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Buying a Car Within Your Budget

We all want nice cars. We all want to be able to be able to hop into our vehicles and just have it work without any issues. But, and this a huge but, there is a false perception that mechanical work on a vehicle costs so much that you might as well buy a new car. This perception will end up costing you more in the long run.

 

The Numbers

Don’t believe me? Let’s run the numbers. I’m going to be very generous here and assume that you have bought a reasonably priced car. If you buy a car for $12,000 and get a four year loan at 3% (see how nice I am?) your payment will be about $265 a month. Sounds affordable, right? At the end of the four years you will have paid $749.37. That’s three car payments that could have gone straight to principal. Three car payments that you could have been debt free.

To spell out how reasonable I’m being I’ll just say this, the average car payment is around $400 dollars a month over six years. So take everything I just said and double it for the average American.

Now let’s turn this thing on its head. Let’s say you saved $260 a month in an investment portfolio that gained 8% interest. (again, I’m low balling here. If your investments are done correctly you’ll be earning an average of 11% interest)  You’ll have earned 12,000 in 42 months. That’s six months faster than making a payment on something. And if you continued to save for that six months you would have  $1,680 to spend on whatever you want to spend your money on. You’re losing out on that much money when you get a loan, even a conservative one.

 

Still Not Convinced?

Let’s try another scenario, one in which we are aware that no one is going to save $260 a month for three and half years to buy a car. Let’s say all you save up is $3,000. There are lots of decent cars out there for $3,000 dollars, trust me. So you have $3,000  already saved and you buy your car. This is where the average consumer gets antsy. You’ve just paid $3,000 for a car and now you have to think about repairs and maintenance.

Let’s say you get your oil changed every 5,000 miles like you’re supposed to, and you like to get the full deal done. That’s  $70 twice a year.  Let’s say you get your wheels rotated once a year, that’s about $20. There’s a few other repairs too. A transmission flush once every other year for $200. New brake pads once in four years $60. And one major repair that costs you $1000. In four years you will have paid  $5,100. You’re getting the same amount of time out of your junky car and paying less than half the price for it, with regular maintenance.

 

How much money is being wasted on cars year after year because of the myth of needing a car that doesn’t need repairs? How much money is being wasted because we want to look good in our cars and not save up for them? How much could the economy be boosted if we save the money we spent on cars and used it to support local businesses?

That answer is up to you. All I can do is leave you with the facts. My choice is to buy car that I can afford, not a car that makes me look good.

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