I’m mad kids, and this may turn into a bit of a rant. So be warned about that. Also, I had pizza for supper, and I am pushing out some NASTY farts. I just thought I’d give you that nice mental image.
I’m not sure if I’ve ever told you guys the story about when I bought my car. If I have, then you can skip this paragraph.
The year was 2006. I was the ripe old age of 23, and after walking to work in a blizzard, I decided that was the last straw. So I went to the local Ford dealership, test drove a Focus, and liked it a ton. I wanted to buy it then and there, but resisted, mostly because I didn’t have enough money in the bank. A week later, I was back at the dealership, ready to buy a car. It was listed for $10,900, and I ended up getting it for $9800, (ish) with GST included.
Two hours later when I picked up my car, I paid for it. It was a big bank draft, and I felt all sorts of pain handing it over, but I had a car. And it was mine.
Just a few days earlier, I was talking to my boss about buying a car. He immediately took a great interest in it, taking time out of his day to look up deals on the internet and discuss general buying strategies. I remember how impressed he was when I told him I intended on paying cash for the purchase, and how he wished more people thought like I did.
The question mystified me then and it mystifies me now. Why are people okay with a car payment?
Is Reliability Really Worth That Much?
The number one reason people give for buying new or slightly used vehicles is reliability. They don’t want to ever be broken down in the middle of nowhere, even though they carry a cell phone, as well as having Onstar and some sort of roadside assistance. Considering the quality of cars these days, I’d say breaking down in the middle of nowhere is exceeding unlikely.
If you buy an older used car like me, repairs will be inevitable. Most people are willing to pay $300-$500 a month to avoid repairs all together. You have to have a pretty crappy old car to pay $4000 in repairs. I’d be willing to argue that 95% of cars cost less than that to keep on the road. Hell, I’d be willing to argue that 99% of cars won’t average $4000 a year in repairs.
A car payment is an awful expensive way to pay for reliability. I’m not willing to pay that big of a premium for it, and neither should you.
Pride (In The Name Of Car)
Any U2 fans in the house will think that’s especially clever.
Pride, for most people, is the reason they’re willing to shell out hundreds of dollars a month for a liability that depreciates. They want to drive a nice car because society says people who don’t are poor losers. They want people to want to drive with them. They want nice leather seats and a sunroof because they work hard, and they deserve those luxuries.
As we all know, this attitude can be the beginning of a very slippery slope. This is the kind of thinking that can get somebody into financial trouble. Why do people who relentlessly pay down other debts feel okay with financing cars? Why is that debt okay, yet others aren’t?
Why Don’t People Just Save Up?
Yes, I know it’s hard. But you should really find a way to save up for your next car. Maybe you’ll have to buy a cheaper model. Maybe you’ll have to drive your car until it’s just about ready to fall apart. If you live in a city, maybe you can take the bus a couple times a week to cut down on the wear and tear on your car. I don’t care what you do, paying cash for your next car will make it worth it.
Then, once you have a car that’s all paid for, drive that car for as long as you can stand it. If it’s anything like my car, all sorts of little things will go wrong with it. Ignore all those little things, as long as the car goes in the right direction when you push the gas pedal.
Your older car will go in for repairs. It’s part of the game of owning a more than slightly used car. $1000 in repairs for the year is a heck of a lot cheaper than $300 per month. You’ll save money on insurance, since the car isn’t worth jack.
Most of all though, wealthy people don’t finance liabilities. They might in extreme situations like 0% financing, but that’s not how a wealthy person thinks. Find the richest person you know, and ask them if they finance their cars. All the wealthy people I know are far beyond that.
Ultimately though, as I mentioned earlier, a car isn’t a financial decision for a lot of us. It’s an emotional decision. Somebody falls in love with a certain kind of car or truck, and has to have it. And while there are exceptions, most of us can get away with driving an older, crappier model.
Having an few hundred bucks extra a month to save and invest will make ending up wealthy a whole lot easier. Why more people don’t make that trade-off, I’ll never understand.
Readers, why do you finance cars? Defend yourselves in the comments.
You’re talking about two different things here. We don’t have a car payment now – we both did until about a year before we traded in our first cars for a year-old car. I wouldn’t have done it if it required a loan, but we ended up deciding to get something a little nicer and bigger than what we looked at initially.
Our plan is to keep it as long as it runs reasonably well, so buying a 6-year old car would take 5 years off the life. The first 5 years will have more depreciation than the next 5 but it’s still quite a bit less expensive than trading every 2-3 years, and less work than trading every 5-7 (or 10) years if you buy older cars and sell them before they fall apart.
I don’t like car payments or spending a lot all at once, so I’ll be doing a careful break-even analysis when it starts to really have problems. We don’t need to drive a very recent car all the time, we bought one so we can avoid future purchases for longer (and we do get to enjoy some nice features).
It’s funny that the insurance for the new car was less than either of the old cars. (Cheap yellow two-doors are safe right? That one lasted 2 months after we sold it thanks to the new driver).
As far as I’m concerned having a sunroof is like going to a big high school party – when you’re 25+ it’s not that cool.
If everyone did their car buying analysis as well as you, a lot more people would be in better financial shape. Well done.
As for the post, as I re-read it, I feel like it isn’t one of my best. It starts out exploring why car payments are accepted, and then kind of deteriorates into a ‘I hate new cars’ rant.
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Well, I must say that this is spot on. I know my wife and I paid our loans off as quickly as possible (2 years early for each). The next vehicle we will purchase will be paid for in cash only, and perhaps may never occur unless it is worth it to us. After all, we’ve got 2 vehicles with over 117,000 miles on each one, and they are only costing us an average of $110/month for having the dealer do the work on them.
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