With average car payments nearing $800, replacing your vehicle can have a major impact on your monthly budget and retirement savings. Automobile enthusiast Ray McGrath examines the true costs of buying new versus repairing your current car, including financing, depreciation, maintenance, reliability and long-term value.
Transcript:
Jeffrey Snyder, Broadcast Retirement Network
We’re going to welcome back to the program an automobile enthusiast and someone that I consider to be an automobile expert, Ray McGrath. Ray, it’s always great to see you.
Thanks for popping by the program this morning. Oh, thanks for continuing to have me, Jeff. Yeah, well, like I said, I’ve known you, and for full disclosure, I’ve known Ray for quite some time.
We’ve stayed in touch, and he is someone that has repaired cars, so that’s why I bring him on. It’s a passion of his. So, he’s always, Ray, you always go through the junkyards, right, finding parts?
Ray McGrath, Automobile Enthusiast
You know, I haven’t been in a while because my car’s been somewhat reliable, so that’s a good thing, but I like to go just to peruse.
Jeffrey Snyder, Broadcast Retirement Network
Okay. Well, that’s okay. How much is it, you know, you like to figure out how much that carburetor is.
I would imagine, and before we get, we’re going to talk about repairs in a few minutes, but I would imagine that car prices, part prices have gone up because more people are retaining their older vehicles, so they need parts.
Ray McGrath, Automobile Enthusiast
Oh, for sure. I mean, you know, even though we’ve seen higher prices from inflation and energy, but, you know, the cost to buy, say, an alternator or a starter or a windshield, they’ve all gone up, and, you know, not to change the subject too much, Jeff, but, I mean, I buy my motor oil from Costco, and they recently doubled the price to $30 a gallon, and it was $15, and they put a limit on it, all tied back to, you know, global tensions, so to speak. Yeah.
Jeffrey Snyder, Broadcast Retirement Network
Well, I mean, you bring up a good point about that. Ray, I want to, so the first time I’m going to talk about, talk to you about is recent report from Edmunds, which is a very well-known automobile source, says that the average car price, car payment price, is over seven, close to $800. It’s $787 a month.
The last time we chatted about car prices, the average car price was about $50,000. That just, look, I know there’s inflation, but that just seems, like, outrageous to me.
Ray McGrath, Automobile Enthusiast
It’s there, and, I mean, the only way folks can afford a car is they look at the monthly cost, and if they can get it down to $450, they figure, well, that’s manageable, but you’ve extended the timeframe, and now with interest rates higher this year than, I mean, than they have been in a while, the cost of borrowing is now, I mean, over 7% on average is a mortgage, is a loan rate, you know, so.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, so that, so let’s talk about that for a second. So the payment is made up of principal, so it’s what you borrow versus what you put down, plus that interest, and that interest cost just went up, even for the best, those of us, those of us out there that had the best credit score.
Ray McGrath, Automobile Enthusiast
Yeah, and it’s really related to global inflation, the federal deficit, but, you know, the 10-year treasury was under 4% back in February, end of February, and now it’s at 5.25, and that doesn’t sound like much, but it’s a big move, and a lot of loan agreements are based off of the current 10-year treasury rate, so that’s why we’re seeing mortgages at 7.5% right now, and car loans right around the same range.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, that’s, I mean, it’s a lot, especially if you can buy food, gasoline has gone up, obviously, so cost of living, we don’t have to cover that here, but generally it’s gone up for everyone. I thought what was interesting about this survey is that people are considering getting a seven-year automobile loan. What are some of the, you know, you’re spreading out the payment, so typically most people will borrow at a five-year, on a five-year note, so that’s 60 months.
What does going out further do for somebody? Does it lower their payments overall? Does it increase their interest?
Ray McGrath, Automobile Enthusiast
Well, it lowers the monthly, but it extends the time frame, so basically it ends up costing more, and, you know, look at it now. Would you want to be driving around in a 2019 car? You’re probably going to get tired of the car sooner, you’re going to want to trade it in, but you’re going to owe, you might owe more on it than it’s worth, so you’re going to be what they refer to as upside down, so you’re going to take that negative equity from your current car and roll it into another loan, and you’re basically kicking the can down the road.
I don’t want to sound like the Federal Reserve, but you’re not making things better.
Jeffrey Snyder, Broadcast Retirement Network
So, okay, so the, you know, these cars have a book value of what they will be worth after a period of time, so what you’re saying is the car’s going to be worth even less after seven years than it would be five years because of the deflation, right, the erosion of the value, but your interest rates are going to be going up, so you probably need to, rather than, I guess what I’m asking is, should you always focus on that monthly payment amount because it fits your budget, or what are some of the other moving variables that you have to think about?
Ray McGrath, Automobile Enthusiast
Yeah, I mean, folks generally focus on the monthly payment, but you’ve got to look at all the components that go into that number and, you know, ask yourself honestly, will I be happy with this car in six or seven years from now, and I know when I go to trade it in, it’s going to be worth a lot less than the previous car, which I only had a five-year mortgage, a loan on, so it’s enticing, but also I think you have to open, come at it with a clear mind and maybe sleep on it, you know.
Jeffrey Snyder, Broadcast Retirement Network
Okay, so good point on that. What about warranty? Because we were talking earlier about the parts going up.
Warranties don’t typically last seven years. My understanding is maybe, I’m talking about factory warranty, we’ll get into purchasing the warranty, an extended warranty, but that factory warranty typically is three years, 36,000 miles, maybe the powertrain is longer, there are some brands that have longer, but how does that factor into that too? Because you’re going to be subject to the cost that we were talking about at the beginning of the segment.
Ray McGrath, Automobile Enthusiast
Yeah, and that’s a huge impact, the warranty, because towards the end, it might need work, and you’re going to be on the hook for that, so the dealer will try and sell you an extended warranty, and I would say, and put that into your monthly payment. And, you know, I guess you have to maybe look at consumer reports and the reliability of vehicles, but for some folks, that could be well worth it, but you probably want to get a manufacturer’s warranty while you’re buying the car new, not a third-party warranty, because for folks that have to repair the car, dealing with a third-party is just a whole other set of hurdles that a mechanic has to deal with. So, you know, if you have the Ford warranty or the Toyota warranty, probably the best time to buy it is when you buy the new vehicle.
Jeffrey Snyder, Broadcast Retirement Network
So, if I buy an extended warranty, does it require that the repairer use OEM, which are original source parts, or can they source parts from anywhere?
Ray McGrath, Automobile Enthusiast
So, with the third-party warranties, and I won’t name any names, but they don’t typically require OEM parts. You can get an AutoZone overseas alternator put on there, and that’s what they’re fine with, but typically, if you’re buying a Ford warranty and you bring it to Ford for service, they’re going to use OEM parts, you know, so.
Jeffrey Snyder, Broadcast Retirement Network
Okay, very interesting, very important there.
Ray McGrath, Automobile Enthusiast
So many nuances, yeah.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, I mean, it’s not easy. It’s not just, I think, so many of us, when we go to buy something, we just look at the unit price or the price of the overall price and try to fit it into our budget, but these are things that, you know, you only can perpetuate, I guess, based on our conversation, you can perpetuate some of the financial implications downstream. Let me ask you about finding the best loan.
So, you can go five-year, three-year. Apparently, you can go seven. Interest rates have gone back up.
Cost of borrowing has gone back up. How do you get the best deal possible? And I know it’s been a while since you bought a new vehicle.
You have a used car, if my understanding is correct. Right. How do you get the best deal?
Ray McGrath, Automobile Enthusiast
Yeah, I mean, first of all, you can look to see sometimes the manufacturer, not the dealer, but the manufacturer has incentives. So, that could be an opportunity if it’s end of model year like it is now and they’re trying to push, you know, the 2026 models off the showroom floor, you might be able to get a deal from the manufacturer. But other times, there’s places like your credit union or your local bank.
It’s good to know what type of rate you can get from a bank or a credit union before you go into the dealership because you’re an uneducated consumer. So, the dealership could say, oh, well, based on your credit score, we can give you 16%. And, you know, maybe you can get 9% somewhere else, you know.
So, it’s good to be informed. I recently went through with someone who wanted to pay cash, but the dealer didn’t want to accept cash because they kind of have agreements with local financers that give the dealership a kickback. So, they took out a financing agreement, but then they paid it off in a month.
So, that’s a unique situation. The dealer wasn’t happy because they kind of lost their commission, but there’s all kinds of ways that, you know, the dealerships can get paid. They might get you with a low MSRP, but tag you with a higher interest rate or, you know, through their preferred financer.
So, it’s…
Jeffrey Snyder, Broadcast Retirement Network
So, sorry to interrupt you. I was just going to ask. So, I remember my grandfather, this is years ago, looking, perusing the Baltimore Sun for CD rates, interest rates, you know, loan rates, mortgage rates with his magnifying glass, by the way.
But where do you go today to find the best rates and to do the research you’re talking about?
Ray McGrath, Automobile Enthusiast
Yeah, that’s a good question. I know there’s all different websites, and I’m not sure if some of them are sponsored by… Well, that’s what I’m getting at.
That’s what I… Yeah. So, that one, I’m not…
I don’t want to give an answer because I may not be accurate, but you need to look around. I guess you could start with your local bank or… I don’t want to say home equity line of credit because, you know, you might lose your house because you can’t pay your car loan.
So, you don’t, you know, that’s a little slippery slope as well.
Jeffrey Snyder, Broadcast Retirement Network
All right. So, I want to go back to what we were talking about at the beginning, which is the rent, or excuse me, the buy versus repair. So, there are a lot of, as we’ve discussed on previous shows with you, more and more people are forgoing new cars because of all the things we just talked about.
They’re keeping their older cars on the road, but they have to repair them. So, how do you bring down those repair costs? Because to your point earlier, the price of oil, if you do your own oil change that’s gone up, it’s nearly doubled for a gallon of oil.
The… And, you know, you have to do an oil change. You can’t not do that.
You need filters. You need other parts along the way. How do you make that determination whether or not you should continue to maintain the existing vehicle, repair it, or go out and buy that new car?
Ray McGrath, Automobile Enthusiast
Yeah. I think it’s a personal decision, but, I mean, I can tell you, I brought my BMW in for a recall, and they did a safety inspection, and they came back and said I needed $7,000 worth of repairs because I had a minor oil leak. And, basically, I looked at it myself, and I said, you know, I’m just going to…
If it needs oil, I’ll add a cord. It’s only $4. And the car…
That was seven years ago, and the car’s still on the road. I gave it to my nephew. And so, we never got that $7,000 to replace the oil pan gasket, which was a…
It was a big job. But I think sometimes the dealers, you know, they worry about their liability. They want to point out every possible defect so that you can put…
Restore the car to perfect condition. But I think as a consumer, you have to weigh, you know, is it really worth doing this repair, or can I get by another year without it? And sometimes you might, you know…
Obviously, I’m a unique individual, but you could go to another, get a second opinion, you know, from another independent mechanic, and not the dealership, and see what they say, you know. And I know it’s easier said than done, to be honest.
Jeffrey Snyder, Broadcast Retirement Network
Let me ask you a question that just occurred to me. Artificial intelligence is really seeping into every business, everywhere. I wonder if there are auto…
And you actually have some of the diagnostic tools when you’re working on your vehicle. You can see it’s got this indicator, which means X, Y, and Z. But is AI a useful tool in some of the…
Very useful.
Ray McGrath, Automobile Enthusiast
So, Jeff, I mean, that’s a great one, because so much… If you can phrase your question properly to AI, it will give you… And I found the answers to be quite accurate, because I’ve tried to troubleshoot things, and I’ve asked AI or Google, and it will give me a detailed explanation.
And then you can follow up with it, and kind of drill down to some degree. And also, you know, chains like Advance Auto and AutoZone, they’ll read your check engine like codes for free. And then if you know…
They’ll tell you the code number, then you can look it up on AI.
Jeffrey Snyder, Broadcast Retirement Network
Very, very good. I mean, you know, I think it’s a tool. I keep saying this on the network.
I think it’s a tool. It’s certainly not going to change, at least not now. It’s not going to do the repair for you.
You still need that mechanic to do it. But it’s a good secondary check, especially for those of us who don’t have your particular skill set in understanding, you know, how vehicles work. And I mean, I would be…
I could never figure my way around an engine like you can. Ray, we’re going to have to leave it there. It’s always great to see you.
Thanks for sharing some of your advice along the way, and we look forward to having you back on the program again very soon.
Ray McGrath, Automobile Enthusiast Thank you, Jeff.
