How I Saved Thousands by Buying a New Car

A salesman handing over the keys to a new car.

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My car is worth more than I paid for it. Here's how I did it.

Key points

  • Since cars lose value quickly, it seldom makes sense to buy brand new.
  • Electric and partially electric cars can get you a large tax credit -- for now.

I once bought a station wagon for $94 and two gin-and-tonics. I also got a nice Volvo for free, repaired it for $425, and drove it for years. But I do have standards -- when the leak in the Volvo’s sunroof soaked my girlfriend, I upgraded.

I used to pride myself on getting good cars for such absurd prices. I was the last person anyone expected to score a new car. It just doesn’t make financial sense. That old saw is true -- a new car loses value when you drive it off the lot. And it makes even less sense to buy new now, when car prices have gone through the roof.

But if you’re in the market for a ride, there is one surefire way to get the cost down -- and often, to the tune of many thousands. You might even avoid a car loan. Right now, I could actually sell my car used for more than I paid new. Here’s how I did it.

Plug in to this new-car exception

Big car manufacturers are going all-in on electric. But even if you’re not sold on the technology, keep reading -- you don’t have to buy a fully electric car to drive through this exception to new-car prices. Since electrics (EVs) and plug-in hybrids (PHEVs) pollute so much less than gas-powered cars, federal and most state governments cut you a break for buying both kinds of vehicle, via tax credits.

It can be a very big break -- as in $7,500 from the federal government for a fully electric car. You get a lower amount for a PHEV and other partially electric rides. Add in a state credit, and you may be looking at a big boost to your personal finances.

There are a few caveats:

  • The federal credits only apply in full on the first 200,000 electric cars a manufacturer sells. After a manufacturer sells 200,000 cars, the credits get lower each quarter, then are phased out.
  • If your tax bill is lower than the tax credit amount, you get only the amount of your tax bill.
  • Tesla and GM have sold so many EVs and PHEVs, you get no federal credit for either.
  • You aren't supposed to claim the credit if you're buying the car only to resell it (and in some states, resale conditions may apply as well).
  • Some states offer only an electricity discount or a credit for installing a home charger, but no credit for the vehicle itself.

How to drive home a tax credit

In my case, I bought a Prius Prime PHEV, which has, depending on the outside temperature’s effect on battery capacity, 25 to 35 miles of electric driving per charge. I had the good fortune of working the price for the Prius down to $22,000. The federal government then gave me a tax credit of $4,502. My state, Massachusetts, cut me an additional break of $1,500.

So all told, I got my new ride for $16,000 (technically, $15,998, thanks to that inexplicable $4,502). Not bad, considering a used Prius of recent vintage would set you back $14,000 to $15,000.

Granted, the pandemic brought an unexpected upswing in car prices. But right now, the book value of my $16,000 purchase is an astounding $25,520 for private-party sale. So this time around -- though under unusual circumstances -- my new car has defied the old saw about losing value. And it's allowed me to keep a lot more money in my saving account.

Do your homework

If you’d like to give the same thing a try now that car prices are unusually high, do your homework. The federal government maintains a helpful breakdown of the credits, and the list of eligible vehicles is surprisingly long, even without Tesla and GM. Any kind of car with plug-in capacity should be on the list. President Joe Biden expressed support for extending and raising credits in the failed Build Back Better bill, so there's a chance things may get better yet.

The rules for your state may be quite particular (and some states, currently including Kansas, Kentucky, West Virginia, and North and South Dakota, offer no credits). The National Conference of State Legislatures offers an interactive map with lots of related information about EVs and PHEVs. It’s a good place to start.

It’s worth noting that there’s no rule that says you have to use a PHEV’s electric capacity. I plug mine in everyday, and get astounding mileage as a result, but the credit is mine whether I use the electric motor or not. I’ve just grown used to the instant, silent torque of electric driving, not to mention the game of trying to get 2,000 miles or more per fill-up. And that’s a game that always comes out in favor of your finances.

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