Strategy to Buy a Car Every 3-5yrs with Warranty?

Does anyone have a strategy for buying a new/ex-demo car every 3-5 years?

Essentially, buying a car and owning it until the new car warranty runs out and then trading it in to upgrade to a newer model – rinse and repeat.

Would it be better to do that with brands like Mercedes or middle tier brands like Subaru/Mazda?

Reason I ask is that I've got a Mercedes GLA 250 that's 3 years old with $43,000 owing on it (paying roughly $935pm). Interestingly an early termination quote has me paying out $41,000 (and I suspect the car is worth that much – hasn't done a lot of miles)

It came with 3 years warranty and free servicing which has just run out and I didn't think about it at the time and locked in a 5 year loan with 30k payout at the end (or trade the car in) as I got a good rate.

But now thinking about it – I should have financed for 3 years and upgraded (or asked for 5 years servicing and warranty – to keep everything on the same schedule)

I've briefly mentioned it to the dealer and he seems happy to try and offer me a deal to upgrade to a newer car but am worried I may get taken for a ride (pardon the pun).

What is my best option here:
(a) wait it out and keep the car and look at trading it in when the financial term ends (ie 5 years)
-would mean I have to pay for next 2 years servicing and of course not covered by warranty
-also monthly repayments mean I will pay ~$24,000 over next 2 years
-I suspect I won't pay another $30,000 to keep the car as I assume the older it gets the more expensive any problems are to fix

(b) upgrade now to a new model Mercedes and try to lock-in new terms with finance/warranty/servicing on minimum 3 (ideally 5) year schedule and just trade it
-not sure what kind of deal / finance I would get here

(c) go for the early termination and try and get a car like Subaru XV (which looks quite nice) on a 5 year warranty on finance (and trade it in at that 5 year mark)

Also, my car is insured with Mercedes – shoud I switch to someone else now? (?NRMA is best these days?)

Poll Options

  • 11
    (a) wait out the 5 years and trade-in
  • 6
    (b) upgrade now on a 3-5 year matching finance/warranty/servicing schedule
  • 5
    (c) early termination and go for a lower tier car on a 5 year finance/warranty/servicing schedule


  • +10

    (paying roughly $935pm)

    That is alot per month for a car. Then add rego, insurance, fuel etc.

    • +28

      Yeah but it's a high yield merc

  • +18

    If I was a dealer I would also try to keep you happy if you are paying almost $1000 a month.
    Consider you would continually capture the largest part of the car’s depreciation.

    Financially, it is a poor choice. Have you considered the opposite? Buying a used car every four or five years instead? You would easily be $25k ahead.

    • +2

      If I was a dealer: I’d be rubbing my hands with joy when I saw him drive back in next time.

  • +2

    A quick glance at car sales shows you are well upside down on that loan. If you are to factor in that you'll get far less as a trade in, you are going to be paying quite the price to get out of it now.

  • +10

    At least you have provided the opportunity for a kid to attend a private school with the commission made of your mercedes purchase

    Maybe buy a kia and you only need to change the car over every 7 years

    • +4


    • Kia won’t have free servicing tho, right?

  • +4

    Your first bad choice was opting for a 50% residual, that suggests that you really couldn't afford the car in the first place. Anything above 30% is fairly risky business IMO.

    If you put the car up for private sale immediately, you might just be lucky enough to clear that 41k payout. If you trade it through a dealer you're going to end up with negative equity so you're going to need to borrow more than the value of your new vehicle - thus beginning a downward spiral.

    Personally I wouldn't entertain the option of buying another new vehicle under finance unless you can clear that loan.

    In terms of the insurance, make a few phone calls and I'm sure the right choice will become clear :)

  • +10

    I can’t believe people would pay 70k for such a common, slow, underwhelming car which devalues by 30k in 3 years. Tesla is going to dominate the luxury brands with the Model 3 in Australia.

    • +1

      How many Model 3s can Tesla send to Oz every year?

      • -2

        As many as they can sell every year.

      • Probably not enough. They will prioritise bigger market and keep local stuff a little exclusive so they can charge a premium.

  • +7

    Strategy: find a car without warranty that costs $100/ month. Save $835/month for repairs. Having a warranty will not mean you will not be without a car during any possible repairs. Having a car in warranty only means you pay before you have a breakdown rather than after - Yu save the money on purchase price and repayments.

    Contrary to popular belief cars don’t start falling apart the second the get out of warranty. Most of them keep going for up to 200k km without needing warranty attention. Purchasing a reliable, common model helps reduce the cost of repairs just in case. Ie buy a Camry.

    • +4

      I was with you right up until camry.

      • +2

        Yup, same here. Camry owner.

    • +1

      At $100 pm repayments say 4yrs = $4800 + deposit. Sounds like a secondish car, students or park and ride car. The problem is cars today aren't as durable as once upon a time. I wouldn't consider these tigers a reliable daily drive for the average person.

      I like the notion of using a vehicle while under warranty and exiting maybe a year before warranty expires, leaving value for the next owner.
      Not so much Subaru (underpowered) but Hyundai N line or Kia Cerato GT.
      Assume you work in or with the bigger end of town & have access to accountants.

  • +5

    (paying roughly $935pm)

    Buy a 2013 camry and keep it for 20 years meanwhile throw $20 out the window every day.

  • +1

    Okay, the critcisms are fair and I agree I'm not in a great situation. The purchase of that car was somewhat sentimental (essentially I bought it for my parents as I felt they deserved to drive a nice car before I did - as they have scrimped and saved their entire lives to give us opportunities. Mum fell in love with the car as soon as she saw it, and I couldn't say no at the time - she is not keen on driving it around now and prefers Uber and so I am driving it - but I am happy to sell it if now if that is the right decision - otherwise I am happy to hang on to it and pay it off until the 5 year mark).

    So the question is whether I should try and trade it in now or sell it now or wait till the 5 year mark?

    I rechecked the figures and the Balloon payment is actually $25,000 at the end of the 5 years. If it counts for anything - I signed up with the Agility Program which is supposed to guarantee the value of the car at the 5 year mark.

    It hasn't done high kms and is in reasonable nick - so I'm hoping it has reasonable value even if overall the situation is a financial mess.

    • +6

      So you’ve taken the bulk of the depreciation hit on this car and because you want a warranty you want to buy another new car nd get stung with more depreciation?

      Unless you need to change the car to something different ie more seats, not enough room for luggage etc, why not keep it. You know the service history and how it’s been treated. It’ll last a lot longer than another few years.

      • +9

        Because marketing has convinced plenty of people that cars are unreliable unless brand new.
        Don’t try and change their mind, just join me in driving the cheap cars these people drop that are good for another decade.

    • It's a 3 year old car, have you had issues with it that have been fixed under warranty?

      Unless it's a total lemon, the cost of servicing at repairs will be far cheaper than the depreciation and interest costs on a new car.

      You current car has probably depreciated $30k in the last 3 years if you keep if for another 3 years it will probably depreciate about $10k maybe $15 at the most, you might spend $5k at a high estimate on servicing so you'll end up saving at least $10-15k plus whatever extra interest you'd pay on the new loan.

      There's a point where cars become too expensive to service and repair and it's cheaper to upgrade to something newer but for almost all cars it's way past the 10 year old mark, likely far longer.

      I'm not saying people shouldn't buy new cars, if that's what you like and want to spend your money on then go for it, but don't do it under a crazy illusion that you'll be saving money.

  • So after a 5 year lease you will essentially be out of pocket 50 grand? I’d break the lease and sell it. Buy a car you can afford with cash. If it’s a $1000 Magna that billows blue smoke so be it.

  • If you service the car at a dealer you are certainly more than paying for the warranty.

    Hence buy a car that can be serviced by your local licensed mechanic and pay only 1/3 of the servicing costs whilst keeping the warrnty in place.

    Thats your strategy

  • +3

    It really depends if you're happy to keep the car you already have and pay service fees, and I mean way past the 5 year mark. (See comment above on whether you can service it not at the dealer and keep the warranty)

    If the answer is no, I would sell it immediately and pay out the loan because the longer you go the shittier the deal you've got gets (because you keep paying while the car continues to depreciate).

    If you don't want to keep it, here's an idea for a different strategy that in a few years would see you in a much better financial position while owning your car outright:

    The key is to buy a car you can afford with cash now (whatever that is, as long as it's safe to drive) and KEEP paying $935 a month, this time to your own saving account, until you've saved up enough in 1-2 years to upgrade to something better and then keep going with it.

    Good luck.

    • Thanks, Barefoot Investor Scott Pape makes an interesting read.
      Has the strategy updated since 2011, with fallen interest rates and questionable security.

    • Good advice @ancientwisdom - I’ve actually never heard that before.

    • +1

      The key is to buy a car you can afford with cash now (whatever that is, as long as it's safe to drive) and KEEP paying $935 a month, this time to your own saving account, until you've saved up enough in 1-2 years to upgrade to something better and then keep going with it.

      The other key point is that you don’t buy new. Buy relatively new. After all, by the time you upgrade again it won’t be new anyway.

  • +1

    You are being a little harsh on yourself. Whilst you may have a small amount of negative equity at the moment, you are not in a big hole yet !
    Having said that, the next decision you make needs to be a considered one, or you will be in that financial mess.
    The car has taken its biggest hit in depreciation as a percentage of purchase price, and you say it has low you could simply hold onto it for another 2 years, and trade,sell or refinance, when the lease expires.
    I am presuming that the repayments are comfortably for you as you haven’t said otherwise.
    From your post it would seem that warranty and service costs, are an important consideration for you.
    With that being the case I would suggest keeping away from Euros, with only 3 Year warranties, high service costs and
    Little or no good will policies once warranties have expired
    Trade it in now, pay out any negative equity or if it’s not a big amount tack it on to the new loan, but not too much or it will come back to bite you further down the track.
    A modern car which is well maintained Should give you years of reliable service,so there is no real financial justification for continued updating,if it’s a private purchase. Most private car purchases despite the buyer saying otherwise are based on emotion.
    Good luck with whatever decision you choose , there are plenty of Eddie the experts, here but the final decision is yours.
    For what it’s worth, I spent 12 years as a New Car Sales Manager, in Large Sydney Dealerships both Japanese and Euro, and came into contact with buyers with Neg Equity on a daily basis. It’s just a matter of managing it correctly, and not leaving yourself open to a bigger problem further down the track.

    • Thanks @KlevaKiwi - appreciate the kind words and advice.

      Yes - I can afford the payments and I didn't mind paying it when my parents were driving it

      Now that is in my hands - I am more conscious of whether it's the right financial decision to keep paying it off
      Or whether it would make sense to trade it in now vs at end of 5 years - especially since the warranty and free servicing has ended

      For example, my partner bought a Subaru XV which seems good value for ~35,000 paid off upfront (with trade-in of her old car) and comes with 5 years warranty - which seems like a good period to hold on to it for and then trade it in for another car after about 5 years - that seems like a good balance.
      If I was going to do something like that - whether it is better to do it now vs at the 5 year mark?

      • +1

        You say that you don't drive the Merc very often. Could you just share with your partner? I share with my partner as well, and though occasionally (once or twice every few months) I wish I had the car when she has it, it really doesn't make a difference. We go most places together anyway. Worth thinking about. Or at least, have one car that you will take trips together in, and then a runabout. No point having two beautiful, expensive cars sitting around. You can only drive one at a time when you are together.

        Run some numbers, see what the best strategy for you is to get out of paying off this Merc, and then make the decision about what to buy next. Buy something that is a couple of years old, Japanese or Korean, and in good condition and you will have trouble free motoring for years to come with a spare 30k in your bank account.

        • +2

          Yep, we recently sold our second car as well. Even with a car that was worth almost nothing, we're saving at least $2k a year from rego, insurance and servicing/repair.

          We figured that we can pay for an Uber on the rare occasion we need to be in different places and public transport won't work. In 6 months, we've only had to do that once.

          YMMV of course, but it's worth considering.

  • Are you getting a tax deduction on the payments or are you just a normal tax paying chump like most of us and the loan/lease is non-deductable?

    • yeah chump unfortunately as I bought it for my parents

      could I potentially do some uber driving to make it business?

      • +1

        I have no idea about the uber thing.

        The only bit of advice I can give is if it isn't a business expense then do not borrow money for a car unless you can get a novated lease. It's madness. Buy what you can afford out of savings, preferably something about 2 years old. Change every 5 years. Use a trusted independent mechanic. Put the money you save into shares. You'll find every 5 years you can get a better car and it's paid for.

        I reckon if your parents knew the true cost of the vehicle they would be embarrassed and appalled.

      • I'm not an accountant but I'm pretty sure you'd only be able to claim a portion of it (i.e. if half the km you do in the car are for uber, you can claim half the costs). You can't do 1 uber a year and claim the whole lot.

  • +1

    Do the exercise. Drop into a Subaru Dealership and get a look at the numbers. That way you have something real rather than stumbling around with no real idea of the numbers. Get a current payout and a valid to date prior to going in.
    If it’s doable do it now. The next 2 years otherwise will be an unknown in terms of final value,servicing and unbudgetted costs if something sh!!ts itself.
    Also important to get a full replacement insurance policy for the first 2 years.

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