Buy tires and keep car for 12-36 months, or replace car now?
If the car is in otherwise good shape, it's always less expensive to keep it longer. Think of it this way: you have to buy new tires no matter what. It's just a question of whether or not those new tires are attached to a new car or your current car. I don't see how anyone could give you a hard-and-fast formula, unless they know where to get some applicable statistics. Because several factors here are not a straight calculation. If you don't replace the tires but keeping driving the car, what is the increased probability that you will get into an accident because of the bald tires? How much will bald tires vs new tires affect the selling price of the car? Presumably the longer you drive the car after getting new tires, the less increase this will give to the market value of the car. What's the formula for that? If you keep the car, what's the probability that it will have other maintenance problems? Etc. That said, it's almost always cheaper to keep your current car than to buy a new one. Even if you have maintenance problems, it would have to be a huge problem to cost more than buying a new car. Suppose you buy a $25,000 car with ... what's a typical new car loan these days? maybe 5 years at 5%? So your payments would be about $470 per month. If you compare spending $1000 for new tires versus paying $470 per month on a new car loan, the tires are cheaper within 3 months. The principle is the same if you buy with cash. To justify buying a new car you have to factor in the value of the pleasure you get from a new car, the peace of mind from having something more reliable, etc, mostly intangibles. I tend to agree with Rocky's answer.  However it sounds like you want to look at this from the numbers side of things.  So let's consider some numbers: I'm assuming you have the money to buy the new car available as cash in hand, and that if you don't buy the car, you'll invest it reasonably.  So if you buy the new car today, you're $17K out of pocket.  Let's look at some scenarios and compare.  Assuming: If you buy the new car today, then after 1 year you'll have: If you keep the old car, after 1 year you get: After 2 years, you have: And after 3 years, you're at: Or in other words, nothing depletes the value of your assets faster than buying the new car. After 1 year, you've essentially lost $5K to depreciation.    However, over the short term the immediate cost of the tires combined with the continued depreciation of the old car do reduce your purchasing power somewhat (you won't be able to muster $25K towards a new car without chipping in a bit of extra cash), and inflation will tend to drive the cost of the new car up as time goes on.  So the relative gap between the value of your assets and the cost of the new car tends to increase, though it stays well below the $5k that you lose to depreciation if you buy the new car immediately.  Which is something that you could potentially spin to support whichever side you prefer, I suppose. Though note that I've made some fairly pessimistic assumptions.  In particular, the current U.S. inflation rate is under 1%, and a new car may depreciate by as much as 25% in the first year while older cars may depreciate by less than the 8% assumed.  And I selected the cheapest new car price cited, and didn't credit the tires with adding any value to your old car.  Each of those aspects tends to make continuing to drive the older car a better option than buying the new one. It depends how detailed you want to get in your calculation, but fundamentally, 1K < 25K.   On a very basic level, divide the cost (less what you sell it for) by the time you'll have the car for.  If you junk it, $1K/12 month = $83/month to buy tires to have a car for a year. If you sell it for $1K, then it become $0/month.  (Plus other maintenance, etc..., obviously). If you pay 25K and keep the new car for ten years and sell it for nothing, it becomes roughly $208/month (plus maintenance). If you want to get more accurate, there are a lot of variables you can take into account--time cost of money, financing, maintenance costs of different vehicle types, etc... Would you buy this used car, in its current condition but with new tires, for the price of the tires? If so, buy the tires. New tires will increase the resale value of the car; while not by the full cost of the tires, it will not be entirely a sunk cost. You'd need to factor that in and find out how much the new tires increase the resale value of the car to determine how much they would truly cost you.  However, I suspect they would cost you less than a $25,000 car a year early would.  That new car would cost some amount over time - it sounds like you buy a new car every 8 years or so? So it would cost you $25/8 = $3.3k/year.  That would, then, be the overall cost of the new car a year early - $3.3k (as it would mean one less year out of your old car, so assuming it was also $25k/8 year or similar, that year becomes lost and thus a cost). There are a few factors I like to consider when I'm reasoning financially over my households cars. How many KMs will the car travel each year because I like to factor in how often tires will need to be changed, how much tires for my models cost as well as how gas efficient they are. Knowing how much the car is driven and in what environmental/road conditions is also important factors to know because that will help guestimate possible repairs cost. Also possible taxes should be taken in to consideration. For example a few years ago I had a diesel Citroen C5 that had yearly taxes of roughly 500$. The replacement costs only 150$ a year in taxes. So switching cars 3 years early would have saved me 1050$ in taxes. So some information on possible taxes, how far you drive each year, what environmental conditions, type of driving (daily long rides or just short etc..) as well as the fuel efficiency of both cars would help to better calculate your costs for say three scenarios. Car change in 12, 24 and 32 months respectively. If You use the car regulary, I don't think that driving on the bald tires for 3 years is a reasonable option. Have You considered buying used tires? Those will be cheaper and will last till You get to replace the car.
"I would split the savings as you may need some of it quickly for an emergency. At least 1/2 should be very liquid, such as cash or MMA/Checking.  From there, look at longer term CDs, from 30 day to 180 day, depending upon your situation.  Don't be surprised if by the time you've saved the money up, your desire for the car will have waned.  How many years will it take to save up enough?  2? 5? 10?  You may want to review your current work position instead, so you'll make more and hopefully save more towards what you do want. Important: Be prepared for the speed bumps of life. My landlord sold the house I was renting out from under me, as I was on a month-to-month contract.  I had to have a full second deposit at the ready to put down when renting elsewhere, as well as the moving expenses. Luckily, I had done what my tax attorney had said, which is ""Create a cushion of liquid assets which can cover at least three months of your entire outgoing expenses.""   The Mormon philosophy is to carry at least one year's worth of supplies (food, water, materials) at all times in your home, for any contingency. Not Mormon, not religious, but willing to listen to others' opinions. As always, YMMV.  Your Mileage May Vary." Two adages come to mind. Never finance a depreciating asset. If you can't pay cash for a car, you can't afford it. If you decide you can finance at a low rate and invest at a higher one, you're leveraging your capital.  The risk here is that your investment drops in value, or your cash flow stops and you are unable to continue payments and have to sell the car, or surrender it. There are fewer risks if you buy the car outright.  There is one cost that is not considered though.  Opportunity cost.   Since you've declared transportation necessary, I'd say that opportunity cost is worth the lower risk, assuming you have enough cash left after buying a car to fund your emergency fund. Which brings me to my final point.  Be sure to buy a quality used car, not a new one.  Your emergency fund should be able to replace the car completely, in the case of a total loss where you are at fault and the loss is not covered by insurance. TLDR: My opinion is that it would be better to pay for a quality, efficient, basic transportation car up front than to take on a debt. The stupid question nobody asked: how mechanically inclined are you? I buy used cars, but then again I can work on them (I am building a new engine to my specs for one of my cars). Replacing a head gasket in a Subaru would be less than $200 for me, so I would find someone who blew his and offer $1000-1500 for the car if it is one of the models I like. The reality of buying an used car is that you are buying someone's else problems. How much do you know about that specific car model, its quirks, and what usually goes bad on them? For instance, it is a fact most people who buy a BMW 3 series flog them, so expect an used one to have been abused by someone trying to pick up girls by acting like he is a racer. A 5 series, on the other hand, would have a better life. Then some cars tend to rust on certain areas of the body. On the other hand I have seen Hyundai Elantras take a lot of abuse -- no oil change in 3 years -- and keep on ticking. Yes, you need to do some research on new cars, but old ones require even more. If you are going to save money buying used, make sure to spend time and research the options and their hidden costs. And learn how to check a car and have a feel for how much you will spent on repairing/maintaining it.  And what you are willing to give up on your first car: is having a working AC that important? How about power windows?  If you do buy a used car, try to put $100-200 aside every month, as if you are doing car payments. That will be your emergency and downpayment-for-next-car money. No matter what you buy, remember all you want on a new car is reliability and fuel efficiency. And, how much do you need a car right now? If you have to ride 30minutes to work in pouring rain and then be talking to customers, maybe a car worth having. But, where I live, a lot of people ride bicycles to work and back or use public transportation. I would trust getting into my car right now and drive 5h, and yet I take the bus every day (I like saving money on fuel and parking fees). I've read online that 20% is a reasonable amount to pay for a car each month - Don't believe everything you read on the internet.  But, let me ask, does your current car have zero expense? No fuel, no oil change, no repairs, no insurance? If the 20% is true, you are already spending a good chunk of it each month. My car just celebrated her 8th birthday. And at 125,000 miles, needed $3000 worth of maintenance repairs.  The issue isn't with buying the expensive car, you can buy whatever you can afford, that's a personal preference. It's how you propose to budget for it that seems to be bad math. Other members here have already pointed out that this financial decision might not be so wise. "This is my opinion as a car nut. It depends on what you want out of a car. For your situation (paying cash, want to keep the car long-term but also save money) I recommend seriously considering a slightly used vehicle, maybe 2 or 3 years old, or a ""certified pre-owned vehicle"". Reasons: Much less expensive than a brand new car because the first two years have the biggest depreciation hit. Cars come with a 4-year warranty, so a 3 year old car will still be in warranty. Yes, a certified pre-owned car will have a bit of a premium compared to a private-party used car, but the peace of mind of knowing it's in good shape is worth the extra cost considering you want to keep it long term. Consumer Reports will have good advice on the best values in used cars." "As cars age, the amount of deprecation tends to decrease.  You have already lost between 19 and 17K on the car in the past 3.5 years.  You can't lose that much on that car ever again!  First because it is not worth that much.  Second, because even if the engine blows up, or it is totaled you can always get about $300-$400 for it. If you trade this car for a newer model the same exact scenario is likely to happen again.  In three years (or so) the car will lose half its value.  If you happen to stick the same price point, and are comfortable with $5000/year going ""out the window"", then it might be time to trade up. You can get a decent idea of what your car will be worth in the 2.5 years by seeing what a 2006 with 116K miles on it.  One option is to keep driving it after it is paid off.  With putting a little money into it, and having it detailed every once in a while it can feel like a pretty sweet ride for many years and miles to come.  Even if you have maintenance costs, you won't have a car payment.  How sweet would that be?" Which way would save the most money? Paying of the car today would save the most money.  Would you borrow money at 20% to put it in a savings account?  That's effectively what she is doing by not paying off the car. If it were me, I would pay off the car today, and add the car payment to my savings account each month.  If the car payment is $400, that's $1,500 a month that can be saved, and the $12k will be back in 8 months. That said - remember that this is your GIRLFRIEND, not a spouse.  You are not in control (or responsible for) her finances. I would not tell her that she SHOULD do this - only explain it to her in different ways, and offer advice as to what YOU would do.  Look together at how much has been paid in principal and interest so far, how much she's paying in interest each month now, and how much she'll pay for the car over the life of the loan.  (I would also encourage her not to buy cars with a 72-month loan, which I'm guessing is how she got here). In the end, though, it's her decision. If you lease a car, you are paying for the depreciation of a certain number of miles, even if you don't actually use those miles.  Since you know you will be well under the standard number of miles when your lease is up, and you already know that you want to keep the car, buying is better than leasing. A loan that does not begin with **at least a 20% deposit** and run through a term of **no longer than 48 months** is the world's way of telling you that *you can't afford this vehicle*.  Consumer-driven cars are rapidly depreciating assets. Attenuating the loan to 70 months or longer means that payments will not keep up with normal depreciation, thus trapping the buyer in an upside down loan for the entire term. "Does your planning include contingencies for Can you afford the late fees, insurance increases, bad credit hits and all the other downsides when this goes bad? Why does she NEED a new car on lease? Personally? I'd go for option B) Do what it takes to have her OWN a car. Why not just have her get a car that costs IN ENTIRE the $3k that would be used for a down payment on a lease? Maybe add a bit of your own money ""for old times sake"" to the pile? Or a small loan to get to where she can get a usable, dependable car? Say, a $3-5k loan in your name that she's responsible for the payments. $3-10k can get a very dependable old car. 10 great cars for 6k or less Everyone else has been burned by her - for whatever reason. No idea what the reasons are, but she seems to be unable to pay her bills. Why would this time be any different? Your name on a car + someone who can't pay bills = a bad proposition. I would LOVE to help anyone who's been important in my life. Including MY x-wife. But I wouldn't agree to this deal unless I KNEW that I could 100% cover the costs when things go bad - because at this point, odds are they will." It is almost never going to be more economical to buy a new car versus repairing your current car. If you want a new car, that is justification enough. In a perfect world scenario you would get a car 2-5 years old that has very little mileage.  One of the long standing archaic rules of the car world is that age trumps mileage.  This was a good rule when any idiot could roll back an odometer. Chances are now that if you rolled your odometer back the car was serviced somewhere, had inspection or whatever and it is on a report.  If seller was found to do this they could face jail time and obviously now their car is almost worthless. Why do I mention this?  Because you can take a look at 2011 cars.  Those with 20K miles go for just a little more than those with 100K miles.   As an owner you will start incurring heavy maintenance costs around 100K on most newer cars. By buying cars with lower mileage, keeping them for a year or two, and reselling them before they get up in miles, you can stay in that magic area where you can drive a pretty good car for $200-300 a month.  Note that this takes work on both the buying and selling side and you often need cash to get these cars (dealers are good about siphoning really good used cars to employees/friends).   This is a great strategy for keeping costs down and car value up but obviously a lot of people try to do this and it takes work and you have to be willing to settle sometimes on a car that is fine, but not exactly what you want. As for leasing this really gets into three main components: If you are going to do EVERYTHING at a dealership and you want something new or newish you might as well lease.  At least then you can shop around for apples to apples.  The problem with buying a new/used car from the dealers in perpetuity isn't the buying process.  It is the fact that they will screw you on the trade-in.  A car that books for 20K may trade-in for 17K.  Even if the dealer says they are giving you 20K, then they make you pay list price for the car.   I have many many times negotiated a price of a car and then wife brought in our car separately and I can count on ZERO fingers how many times that the dealership honored both sides of the negotiations.  Not only did they not honor them but most refused to talk with us after they found out.   With a lease you don't have to worry about losing this money in the negotiations.  You might pay a little extra (or not since you can shop around) but after the lease you wash your hands of the car.   The one caveat to this is the high-end market.  When you are talking your Acura, Mercedes, Lexus... It is probably better to buy and trade in every couple years.  You lose too much equity by leasing, where it won't cover the trade-in gap and cost of your money being elsewhere.  I have a friend that does this and gets a slightly better car every 2-3 years with same monthly payment.   Another factor to consider is the price of a car.  If your car will be worth over $15K at time of sale you are going to have a hard time selling it by owner.  When amounts get this high people often need financing.  Yes they can get personal financing but most people are too lazy to do this.  So the number of used car buyers on let's say craigslist are way way fewer as you start getting over $10-12K and I have found $15K to be kind of that magic amount.   The pro-buy-used side is easy.  Aim for those cars around $12-18K that are out there (and many still under warranty).  These owners will have issues finding cash buyers.  They will drop prices somewhere between book price and dealer trade-in.  In lucky cases where they need cash maybe below dealer trade-in.  And remember these sellers aren't dealing with 100s let alone 10 buyers.  You drive the car for 3-4 years.  Maybe it is $7-10K.  But now you will get much much closer to book price because there will be far more buyers in this range. When I was in that boat a few years ago, I went for the car first.  My thoughts: If I get the car first, I'm guaranteed to have a car that runs well.  That makes it more convenient to commute to any job, or for social functions.  I ended up dropping about $20k into a car (paid cash, I don't like being in debt).  I chose to buy a really nice car, knowing it will last for many years to come - I'm expecting to not replace it for about 10 years from the purchase.  I would urge you to consider paying in full for the car; dumping $20k+ is a lot, and there are plenty of nice cars out there in the $10-20k range that will work just fine for years to come.  One benefit of paying in full is that you don't have a portion of your income tied into the car loan. The main reason I chose not to go for the house first had more to do with the difference in commitment.  A home mortgage is a 30-year commitment on a large chunk of your income.  With the job market and housing markets both currently working against you, it's better to wait until you have a large safety net to fall into. For example, it's always recommended to have several months worth of living expenses in savings.  Compared to renting, having 6 or more months of mortgage payments + utilities + insurance + property taxes + other mandatory expenses (see: food, gas) comes out to a significant amount more that you should have saved (for me, I'm looking at a minimum of about $20k in savings just to feel comfortable; YMMV).  Also, owning a house always has more maintenance costs than you will predict.  Even if it's just replacing a few light bulbs at first, eventually you'll need something major: an appliance will die, your roof will spring a leak, anything (I had both of those happen in the first year, though it could be bad luck).  You should make sure that you can afford the increased monthly payments while still well under your income. Once you're locked in to the house, you can still set aside a smaller chunk of your income for a new car 5-10 years down the road.  But if you're current car is getting down to it's last legs, you should get that fixed up before you lock yourself in to an uncomfortable situation. Don't be in too much of a hurry to buy a house.  The housing market still has a ways to go before it recovers, and there's not a whole lot to help it along.  Interest rates may go up, but that will only hurt the housing market, so I don't expect it to change too much for the next several months.  With a little bit of sanity, we won't have another outrageous housing bubble for many years, so houses should remain somewhat affordable (interest rates may vary).  Also keep in mind that if you pay less that 20% down on the house, you may end up with some form of mortgage interest, which is just extra interest you'll owe each month. For a lease, your payment is a function of sale price minus residual value. If the car has a low residual value then the lease payments will be higher. If it has a high residual value then lease payments will be lower but the purchase price at the end of the lease will be higher (potentially even higher than the KBB of the car). There is no gaming the system. Whether you buy now or lease now and buy later, you will be paying for the entire car.   Calculate the payments in both scenarios with appropriate interest rates/money factors, sale price, and residual value. This will demonstrate there is no free lunch to be had here. Also, don't forget that financing the vehicle after a three year lease will probably mean a higher interest rate than if you were to finance it all now. With a purchase now you will likely get more favorable financing terms and be able to talk them down on sale price. Leasing will not allow such flexibility generally.   Tldr No, that's not how it works. If you plan on owning the car for the duration of a loan (e.g. 5 years) it will be cheaper to just finance now. The are a couple of explanations that I can think of; though for determining exactly what is different you will want to print out both returns and compare them line by line to see how they differ. If the company grossed up your income to account for the taxes on housing (possibly by paying the additional withholding), you may be just benefiting from them estimating your tax rate. This can especially be the case if your only work was the three month internship. They would have to assume your salary was for the entire year. There is an earned income tax credit for low wage earners that you may have qualified for (it would depend your specific circumstances if you meet the criteria). But that credit for a range of income actually pays out more the more you earn (to encourage working that extra hour instead of reducing benefit because you had another hour of employment). As for the housing subsidy itself, while the value is quite high the IRS considers that to be a taxable benefit that the employer provided you and so it needs to be added to your W-2 wages. $8k a month seems quite high, but I don't know the quality of the apartment you were provided and what the going rates are in the area. Given that you said you worked for a major tech company, I can imagine that you might have been working in an area with high rents. If the employer did gross up your paycheck so as to cover your taxes, that $24k would also include that extra tax payment (e.g. if the employer paid $8k in additional taxes for you, then the housing cost that they directly paid were $16k).