Our Favorite (And Probably Worst) Investment
In America, we like our cars. We like them so much that the average car payment is $503. The average loan term is 68 months. Did I say we like cars? I meant we like car payments. For most, a car payment is just the normal way of life. Most people don’t even question the idea of having one. But what if you could have a nice car with no payment? Wouldn’t that be worth pursuing?
To accomplish that, you have to buck the trend of just about all your peers and push back the call of instant gratification. It is normal to want to have a nice car. But right now, normal is not a place you want to be. Normal is paying $503/month for 68 months. So maybe think about deviating from normal, okay? If you think maybe it is worth exploring a different way, read on.
Cars: Need vs. Want Buying
What kind of car do you need? Think that question through honestly and thoroughly. If you are honest, it is likely you have purchased a car on several occasions that were more want than a need. Here’s the thing: buying a car that suits your wants is really great. It has all the luxuries, the bells, and whistles, and is great to show off to friends. But if doing that means you can barely afford to put gas in your top-of-the-line car, does it really make sense? Don’t get me wrong, buying a car that matches your want-list is totally fine, but only if you can actually afford it.
For example, my wife and I began recently looking at replacing one of our cars. We had reasoned that with a third child on the way, we needed a minivan. That third row of seating was an absolute must. However, when we actually looked at the situation with a critical eye we realized that if we purchased new, slimmer car seats to replace the ones we currently have, we would not need to use the third row. That opened up a whole new group of cars for consideration. As you can imagine, it is much cheaper to replace a couple of car seats than a car.
We often buy cars because we want to. We’d like something different, our friend has just gotten a nice new one, our parents’ car has a feature we really like, or we just think we deserve it. The problem is that when we compare our cars to those of others we get into the mentality that what we have isn’t really enough. Sometimes that is true, and sometimes it is just an illusion. Your best course of action is to always go through and honestly evaluate what you actually need in a car. Once you’ve figured out what you really need, then you can begin the process of deciding on what to buy.
Used vs. New Cars: The Dilemma
Everyone has an opinion on whether buying new or used is best when making a car purchase. The answer is more complex than simply personal preference. New cars naturally cost more. Buying new lets you choose exactly the features you want and to know exactly what the driving and maintenance history of the car is. They also usually have a good warranty that comes with them.
By comparison, used cars typically cost quite a bit less. You don’t have the option to choose exactly what features you’d like in a new car without a pretty exhaustive search. Additionally, you have to rely on the dealer or seller to disclose the maintenance and driving history for a used car, which can leave you open to problems occasionally. Depending on the age of the car you may or may not still have warranty coverage. It is likely that you will have more maintenance needs with a used car, which can deter some people.
What the two really come down to is weighing what you need against what you can comfortably afford. Your goal should be to buy the best value car that meets your needs. If it requires you to take a loan in order to get the car that fits that criteria, your next goal should be to make sure you carry that debt for a short a time as you are able.
The Debt Culture
Automobile debt doesn’t really bother us. In fact, if you are probably the unusual one if you don’t have a car payment. What debt means at its heart, is that we do not have enough money to afford something. In some things like real estate, it can make sense to take on reasonable debt because you expect that the property will retain or increase in value. With cars though, it rarely makes sense. Cars lose their value at astounding rates. Between 20-30% of its value is lost over the course of a car’s first year off of the lot. If you knew that a year after purchasing a house for $100,000 it would only be worth $80,000, you probably would think twice about buying it right? But we do this we cars all the time without a second thought.
It has become so normal to take on debt through credit cards, automobile loans, and student loans that it does not seem at all like a problem. However, the number of people who live paycheck-to-paycheck says otherwise. 76% is the number of people in America living that way, according to information gathered from Ramsey Solutions. So maybe rather than just dismissing debt as a normal part of life, what if you decided that it wasn’t going to be normal for you anymore?
Over the next few posts, we will take a look at car purchasing and show you exactly how you can ditch your car payment forever! You can do it and we will help you along the way. Then we will dive deeper into the reasons why buying used or new is the right direction for you.