How to win the financial battle against your car

Think long term (for models)

Buy the car you want, but only after it is at least two years old, and three would be better. By doing this, you will automatically save hundreds of thousands of dollars over your lifetime.

When I was 23, I wanted to buy a good four-door sedan and I was drawn to the Cadillac STS. The new model had a base price of more than $ 50,000 and, with any kind of little extras, the sticker was almost $ 55,000. He was doing great at a young age, but he wasn’t doing well enough to spend $ 50,000 on a new car.

I was flipping through my local newspaper (yes, this was before the internet changed everything) and saw an ad for a 2 1/2 year old Cadillac STS for $ 19,500. The car had fewer than 40,000 miles and came with a 90,000-mile extended warranty. It was gorgeous, shiny, and freshly repaired.

It was an attractive price since the first owner was eating the depreciation.

On average, the car will lose 11 percent of its value the second you take it off the lot and an additional 15-20 percent the first year you own it. The second year depreciation (loss) is another 15 percent, for a loss of at least 45 percent during the first two years.

Depreciation is generally calculated from the base price, not the extras. This could be the sports package that raises the price by $ 10,000 but only returns you $ 2,000 after the first year or two. So it is quite possible to find beautiful cars with the manufacturer’s warranties still in effect and pay 35 to 50 percent less than the first owner when they bought it new.

I drove that car for four years, had very few out-of-pocket repairs, and sold it for $ 3,500.

So what kind of deal could you get today? When I was young, one of the dream cars was a Ferrari Testarossa, and its price was around $ 200,000. You can buy one now for around $ 50,000, and most don’t have as many miles because the owners take care of them.

Think short term (for loans)

If you finance your car purchase, you can save a lot of money by keeping the term to no more than 36 months. This builds equity in the car faster and saves interest.

This can be difficult because the monthly payment is higher than if you finance for six years and is higher than a monthly lease. If you finance $ 25,000 at 5 percent interest over three years, your monthly payment will be $ 749.27 and your total payment will be $ 26,974. If you extend that loan to six years, your monthly payment drops to $ 402.62, but your total payment increases to $ 28,989. That’s $ 2,015 more out of pocket to own the car.

Assuming you buy the car with a small down payment, by financing it for six years, your loan repayment occurs at a much slower rate than the depreciation of the vehicle, creating a “submerged” situation in the car almost from the beginning. beginning. -Go. During the three-year program, you are paying for the car faster than it depreciates, giving you options if you have to sell the vehicle.

If you really can’t afford that three-year payment, take a five-year option and send a little more each month toward principal to pay off sooner.

Leasing a newer model looks attractive because the monthly payment is lower, but you may not want to. I’ll explain why in the next post, when I offer several other ways to save a lot of money when buying a car.

Believe it or not, you are better off buying your own car rather than financing your 401k or IRA!

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