Ohh cars! You gotta love them. How not to? They are such an art! They are designed with such ingenuity. They represent a summary of generations’ hours on end of trial and errors, trying to achieve efficient engines and fuels in order to combust progress and economic growth. Their interiors become every day more and more comfortable, to the point that their seats look more appealing than our couches. They are also loaded with technology that allows you to navigate the radio airwaves or demand phone calls with the command of your voice; as long as you don’t have an accent like mine, that is… a plethora of bells and whistles such as cameras to help your driving, integrated navigation systems so you don’t forget where you grocery shop, heating systems to warm up even the parts of your buddy that never see the sun, safety airbags ready to save your life, and in case you forget to use the brakes they got you covered… Gosh! How not to love them?
Well, unfortunately, it doesn’t matter how much we pay for a brand new car and how new it is, the fact is that it will break down sooner or later. Having a brand new car is no guarantee that it won’t break down, or even worse that it won’t be involved in some sort of collision where you may total your investment and get just a fraction of its cost after the insurance company makes the depreciation calculation. Now, that might be the argument for some people to go ahead and purchase a brand new vehicle and enjoy the perks of a warranty for the first two years or so, plus a hefty insurance policy, just in case.
However, when you calculate the number of hours of work you must invest, and consequently hours of your life, to pay for …what many consider such an investment, you might reconsider your spending.
According to Carfax and similar sources, a brand new car is bound to depreciate 15-20% in the first year of ownership after being driven out of the lot. Twenty percent! To add insult to injury, long gone are the days when you could find a simple car with just the basics. Now with all the bells and whistles that cars are sold with, it is extremely difficult to find a family car for less than $20,000. And once that you are sold into spending $20,000 in a vehicle, why not to spend a few more thousands in all the luxury that everybody craves. What difference does it make if your car payment of, let’s say $500 becomes now $550 for some extra safety features or technology “coolness for your ride?” Right? Just a few extra bucks!
About six years ago my family and I were in need of another car (The one we had got a trans problem). Convinced by a good friend of mine we made it to the Toyota dealer. At the time we were interested in a minivan Sienna. The financing, of course, is always a hook; especially when they offer to finance your 30K+ vehicle at 0%. I just couldn’t wrap my head around the idea of paying such a high price and for such a long time. Also, for something that I knew would end up needing car repairs regardless of how much I care for it.
We moved on from the idea of buying new, we spent some time thinking about it and came up with the final decision; we were buying used! We spent some time on Craigslist looking around for options and right away we found plenty. We chose a 2005 minivan. It was year 2015, so at the time it was a ten-year-old vehicle. In the pictures, you could see some rust but in general, it looked great. We went to see it and it was solid. There were no noises, oil leaks, rattling underneath or anything like that, and the engine felt very responsive. Needless to say, we made a move. For $2,000 we bought our next car hoping it would last at least two years. I figure, if it lasts 2 years it would cost me about $83 a month. Much less than the car payments of $550 a month that the dealer had offered me previously for a new Sienna.
We have used that car now for 3 years and it’s still running strong. We take it on vacations, to the beach, everywhere. The best of all is that I don’t care if the kids walk in with muddy shoes or sand. If I have to go and buy some wood at the hardware store I am totally comfortable loading up bags of mulch, pavers, cement or whatever I need. If the dog leaves some hair behind after going to the park or beach I can care less. I own the freaking car; the car doesn’t own me emotionally or defines my life. I am paying, after 3 years $55 a month for this car. If I keep it for 2 more years, which I am planning on doing it, the price will come down to $33 a month ($2,000 divided by 60 months).
The best yet is that if I do decide to sell this car, the Kelly Blue Book trade-in value is between $300-700. My guess is that I would be able to sell it privately for $800 to $1,000. Even choosing the worst case scenario of $700 would leave the price of this car at $1,300. After five years of driving it: $1,300 divided by 60 months= $23. How does that look next to any car payment out there?
When I compare our minivan against my Corolla the difference is significant. I bought my Corolla brand new in 2004. It was pretty basic. I paid $16,000 for it and paid it for 6 years. Dividing $16,000 by 14 years and 12 months, it comes up to $95 a month even after all these years. I still have that car and it runs great but it is still almost double than what I pay for my used minivan.
I don’t know you but I don’t think I will ever buy a new car again. When the need arises I will buy something that is at least 2 years old. Although I think that a car between 5 to 8 years old would have more potential for some serious savings.
You may feel very apprehensive about buying something used. I understand. I get it. Here is my recommendation to you: First of all don’t get the same ideas that some of my fellow teachers get. Don’t switch cars every 5 years or so. There is absolutely no need for that. That is the biggest waste of Benjamins!
Second, if you are uneasy about buying a used car, just hire a mechanic! How much can it be? $150? Even if it was $300, it is still worth it. You are saving thousands of dollars that will make a great deal of wealth in your 401k/403B.
Third, internalize that cars are disposable. With that said, understand that as you junk them you are also throwing thousands of potential savings. Literally tens of thousands of dollars!