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.