I have a confession to make, I have technically never owned a brand-new car or had a car payment. My budget has never had the experience of seeing car payment as a line item. I was the youngest of my siblings, so I was used getting a hand me down and cars were no exception. By the time I was driving, the rest of my siblings were in college, so I was able to freely drive the leftover car in the house. By the time I graduated college, I was fortunate to be gifted with my parent’s car. It was new when they bought it but by the time I received it, it was 4 years old. It was an excellent car and by the time I had to get rid of it, it was 19 years old and had just over 180,000 miles on it. When I finally had to purchase a car on my own, since I’ve never had one, I decided I did not want a car payment. I looked for deals on cars so I would be able to buy with cash. I have bought 3 cars since then (and still have all 3). The first was on Craigslist and was heavily discounted because the model was discontinued. The second and third were from a car reseller who restored salvage titles.
I am certainly not a car expert, but I have found that when buying a car, the best bargains met the following criteria:
- 3-5 years old – at year 4, most vehicles have lost 50% of their original value.
- < 30,000 miles driven.
- Close to the top rating for that year.
Even with these criteria, one may not find a deep discount on the luxury models of some vehicles. The extra caveat of purchasing a car with a salvaged/re-built title may give a further discount of up to 30%. However, this often requires having a good mechanic to take the car to for routine maintenance.
Recently, I almost gave in and was highly inclined to buy a new car. I was fed up because the car I currently own needed new breaks and new tires within a short time of each other. I also really REALLY wanted to switch to an Electric Vehicle and not miss out on the tax rebate. But after getting fired up with some spread sheet scenarios. I realized that:
- The cost of the tires and breaks would only be about two months’ worth of new car payments.
- If I throw the would-be car payment into extra principal payments, I can pay off my mortgage in the same amount of time I could pay off a new car.
So, I decided to hold out a little longer so I can stay within the parameters I’ve set to reach my financial goals. I will keep the car as long as possible until there is a repair that does not make financial sense anymore. In the interim, the extra would-be car payments are going into a high yield savings account so that by the time I am ready for a new car, I can buy it with the interest earned from all those would be car payments.