EPA. At about 28K miles, I started getting worse MPG – took it into the shop – long story short – they said no problem on 3 separate trips. Finally after 40k miles and took it into the shop – and all of a sudden I had a cracked head gasket to the tune of $2k to fix (which was the problem with that engine, and what had caused my major MPG loss). Put on top of that I needed to replace the AC condenser ($1k part, $800 in labor) and now I am looking at a car that I could get $10k out of, and I needed to put $4k into to get fixed up right. Well I got a new car (Yeah – I regretted it).

    I got a 2005 Chevy Trailblazer. Great car, I loved that car. Got it during the GM “Friends and Family discount”. It was a $30k car, got 20% off for the discount, $10k trade-in, and I had a GM credit card with 8 years of points on it worth $5250 for a new car. So basically – new car for $8750 (and zero percent financing, which I didn’t need – but why not take it). Sold. Well that car I ended up lemon lawing due to a flaw in that engine (the car would run a self test every time it started, after it was warm. It would run a blower which sucked 40 amps and dropped the lights (external and internal) for 5 seconds while it ran this test. Well since the car had to be warm, guess what happens when you drive to the grocery store at 8pm during the winter? It is night time and whoosh – lights go out (inside and out). I lost confidence in the vehicle even though I knew how to bypass the test (let the car warm up before you drive). GM would not fix it – so I lemon lawed it. Got what I have now – Nissan Murano for about $10k after all the court costs and fees to lemon law it.

    Don’t get me wrong – I love my Murano and have had only one issue with it (the radio crapped out – I am hard on six disc changers as I listen to music all the time). I just think back and if I had only spent that $4k on the Aztek – I would be driving a paid off car, which I loved, and not had to deal with all the different things I had to put up with over time. You can tell me if I am right – or wrong – but at the end of the day, from a frugal standpoint – I should have kept the Aztek.

  10. While I agree with the buy and hold concept for vehicles, I am one who enjoys a nice vehicle with the seat heaters and fancy stereos etc. That said we always pay cash for our vehicles and keep them at least 10 years. We currently own a 2009 Toyota Corolla and a 2000 Toyota Land Cruiser. I do think that at some point it is worth moving up to a newer vehicle as the safety and mileage features continue to improve.

    I want a nice, safe, fuel efficient auto for my wife, and a comfortable vehicle for the both of us. When we decide to get rid of the Land Cruiser, it will probably be for a top of the line Lexus hybrid SUV. And that will most likely be the last car we ever buy.

  11. Well this article explained to me why the best deals for cars seem to be a about 10 years, if you add up the time people keep new cars and then time people keep old cars it is about 10 years. I think keeping the car for as long you can is more important then if you buy used or new. By keeping the car I want 5 extra years I’ll save $250/year on car costs, even with repairs.

  12. I commend the effort and patience it takes to hold onto a car that long. Even from the sheer aspect of dependability, an older car can stall out on you on the way to work, and that to me is unacceptable. Not to say there arent issues with newer models as well, but convenience is necessary in some cases. I still believe you are reaping a much higher value for your dollar though.

  13. I think the main issue is that cars have an inbuilt expiry date now. Manufacurers in Australia are only required to provide parts for 20years for them to be sold in Australia. Hence if you by a 10 year old car you’ll only be able to get parts for it for 10 years. I was happily driving my 1981 mazda 323 until 2001 and it only had 100,000 on the clock but couldn’t get parts for it anymore.

  14. Ben – I don’t think you realize it but the US has those same laws. They are required to have parts to build a complete car for every car sold for 20 years after the original build date. So if GM makes 350k Chevy Malibu’s in 2011, they must have 350k of every part (down to screws) in inventory until 2031. Please note that foreign manufacturers don’t have to do this, as they can just pay $250 fine per car. So lets see, $250 fine (to raise the price of the vehicle) or $5k in parts per car. Hmmm I wonder.

  15. I use the buy and hold plan with my vehicles. I typically drive my vehicles until they hit 200k miles. One car is close at 190K and the other is just getting started at 47K. The reason I will usually get rid of the vehicle at 200K is that we take a couple of road trips a year. I would be nervous driving a car on a long trip with over 200K in miles. I also buy all my vehicles used. I typically will buy 3 year old vehicles. 3 year old vehicles seem to be the sweet spot when you can save about 50% off of original MSRP (depending on the model you want). I buy Toyota and Honda cars as they seem to last a little longer than the American cars with fewer problems as well. I do have a car payment but it is at .09% so the interest I pay on that for the entire loan will be less than $200.00.
    Recently I did have to put a little bit of money in my car that has 190K. I spent $1800 in maintenance on this vehicle. The maintenance was a tough decision to make, but here is my rational. If I spend $1800 dollars on this car and it lasts until the end of the year, then it was worth the $1800. If the vehicle has something major go wrong with it before the end of the year then I shouldn’t have invested the money in the older vehicle. $1800 over the year is only 150 a month. Payments on a new vehicle would be at least 300 a month so by performing the maintenance on the vehicle I saved at least 150 a month for the first year. If the vehicle last longer than 2 years then the cost of the maintenance will be 75 a month. For other tips check out my site at http://www.grow2millions.com.

  16. I didn’t know about the 20 year and the parts issue. I learned something new today. My mini-van has 157,000 miles on it. It has been paid off for 2 years so it is a good feeling. I want to drive it to 200,000 minimum. That would be about another 2 years. So far, it is going strong but only time will tell.

  17. @cashflowmantra – I am confused at what you mean “you don’t know about the 20 year parts issue” It is law. Parts are no longer required to be manufactured after 20 years. You can still find parts that are for older cars that are over 20 years old, due to surplus buildup, but the manufacturer is no longer required by law to have a 1:1 replacement in storage.

    • I just didn’t realize that such a law existed on the books. I guess I wasn’t into car manufacturing law and requirements. It sounds like a good one that makes sense.

  18. That’s a false dichotomy that Kiplinger’s posits: new car loan vs. older car. What about plain old new car no loan vs old car no loan analysis? Basically, I think it’s fine to buy new if you do in cash and hang on to it forever, as I have done. I am almost 50 and have owned two cars in my life, both paid for with cash, one new and one used. The incremental difference in the cost of buying a new car vs. old car, amortized over 14 years (age of car and counting) is trivial. I expect to have that “new” car I bought for 20 years.

    If the point is don’t take out a car loan for a car, well, I agree. If the point is, don’t buy a new car, well I don’t honestly think it matters. I am happy I bought a new car. I had many trouble-free years from it, and have thoroughly enjoyed it, and will probably buy new again in 5-8 years when I get my next car.

    • Diane , your comment about it not really matters if you buy a new car just doesent make sense from a financial point of view. Dave Ramsey often quotes the study that says the average new car loses 60% of it’s value after 4 yrs. of ownership. That means if you paid $40,000 for your vehicle, at the end of 4 years you have lost $24,000!!! Ad the original purchase price and you are in the hole for $64,000!!! Ouch! This makes no sense to me at all. It even gets worse if you finance the car. Now you are paying interest on an investment that is guaranteed to go DOWN in value. Well duh! No thanks. I will continue to buy “clunkers” and invest my excess cash in high dividend paying stocks that pay ME 8-19% interest! I have never paid more than $2500 for a vehicle. I once bought a pickup with only 46,000 miles on it for $900. The current pickup I drive had 48,000 miles on it when I bought it 6 yrs. ago for only $2500! Idrove a 73 Ford pickup for 17 yrs.(!!!) without air conditioning or power steering! I am 58 and have yet to own a vehicle with air. Iam old enough to remember when new vehicles were very rare if the had air conditioning. And most vehicles did not have power steering or power brakes. People take so much for granted nowadays. For all the people who think their vehicle is worn out after 100,000 miles, please google “Volvo 2.6 million miles”. Finally, for all the people who spent $50,000 on a SUV or pickup, if you would have invested that money in the stock market making 12% a year, at the end of 50 yrs., your $50,000 would have grown to 14 million dollars!!! That’s according to the website “thecalculatorsite.com. Hope you enjoy the SUV or pickup!!!

      • Since I have paid a grand total of $24K for a total of 2 cars in my whole life, and I am almost 50, I stand by my statement. When you hold long enough it simply is insignificant. I have been well able to save plenty of money, have never spent a penny on a car loan, and of my two cars have enjoyed one totally reliable new car that was trouble-free for many years.

        Perhaps I could have spent, say $13K, over this period instead by buying two used cars, but I think that an incremental $10K over the course of 30 years of my life is not significant. Especially when I have had the tradeoff of peace of mind for the new car I bought.

      • “Dave Ramsey often quotes the study that says the average new car loses 60% of it’s value after 4 yrs. of ownership. That means if you paid $40,000 for your vehicle, at the end of 4 years you have lost $24,000!!! Ad the original purchase price and you are in the hole for $64,000!!! Ouch! This makes no sense to me at all. ”

        It makes no sense to you because you somehow think that it loses value on top of what you paid. If the car loses $24k in value, it’s still worth $16k.

  19. @The Claymobile. While I appreciate your earnestness and frugality and subscribe to much of the same, there is something to be said for rewarding one’s self every now and then.

    I buy a nice new car (or SUV) every 10 – 15 years and want it loaded – seat heaters, fancy stereo – the works. We have worked hard and saved and feel we deserve some nice things in life. Driving a $900 pickup with no power or air worked for me when I was in my 20s, but not so much now that we have hit our 60s.

    I am also a big believer in purchasing the safest vehicles I can find when I make my purchase as well. Again, I have no interest in driving an old beater with no air bags, anti lock brakes, etc.

    We do, however, always pay cash and do our best to get the best deal for our hard earned money.