The Un-American Way to Save Money On Your Next New Car
People are spending unprecedented sums on cars these days - close to $30k, on average, for a mid-sized SUV, mid-priced minivan or "entry-luxury" sedan. That's fine - if you don't mind (and can afford) a $500 or more per month liability in order to drive around a depreciating asset that won't be worth half its original sticker price by the time you've paid it off. (If real estate worked like that, we'd all be in the poorhouse.)No slam on new cars - just a reality check.
Our economy is built on credit and its ugly cousin, debt. We are conditioned to associate our status and self-image with the things we have - even if those things are only "ours" by dint of zero-down financing and 17 percent interest. We value the image of affluence over the reality of financial stability. A $50,000 (and heavily financed) brand-new SUV is better than a paid-for five-year-old truck - just like a
$600,000 interest-only-ARM on a 4,500 square-foot McMansion is better than the paid-for $250,000, 2,800 square-foot rambler.
This is the American way.
But it isn't the sensible way.
New cars just fine; but not at the price of the perpetual indentured servitude that often accompanies a new car loan. The total costs involved are enormous - and not just the cost of the car itself. In addition to a couple thousand bucks in (non-deductible) interest charges over the life of the loan, you also get to pay full-freight insurance as well as often-exorbitant property taxes, which can amount to $1,000 or more every year for the first few years of ownership. Even if you pay cash, you're still going to be digging deep.
And not just once, but repeatedly.
That's why it's a savvy move to buy used.
Doing so can save you anywhere from 30-50 percent off the original cost of the thing. How much is that "new car smell" worth? If the answer's several thousand dollars - and you can afford to toss the cash - by all means, have at it. But most of us can't afford to do that. So we finance. And we pay and we pay and we pay. Money that could have gone to reduce the mortgage on your home (a real investment) or been put aside for retirement or your kid's college fund. Gone forever.
Of course, you did get to enjoy that "new car smell."
Now, in years past, it may have made sense to buy a new car because cars tended to fall apart before they got very old. The journey from the assembly line to redneck lawn art and the crusher could take as little as five or six years. Ten was the outer limit. Today, ten year old vehicles are commonplace - and commonly in service as daily drivers. And these older vehicles, if maintained properly and treated decently, are perfectly reliable - and often still look like nearly new cars, too. Also, new car warranties are better - and last longer. The bare minimum coverage on an '07 vehicle is three years/36,000 miles - with 10 year/100,000 coverage becoming fairly common. That means the odds are good you can find a used car that still has a good bit of its factory warranty coverage intact - and transferable to you.
So buying a three-or-four-year-old vehicle with 50,000 miles on it for a third of what it cost new is not much of a risk - and you're guaranteed not to pay MSRP. Plus, your insurance will be lower - and your property taxes (where applicable) will also be less as the rate is based on assessed value - and the depreciated value of an older vehicle is less than the full-ticket value charged on a brand-new car.
So you don't drive a brand-new vehicle? So what? You'll have money in the bank - and better things to do with it than spend it on interest payments for a depreciating asset that will just end up being another old car anyway.
Only a lot more expensive!
