The Ultimate Guide to Military Car Buying

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Military Car Buying

If there is one thing that service members are known for doing poorly, it is buying a car when we enter the military.

When you drive through the gate of most military installations, you are greeted with an array of fancy sports cars, decked-out trucks, and over-built Jeeps.

For whatever reason, service members appear to have no problem buying overpriced new vehicles and paying too much interest in the process.

When “paying 20% interest on a Mustang” is a commonly accepted joke, it becomes clear that our young service members are not buying cars well.

Buying a car in the military should not be this hard. We need to stop wasting half our paychecks on cars and understand how to purchase intelligently.

Buying New Cars

I have never bought a new car. I know some people just cringed when I said that.

Full-disclosure: I have purchased a new motorcycle, but that is a little different.

I don’t plan on buying a new car anytime soon (or ever).

There are several reasons for this, but the biggest one is the depreciation.

New cars drop almost 10% in value the moment you drive off the lot. You pay for marketing, sales commissions, dealership fees, and transporting the vehicle to the dealership when you buy a new car. Those costs don’t count towards the value of the car. As soon as you drive off the lot, the value of these expenses is lost forever.

Cars depreciate an average of 60% by the time they are five years old.

To put that in perspective, the car you buy for $50,000 will only be worth $20,000 five years later. Also, let’s not forget that you’re paying interest on that car payment!

Also, car insurance is more expensive on new cars than it is on older models.

Some cars are better than others

Luckily, some vehicles hold their value better than this average.

If you insist on buying a new car, look for one of these vehicles in order to mitigate your losses.

No, you won’t eliminate these losses. The car will depreciate, and you will lose money.

I had a Marine comment the other day about how he “made $3,000” when he sold his three-year-old car. He stated this because he sold it for $3,000 more than what he still owed on the auto loan.

I pointed out that he had actually lost around $20,000 since he purchased the vehicle, not including interest payments.

Categories that hold their value well

  1. Pickups
  2. SUVs
  3. Cars

I would not have guessed that pickups hold their value better than cars. It makes sense when you think about it though, as pickups serve a purpose and are often work vehicles, as opposed to just commuter vehicles.

Obviously vans didn’t make the list because I don’t know anybody who takes care of their van. They either rack up huge amounts of mileage or get trashed by kids, haha.

Brands that hold their value well

  1. Toyota (and Lexus)
  2. Subaru
  3. Jeep
  4. Honda
  5. Tesla

Toyota has long been the king of retaining value. For as long as I can remember, Toyota has always had the highest resale value of any automotive brand.

I believe this is due to the long-standing reliability they have been able to maintain. Subaru and Jeep are both quality vehicles, but also have a cult-like following of Rally/Off-road hobbyists.

I didn’t actually see Tesla on many of these lists, but I think that is just because of how new they are. Everything I have read and seen indicates that Teslas hold their value really well. One article I read claimed that Tesla holds its value twice as well as other car manufacturers and three times as well as other electric cars! No, this article wasn’t published on Tesla.com

Cars that hold their value well

  1. Jeep Wrangler
  2. Toyota Tacoma
  3. Toyota Tundra
  4. GMC Sierra
  5. Toyota 4Runner
  6. Subaru Impreza
  7. Toyota Corolla

The Jeep Wrangler and Jeep Wrangler Unlimited were on several lists as the car the held value the best. This is great news because service members (especially Marines) seem to love buying Jeep Wranglers and spending tons of money modifying them!

As you can see, Toyota is dominating this list as well. They have made some pretty solid vehicles over the years.

However, even the best of these was still only worth 72% of its purchase price after five years, meaning a loss of almost 5% annually.

How to help your car retain value

You should do everything in your power to help your car retain value. When buying a car in the military, it is important to think about how you can keep it from depreciating more than necessary.

1. Complete scheduled maintenance

Sticking to all of the scheduled maintenance will give people a warm and fuzzy feeling when they look at buying your vehicle. This will show that you were proactive with your vehicle, rather than driving it as hard as possible between routine upkeep.

2. Keep all service records

If you don’t keep all of the service records, how does anybody know if it was actually completed? Sure, they could take your word for it, but that is easier said than done these days. Document everything you have done to the vehicle, and keep all of the records.

I simply keep these documents in a folder underneath my insurance/registration in the glove box.

3. Clean car (in/out)

Keep the inside of your vehicle clean. Almost nothing destroys the value of a car more than a filthy interior. I get my car detailed at least once a month in order to keep it in good order. I like to get the carpets shampooed, any leather treated, and the dash protected against wear and tear.

It is also best to keep the vehicle in the garage if possible. The less exposure your car has to the elements, the better. A good coat of wax on the car will keep the paint in good condition and the car clean.

The bottom line is don’t be a pig and keep your car presentable.

4. Add some more features

military car buying - My S2000

People spend a lot of money on upgrading their vehicles. They put nice wheels on it, upgrade engine performance, add custom lighting, and all sorts of other modifications. This can add value to the car but generally not as much as the parts/installation cost.

Don’t over-modify your vehicle to the point where you are throwing more money at it than you’ll ever get back. I have been guilty of this, but at least my car had already depreciated before I purchased it, so it wasn’t still losing value quickly.

I loved my S2000, but even though these modifications were a blast, they didn’t add much value to the car.

New car vs. Old car

CATEGORYNEW CAROLD CAR
"Cool" factor X
Appeals to emotion/statusX
Appeals to logic/financesX
DepreciationX
MaintenanceX
InsuranceX
The total cost ownershipX
Most legit reasons to purchase.X

My favorite military car buying strategy

When I purchase a vehicle I aim for a vehicle that is 5-10 years old. That way it has already lost 60-70 percent of its value and won’t depreciate very quickly anymore.

I narrow this search to two or three types of car and search Craigslist and Facebook marketplace for them. If you can find the vehicle from a private seller, you will get a discounted price. You can even negotiate the price down a little bit and potentially buy it under Kelly Blue Book value.

I have purchased my last three cars under Blue Book value, and my most recent purchase was $10,900 when Kelly Blue Book said it was worth ~$14,000!

I also look for vehicles that are known to be capable of consistently reaching well over 200,000 miles. My current vehicle is a VW Jetta Turbo-Diesel, which is known for rolling over the 500,000-mile mark. I like cars that achieve high mileage because it is an indicator of quality. Also, a car that will drive for 500,000 miles is sure to hold its value more than a car that will barely make it past 150,000 miles in one piece.

Finally, I look at gas mileage, insurability, and maintenance cost(s). I want to know the vehicle has been taken care of and that the cost of ownership is low. My diesel Jetta gets great mileage (40-45 MPG on average) and has relatively low insurance cost(s). The maintenance is a little pricey on Volkswagens. Honestly, this probably doesn’t make them the most affordable vehicles, but I love their reliability, and they are still quite a comfortable car to drive.

Finally, I want to look through the service records in order to determine how well this car was taken care of. I want to ensure there are no recurring issues with the vehicle…and verify it isn’t a “lemon.”

A “lemon” for those of you who don’t know, is a car that just has a ton of unexplained maintenance issues. Sometimes a car just doesn’t come off the assembly line as well put together as the rest of the vehicles.

Additional Tips and Tricks

Here are some good practices for buying a car in the military. As with real estate investing, the profit is made when you buy. Don’t spend more money than you need to on a liability that depreciates very quickly.

You might as well be throwing this money away!

1. Shop Around

This is rule number one for saving money on virtually anything. Look on Craigslist, Facebook Marketplace, and car dealerships. If you find a great price, go look at that car first. Then you can use these prices to haggle the other sellers down or just purchase the cheaper vehicle.

Either way, don’t buy the first vehicle you look at without at least comparing the cost of other vehicles.

2. Purchase price –> monthly payment

Determine the maximum purchase price you can afford to pay, not a monthly payment.

If you decide on a monthly payment amount, the lender might extend the length of the loan to drop the monthly payment into your range. That sounds great until you realize that you’ll wind up paying thousands more over the course of the loan…while the car is losing value!

Set a maximum “all-in” price you’re willing to purchase at, and don’t go over that budget.

3. Negotiate

Everything is negotiable. You should never pay full sticker price at a dealership.

There is always a buffer built-in, and car-dealerships can easily take some of that price off. If they tell you “no,” just get up and walk out of the dealership. They will stop you and agree to take some money off the purchase price.

4. Don’t mention your trade-in

If you mention that you have a trade-in, they may use that as a way to say “we will drop the price to $20k minus your trade-in, which makes it effectively $18k.”

If you hadn’t mentioned the trade-in, they might have agreed to drop the price to $18k initially, and then you can drop the price even more with the value of the trade-in!

5. Finance Elsewhere

Don’t accept financing from the dealership as the best choice. There is a really good chance you could get better financing elsewhere. Navy Federal and USAA have both given me really solid interest rates on auto loans!

Lending Tree and other personal loan options are also nice because you won’t need to deal with the lien-holder paperwork at the DMV after purchasing the vehicle. You’ll get to hold the title right away and just pay off the personal loan, but the rates might not be quite as competitive.

Creative financing is just as important in military car buying, as it is in real estate investing!

6. Don’t buy the extended warranty

If it comes with a factory warranty, that is probably fine. Extended warranties are picky and don’t cover as much as you would like. These are provided as an upsell for dealerships and are not (usually) worth the added cost to you.

7. Say no to add-ons

You don’t need the fancy roof-rack, mud-flaps, or trunk-organizer from the dealership. All of these add-ons can be purchased for less money online. Dealerships have marked up these items and you will be paying top dollar unnecessarily for them.

Military car buying made simple

The bottom line is this: don’t get suckered into spending half your paycheck on a V6 Mustang. Don’t spend as much as you possibly can on a vehicle.

Your best bet is to buy a car you can afford to buy in cash. If you are going to take out a loan, make sure the car has already lost most of its value, has been well-maintained, and has a track record for being very reliable.

Automobiles are one of the worst purchases you can make and the fastest way to undercut your savings gap. The amount of money you spend on your car can add up very quickly, and a twenty-year-old Toyota Corolla will accomplish the same job as a brand new Ferrari, just not look as sexy doing it.

I’m okay looking less sexy driving now if it means I’ll be financially free years earlier. Besides, that means I can buy an even nicer car later!

Vehicles depreciate extremely fast and will suck your net-worth down the drain!

 

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David Pere

David Pere

David is an active duty Marine, who devotes his free time to teaching personal finance and real estate investing for service members, and the working class!

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