The Problem with Dave Ramsey’s Car Buying Advice
By: Chris Leo
Tags: Money, Automotive, Cars, Personal Finance

Photo: Pexels.com

I get it. A vehicle is one of the most expensive things we buy that continually decreases in value. We need to discuss this stigma surrounding new cars lately. The Dave Ramsey car buying method says buying used is better than buying new in every scenario. This is not necessarily true, and buying new can sometimes be a better value.

Dave Ramsey Car Buying Advice: Not Always Worth Taking

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The Dave Ramsey car buying method states that all new cars lose 9–11% of their value the moment you drive them off the lot. While this may be true for some models, it is not necessarily the case for every new car. Instead of applying blanket statements to such an expensive purchase, consumers should run the numbers to determine how much a new vehicle actually depreciates.

Run the Numbers on New vs. Used

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Lets say we want to buy a base model 2015+ Subaru WRX. A new one starts at $ 27,495. According to the Dave Ramsey car buying way, I should be buying a one or two year old WRX for $ 24–25k. This way I won’t be “losing thousands the moment I drive off the lot.”

Wow, look at all of the money I could be saving!

Screenshot: Cars.com

Not so fast.

First of all, I don’t know anyone who has ever paid MSRP for a new car.

I reached out to a local Subaru dealer for a price quote on a 2020 WRX base. Here’s how much a new base model actually costs:

A price quote from a local dealer.

Keep in mind that this one has some rather expensive options for a base model, like a $ 611 STi shifter. For purposes of our discussion, however, let’s just say that is how much we will pay for the car.

What About All The Money You Lose Driving Off the Lot in a New Car?

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This is where Dave Ramsey’s car buying advice is wrong.

According to Papa Ramsey, if we bought that new shiny black WRX for $ 27,875, we would have lost $ 2,787.50 the moment we turned onto a public road.

Is that really the case?

Let’s say we get the car home and decide that the car sucks and that we should’ve bought a used car after all. So what do we do?

We sell it.

I use KBB because that is the first resource people turn to when deciding how much they should pay for a used car. So let’s run the numbers on our new (now used) Subaru.

Screenshot: KBB.com

According to KBB, the new car lost $ 374 the moment it drove it off the lot. That’s a few hundred dollars, Dave. Not thousands.

Every vehicle I’ve ever sold has commanded KBB private-party pricing. Unless you take your new car to a demolition derby as soon as you buy it, it’s not going to lose thousands of dollars the moment you drive it off the lot.

But Isn’t Used Still Cheaper?

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The point of buying a used car is to be able to purchase something within your budget. Some people might only have 25k for a vehicle and the extra 2–3k might put them over the edge.

Depreciation is also highest in the first year. However, it continues every year until the car is worth $ 0. Take a look at the Edmunds True Cost to Own Breakdown for a better understanding:

Screenshot: Edmunds.com True Cost to Own tool

In theory, you’re “saving” $ 3,567 to $ 6,063 by buying a one or two year old used car. However, if you take a look at the used car pricing for one or two year old models, you’ll see that some cars (like the WRX) hold their value much better than others:

Screenshot: Cars.com

Now I get what you’re thinking. “You can haggle on used car prices too!”

And believe me, I’ve tried.

In our current market, I’ve found that dealers will NOT drop the price more than a few hundred dollars on any used vehicle. This is because they set the prices competitively, and know they will sell within 30 days.

Consumers can really benefit by doing their research here. Instead of just assuming that a car will drop in value like a rock, look at the selling prices of used models. The difference between the new car “out the door” price and the used version is the real depreciation, and how much you can really expect to “lose” on your purchase.

Sometimes, buying new is actually the better deal.

Dave Ramsey’s Car Buying Advice Isn’t Completely Wrong

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Dave isn’t completely wrong in his car buying advice.

Making sure that the total of all of your cars/trucks/boats/campers don’t total more than 50% of your annual household income is a good idea. This ensures that you don’t own too many assets that are constantly going down in value.

Most new cars lose hundreds when they drive off the lot, not thousands. And if you do some simple research, you’ll find that new cars hold their value much better than Dave wants you to believe.