I am going to start writing regularly about the money mistakes I have made in the past. Since there are so many, I will never run out of stuff to write about!!
Paying too much for a car is never a good idea
I was 20 years old, living with my parents and knew (and cared) very little about money. I was going to be moving from the midwest down to a beach town in Florida for a bit of a sabbatical, so I wanted to get a more reliable car to get me down there. I had a 10 year old car with a lot of miles and needed to get something newer and a bit more reliable.
A red convertible that was for sale caught my eye, and just like most 20 year olds, I just had to have it and nothing was going to stop me. It was 8 years old instead of 10 years old – wow – quite an improvement Bob! And because it was a convertible, the seller priced it high and I took the bait! I got so excited about getting a convertible that I didn’t even care about price – as a result I paid way too much!
The after-effect of paying too much for a car
It is obvious that overpaying for something isn’t a good idea, but with cars it is especially a bad idea. The reason is that cars are depreciating assets, so if you take a loan out for your purchase, you immediately enter into a race to pay the car loan down faster than the value drops. In my case with the convertible, I did a lot of things that ensured I was going to lose this race…
- I took a loan out on a car that was already 8 years old (and not very reliable)
- I paid about $2500 more than the car was worth
- A couple years later I was in a hurry to sell it
Needless to say, a couple years later I was sitting with a car that was worth $1000 less than the amount I owed the bank. Bummer.
What I would do now
If I were to do it all over now, I would…
- Go to consumer reports and sign up for a one-month subscription ($6) and find out which older cars are the most reliable
- Use cash that I had saved up to purchase the car (or take as small a loan as possible)
- Know my price I am going for and find the most reliable car in that price range
- Drive it as long as I could – meanwhile saving up to purchase the next (and nicer) car with cash
There is a great quick video that does a great job answering the question “Should you buy a used or new car?” I highly recommend it and encourage you to check it out!
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Heed this advice folks. You can either learn to go without by choice…or later by force. If you don’t discipline yourself now you could very well wind up bankrupt quicker than you may realize.
Matt Jabs
Thankfully I never realized until down the road a bit how easy credit was to come by. Seems like car debt is a cyclical trap in that you are unable to save up for a car because you are being drained with a car payment, and then it’s time to get a new one and you only have enough for maybe a down payment.
At least the savings rate is up to a whopping 5%, which is 5,000% higher than it was a year ago! Kind of crazy.
Great advice.
My mistake was a 2000 Nissan Maxima, with leather interior and premium sound. It was a year or two old and cost $18,000. Not too bad until you factor in that I was racking up debt in law school and making about $26k/yr working full time.
It’s paid off now, and I still drive it. 185,000 miles and counting. At least I’ll turn the mistake into a long-term benefit of some sort!
I completely agree. It’s best to never buy a new car. Get something a couple years old and save a bunch of money.
When my wife and I made the commitment to be debt free, one of our first “rules” was never to buy a new car and always to pay cash for one. We are fortunate to have a deacon in our church who has a body shop and has always worked with us to get a good used car, low mileage, and he is one who stands behind the cars he fixes and sells.
One website to check for a history of a used car is: http://www.nmvtis.gov/ While it doesn’t cover every state, it can be helpful.